<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION CODE IDENTIFICATION NUMBER)
NUMBER)
</TABLE>
------------------------
95 CORPORATE DRIVE
BRIDGEWATER, NEW JERSEY 08807-1265
(908) 306-4400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RICHARD T. COLLIER, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
PHARMACIA & UPJOHN, INC.
95 CORPORATE DRIVE
BRIDGEWATER, NEW JERSEY 08807-1265
(908) 306-4400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
NEIL T. ANDERSON SUZANNE SAWOCHKA HOOPER
SULLIVAN & CROMWELL COOLEY GODWARD LLP
125 BROAD STREET FIVE PALO ALTO SQUARE
NEW YORK, NEW YORK 10004-4839 3000 EL CAMINO REAL
(212) 558-4000 PALO ALTO, CALIFORNIA 94306-2155
(650) 843-5000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
possible after this Registration Statement is declared effective.
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE PRICE REGISTRATION FEE(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value, together
with attached rights to purchase
Participating Preferred Stock......... 14,923,657 shares Not applicable Not applicable $196,787.61
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This Registration Statement relates to common stock, par value $0.01 per
share, of Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn") issuable to
holders of common stock, par value $0.01 per share, of SUGEN, Inc. ("SUGEN")
in the proposed merger of University Acquisition Corp., a wholly owned
subsidiary of Pharmacia & Upjohn with and into SUGEN. The amount of
Pharmacia & Upjohn common stock to be registered has been determined by
multiplying the maximum exchange ratio (.62984 shares of Pharmacia & Upjohn
common stock for each share of SUGEN common stock) by 23,694,363, the
maximum aggregate number of shares of SUGEN common stock that would be
outstanding prior to the merger, assuming the exercise of all outstanding
SUGEN options and warrants (whether or not currently exercisable) and
assuming the conversion of all SUGEN convertible debt and the exercise and
conversion of all SUGEN warrants to acquire convertible debt.
(2) The registration fee was calculated pursuant to Rule 457(f) as 0.000278
multiplied by $29.875 (the average of the high and low prices of SUGEN
common stock on the Nasdaq National Market on July 29, 1999), multiplied by
23,694,363 shares. Pursuant to Rule 457(b), the registration fee of
$196,787.61 is reduced by the fee of $138,709.35 paid previously to the
Commission pursuant to the Securities Exchange Act of 1934, as amended, in
connection with the filing of the preliminary proxy materials on Schedule
14A. Therefore, the registration fee payable upon filing of this
Registration Statement is $58,078.26.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[SUGEN LOGO VERSION 3]
SUGEN, INC.
230 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
To the Stockholders of SUGEN, Inc.:
SUGEN, Inc. has entered into a merger agreement with Pharmacia & Upjohn,
Inc. As a result of the merger contemplated by the merger agreement, SUGEN would
become a subsidiary of Pharmacia & Upjohn. The merger requires the approval of
holders of a majority of the outstanding shares of SUGEN common stock, and we
have scheduled a special meeting of the SUGEN stockholders on Tuesday, August
31, 1999 at SUGEN's executive offices, 230 East Grand Avenue, South San
Francisco, California, commencing at 10:00 a.m., local time, to vote on the
merger agreement.
Upon completion of the merger, each share of SUGEN common stock will be
converted into a fraction of a share of Pharmacia & Upjohn common stock. The
fraction will be calculated by dividing $31.00 by the volume weighted average
closing price of Pharmacia & Upjohn common stock during the 20 trading day
period ending on (and including) the third trading day before the special
meeting, unless the volume weighted average closing price of Pharmacia & Upjohn
common stock during the 20 day period is equal to or less than $49.21875 (in
which case SUGEN stockholders will receive 0.62984 of a share of Pharmacia &
Upjohn common stock for each share of SUGEN common stock) or equal to or greater
than $60.15625 (in which case SUGEN stockholders will receive 0.51533 of a share
of Pharmacia & Upjohn common stock for each share of SUGEN common stock). If the
merger is completed, in no event will you receive less than 0.51533 or more than
0.62984 of a share of Pharmacia & Upjohn common stock for each share of SUGEN
common stock.
Pharmacia & Upjohn common stock is traded on the New York Stock Exchange
under the symbol "PNU." Pharmacia & Upjohn's common stock closed at $53 13/16
per share on July 30, 1999. Swedish Depositary Shares representing shares of
Pharmacia & Upjohn common stock are also traded on the Stockholm Stock Exchange.
The merger will be tax-free to you for federal income tax purposes except
for taxes due on cash, if any, that you receive instead of fractional shares.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ADOPTION
OF THE MERGER AGREEMENT. IN ADDITION, ZENECA LIMITED, THE HOLDER OF
APPROXIMATELY 17.9% OF THE OUTSTANDING SUGEN COMMON STOCK, AND I HAVE AGREED TO
VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
I ask you all to participate in this crucial decision to protect the value
of your investment and to secure the future of SUGEN and its products.
Regardless of the number of shares you own or whether you plan to attend the
meeting, it is important that your shares be represented and voted. Voting
instructions are inside.
The accompanying Proxy Statement/Prospectus provides you with detailed
information about the proposed merger. I urge you to read the entire document
carefully.
Sincerely,
/s/ Stephen Evans-Freke
----------------------------------------
Stephen Evans-Freke
Chairman and Chief Executive Officer
FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH YOU SHOULD CONSIDER IN
EVALUATING THE MERGER, SEE "RISK FACTORS" BEGINNING ON PAGE 14 OF THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
<PAGE> 3
SUGEN, INC.
230 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, AUGUST 31, 1999
To the Stockholders of SUGEN, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of SUGEN,
Inc. will be held on Tuesday, August 31, 1999, at SUGEN's executive offices, 230
East Grand Avenue, South San Francisco, California, commencing at 10:00 a.m.,
local time, for the following purposes:
1. To consider and vote upon a proposal to adopt the merger agreement,
dated as of June 15, 1999, among SUGEN, Pharmacia & Upjohn, Inc., a
Delaware corporation, and University Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Pharmacia & Upjohn,
pursuant to which, among other things, (a) University Acquisition Corp.
will be merged with and into SUGEN and SUGEN will become a wholly owned
subsidiary of Pharmacia & Upjohn and (b) each outstanding share of
common stock of SUGEN will be converted into the right to receive from
Pharmacia & Upjohn a fraction of a share of Pharmacia & Upjohn common
stock. If the merger is completed, in no event will SUGEN stockholders
receive less than 0.51533 or more than 0.62984 of a share of Pharmacia &
Upjohn common stock for each share of SUGEN common stock. A copy of the
merger agreement is attached as Annex A to the accompanying Proxy
Statement/Prospectus.
2. To transact such other business as may properly be brought before the
special meeting or any adjournments, postponements, continuations or
reschedulings of the special meeting.
Stockholders of record at the close of business on July 29, 1999 are
entitled to notice of, and to vote at, the special meeting and any adjournment,
postponement, continuation or rescheduling of the special meeting. At the close
of business on the record date, SUGEN had outstanding and entitled to vote
16,977,588 shares of common stock. Each holder of record of common stock on such
record date will be entitled to one vote for each share held on all matters to
be voted upon at the special meeting.
SUGEN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SUGEN STOCKHOLDERS
VOTE FOR ADOPTION OF THE MERGER AGREEMENT. IN ADDITION, BOTH STEPHEN
EVANS-FREKE, THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF SUGEN, AND ZENECA
LIMITED, THE HOLDER OF APPROXIMATELY 17.9% OF THE OUTSTANDING SUGEN COMMON
STOCK, HAVE AGREED TO VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting in person, please complete,
date, sign and return the enclosed proxy as promptly as possible in order to
ensure your representation at the meeting. A return envelope (which is postage
prepaid if mailed in the United States) is enclosed for that purpose. Even if
you have given your proxy, you may still vote in person if you attend the
meeting. Please note, however, that if your shares are held of record by a
broker, bank or other nominee and you wish to vote at the meeting, you must
obtain from the record holder a proxy issued in your name. You may revoke your
proxy in the manner described in the accompanying Proxy Statement/Prospectus at
any time before the proxy has been voted at the special meeting.
By Order of the Board of Directors,
/s/ Bruce E. MacMillan
Bruce E. MacMillan
Secretary
South San Francisco, California
August 2, 1999
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
<PAGE> 4
[PHARMACIA & UPJOHN LOGO][SUGEN LOGO VERSION 3]
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS OF
SUGEN, INC.
PROSPECTUS OF
PHARMACIA & UPJOHN, INC.
UP TO 14,923,657 SHARES OF
COMMON STOCK
Pharmacia & Upjohn, Inc. and SUGEN, Inc. have entered into a merger
agreement. As a result of the merger contemplated by the merger agreement, SUGEN
would become a wholly owned subsidiary of Pharmacia & Upjohn. In the merger,
SUGEN stockholders would receive between 0.62984 and 0.51533 of a share of
Pharmacia & Upjohn common stock, based on the volume weighted average closing
price of Pharmacia & Upjohn common stock over the 20 trading days ending on (and
including) the third trading day prior to the SUGEN special meeting.
The merger cannot be completed unless the holders of SUGEN common stock
adopt the merger agreement that is described in this proxy statement/prospectus.
SUGEN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SUGEN STOCKHOLDERS
VOTE FOR ADOPTION OF THE MERGER AGREEMENT. IN ADDITION, BOTH STEPHEN
EVANS-FREKE, THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF SUGEN, AND ZENECA
LIMITED, THE HOLDER OF APPROXIMATELY 17.9% OF THE OUTSTANDING SUGEN COMMON
STOCK, HAVE AGREED TO VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
This proxy statement/prospectus provides you with detailed information
about the merger agreement and the proposed merger. Pharmacia & Upjohn provided
the information concerning Pharmacia & Upjohn. SUGEN provided the information
concerning SUGEN. Please see "Where You Can Find More Information" on page 71
for additional information on Pharmacia & Upjohn and SUGEN.
WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER
"RISK FACTORS" BEGINNING AT PAGE 14.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THE
JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
We are first mailing this proxy statement/prospectus dated August 2, 1999
and the form of proxy on or about August 3, 1999.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
MERGER.............................. ii
SUMMARY............................... 1
SUMMARY OF SUGEN SELECTED FINANCIAL
DATA................................ 8
SUMMARY OF PHARMACIA & UPJOHN SELECTED
FINANCIAL DATA...................... 9
COMPARATIVE PER SHARE DATA............ 10
MARKET PRICE AND DIVIDEND DATA........ 12
COMPARATIVE MARKET PRICE AND DIVIDEND
INFORMATION......................... 12
RISK FACTORS.......................... 14
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS.......... 17
THE SUGEN SPECIAL MEETING............. 19
THE COMPANIES......................... 22
THE MERGER............................ 22
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXECUTIVES; EXECUTIVE COMPENSATION;
STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND FIVE PERCENT
STOCKHOLDERS........................ 39
INTERESTS OF CERTAIN PERSONS IN THE
MERGER.............................. 40
THE MERGER AGREEMENT.................. 41
FUNDING ARRANGEMENT................... 54
STOCK OPTION AGREEMENT................ 55
VOTING AGREEMENT...................... 57
DESCRIPTION OF PHARMACIA & UPJOHN
CAPITAL STOCK....................... 57
COMPARISON OF STOCKHOLDER RIGHTS...... 62
VALIDITY OF SHARES.................... 70
INDEPENDENT ACCOUNTANTS............... 70
WHERE YOU CAN FIND MORE INFORMATION... 71
</TABLE>
LIST OF APPENDICES
Annex A -- Agreement and Plan of
Merger, dated as of
June 15, 1999, among
SUGEN, Inc., Pharmacia
& Upjohn, Inc. and
University Acquisition
Corp.
Annex B -- Stock Option Agreement,
dated as of June 15,
1999, between Pharmacia
& Upjohn, Inc. and
SUGEN, Inc.
Annex C -- Opinion of Lehman
Brothers Inc.
i
<PAGE> 6
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger agreement is adopted, you will receive a fraction of a share of
Pharmacia & Upjohn common stock in exchange for each share of SUGEN common
stock that you own.
The fraction will be calculated by dividing $31.00 by the volume weighted
average closing price of Pharmacia & Upjohn common stock on the New York
Stock Exchange during the 20 trading days ending on (and including) the third
trading day before the special meeting.
- If this average closing price is greater than $49.21875 and less than
$60.15625, you will receive $31.00 worth of Pharmacia & Upjohn common stock
for each share of SUGEN common stock.
- If this average closing price is equal to or less than $49.21875, you will
receive 0.62984 of a share of Pharmacia & Upjohn common stock, which may be
worth less than $31.00 a share, for each share of SUGEN common stock.
- If this average closing price is equal to or greater than $60.15625, you
will receive 0.51533 of a share of Pharmacia & Upjohn common stock, which
may be worth more than $31.00 a share, for each share of SUGEN common
stock.
In no event would you receive less than 0.51533 or more than 0.62984 of a
share of Pharmacia & Upjohn common stock for each share of SUGEN common
stock.
You will not receive fractional shares of Pharmacia & Upjohn common stock.
Instead, you will receive the cash value, without interest, of any fractional
share of Pharmacia & Upjohn common stock that you might otherwise have been
entitled to receive.
For example, if you currently own 100 shares of SUGEN common stock, the
following table shows the applicable exchange ratio and what you will receive
in the merger based on the indicated volume weighted average closing price of
Pharmacia & Upjohn common stock during the 20 trading day period:
<TABLE>
<CAPTION>
AVERAGE EXCHANGE NUMBER OF FRACTIONAL
CLOSING PRICE RATIO SHARES SHARES
------------- -------- --------- ----------
<S> <C> <C> <C>
Equal to or less
than $49.21875 0.62984 62 .984
$50 0.62000 62 0
$52 0.59620 59 .62
$54 0.57410 57 .41
$56 0.55360 55 .36
$58 0.53450 53 .45
$60 0.51670 51 .67
Equal to or
greater than
$60.15625 0.51533 51 .533
</TABLE>
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed return envelope as soon as possible, so that your shares may
be represented at the special meeting. If you sign and send in your proxy and
do not indicate how you want to vote, your proxy will be counted as a vote
FOR adoption of the merger agreement. If you do not vote or you abstain, it
will have the effect of a vote against the merger agreement.
The special meeting will take place on Tuesday, August 31, 1999, at SUGEN's
executive offices, 230 East Grand Avenue, South San Francisco, California,
commencing at 10:00 a.m., local time. If you wish, you may attend the special
meeting and vote your shares in person rather than signing and mailing your
proxy card. IF YOU DO NOT ATTEND THE SPECIAL MEETING IN PERSON, YOUR PROXY
MUST BE RECEIVED ON OR PRIOR TO AUGUST 31, 1999 IN ORDER FOR YOUR SHARES TO
BE VOTED AT THE SPECIAL MEETING.
SUGEN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SUGEN STOCKHOLDERS
VOTE FOR ADOPTION OF THE MERGER AGREEMENT. IN ADDITION, BOTH STEPHEN
EVANS-FREKE, THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF SUGEN, AND ZENECA
LIMITED, THE HOLDER OF APPROXIMATELY 17.9% OF THE OUTSTANDING SUGEN COMMON
STOCK, HAVE
ii
<PAGE> 7
AGREED TO VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
Q: IF MY SHARES ARE HELD IN THE NAME OF MY BROKER, WILL MY BROKER VOTE MY SHARES
FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should instruct your broker to vote your shares following the
directions provided by you. Without instructions, your shares will not be
voted.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send you written instructions for
exchanging your share certificates.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD OR CONSENT
FORM?
A: You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of the following three ways:
- First, you can send a written notice signed by you stating that you would
like to revoke your proxy. If you choose this method, you must submit your
notice of revocation to SUGEN at the address below;
- Second, you can complete and submit a new proxy card. If you choose this
method, you must submit your new proxy card to SUGEN at the address below;
or
- Third, you can attend the special meeting and vote in person. Simply
attending the special meeting, however, will not revoke your proxy; you
must vote at the special meeting. If you have instructed a broker to vote
your shares, you must follow directions received from your broker to change
your vote.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Pharmacia & Upjohn and SUGEN are working toward completing the merger as
quickly as possible. SUGEN must obtain stockholder approval and hopes to
complete the merger as soon as possible after the special meeting.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The exchange of your shares for Pharmacia & Upjohn common stock will be
tax-free to you for federal income tax purposes except with respect to cash
received for fractional shares. To review the tax consequences to
stockholders in greater detail, see "The Merger -- Material Federal Income
Tax Consequences" on page 36.
Q: ARE THERE ANY RISKS RELATED TO THE PROPOSED TRANSACTION OR ANY RISKS RELATED
TO OWNING PHARMACIA & UPJOHN COMMON STOCK?
A: Yes. You should carefully review the risk factors described beginning on page
14.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT OUR COMPANIES THAT IS NOT INCLUDED IN, OR DELIVERED
WITH, THIS DOCUMENT. PHARMACIA & UPJOHN WILL PROVIDE YOU WITH COPIES OF THE
INFORMATION RELATING TO PHARMACIA & UPJOHN, WITHOUT CHARGE, UPON WRITTEN OR ORAL
REQUEST TO:
PHARMACIA & UPJOHN, INC.
SECRETARY
95 CORPORATE DRIVE
BRIDGEWATER, NEW JERSEY 08807
(908) 306-4400
SUGEN WILL PROVIDE YOU WITH COPIES OF THE INFORMATION RELATING TO SUGEN,
WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST TO:
SUGEN, INC.
INVESTOR RELATIONS
230 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(650) 553-8300
iii
<PAGE> 8
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully, you should read carefully this entire document and the documents
we refer to. See "Where You Can Find More Information" on page 71. The merger
agreement is attached as Annex A to this document. We encourage you to read it,
as it is the most important legal document that governs the merger. We have
included page references in parentheses to direct you to a more complete
description of the topics presented in this summary.
THE COMPANIES (PAGE 22)
PHARMACIA & UPJOHN, INC.
95 Corporate Drive
Bridgewater, New Jersey 08807
(908) 306-4400
Pharmacia & Upjohn, Inc. is a global pharmaceutical group engaged in the
research, development, manufacture and sale of pharmaceutical and healthcare
products.
SUGEN, INC.
230 East Grand Avenue
South San Francisco, California 94080
(650) 553-8300
SUGEN is a biopharmaceutical company focused on the discovery and
development of small molecule drugs which target specific cellular signal
transduction pathways.
UNIVERSITY ACQUISITION CORP.
95 Corporate Drive
Bridgewater, New Jersey 08807
(908) 306-4400
University Acquisition Corp. is a wholly owned subsidiary of Pharmacia &
Upjohn. If we complete the merger, University Acquisition Corp. will be merged
into SUGEN. University Acquisition Corp. was organized solely for use in a
merger transaction. This is the only business of University Acquisition Corp.
SUGEN'S REASONS FOR THE MERGER
(PAGE 28)
SUGEN's board of directors believes that the merger is in the best
interests of SUGEN and its stockholders. In reaching its decision to approve the
merger, SUGEN's board of directors considered a number of factors, including the
following:
- - the SUGEN board's view that, in order to remain independent, SUGEN would need
to raise a significant amount of capital over the next eighteen months;
- - the risks to SUGEN's ability to raise the necessary capital in light of the
current financing environment for development stage biopharmaceutical
companies;
- - the terms and structure of the merger; and
- - the fairness opinion of Lehman Brothers, SUGEN's financial advisor in
connection with the merger.
RECOMMENDATION OF THE SUGEN BOARD
(PAGES 28 THROUGH 30)
SUGEN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SUGEN STOCKHOLDERS
VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
DATE, TIME AND PLACE OF THE SPECIAL MEETING (PAGE 19)
The special meeting will be held on Tuesday, August 31, 1999, at SUGEN's
executive offices, 230 East Grand Avenue, South San Francisco, California,
commencing at 10:00 a.m., local time.
1
<PAGE> 9
STOCKHOLDERS ENTITLED TO VOTE AT THE SPECIAL MEETING; VOTE REQUIRED (PAGE 19)
The close of business on July 29, 1999 was the record date for the special
meeting. Only SUGEN stockholders on the record date are entitled to notice of
and to vote at the special meeting. On the record date, there were 16,977,588
shares of SUGEN common stock outstanding. Each share of SUGEN common stock will
be entitled to one vote on each matter to be acted upon at the special meeting.
The vote of holders of a majority of the shares of SUGEN common stock
outstanding on the record date is required to adopt the merger agreement.
Stephen Evans-Freke, the Chairman and Chief Executive Officer of SUGEN, and
Zeneca Limited, the holder of approximately 17.9% of the outstanding SUGEN
common stock, have agreed to vote FOR adoption of the merger agreement.
INTERESTS OF CERTAIN PERSONS/STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
OF SUGEN (PAGE 40)
When considering the recommendation by SUGEN's board of directors to vote
FOR adoption of the merger agreement, you should be aware that certain directors
and executive officers of SUGEN have interests in the merger that may be
different from your interests. Certain executive officers of SUGEN have executed
employment agreements with Pharmacia & Upjohn, which will become effective upon
completion of the merger. Certain directors, officers and employees of SUGEN who
hold stock options pursuant to existing plans will receive certain benefits upon
completion of the merger, including accelerated vesting of those stock options.
SUGEN's board of directors was aware of these interests and considered them in
approving the merger.
As of the SUGEN record date, the directors and executive officers of SUGEN,
as a group, beneficially owned approximately 17.8% of the outstanding SUGEN
common stock.
OWNERSHIP OF PHARMACIA & UPJOHN
FOLLOWING THE MERGER
Depending on the volume weighted average of the closing price of Pharmacia
& Upjohn common stock for 20 trading days ending on (and including) the third
trading day prior to the date of the special meeting, we anticipate that SUGEN
stockholders collectively will receive a total of between approximately
12,210,416 and 14,923,657 shares of Pharmacia & Upjohn common stock in the
merger based on the number of shares of SUGEN common stock outstanding, or
issuable upon exercise of options and warrants outstanding, on July 29, 1999.
Based on those numbers, and based on the number of shares of Pharmacia &
Upjohn common stock outstanding as of July 29, 1999, existing SUGEN stockholders
will own between 2.35% and 2.86% of the Pharmacia & Upjohn common stock
outstanding immediately after the merger.
NYSE LISTING (PAGE 44)
The Pharmacia & Upjohn common stock to be issued in connection with the
merger has been approved for listing on the New York Stock Exchange. If we
complete the merger, stockholders will be able to trade the shares of Pharmacia
& Upjohn common stock they receive in the merger on the New York Stock Exchange.
If we complete the merger, SUGEN stock will no longer be quoted on the Nasdaq
National Market or any other exchange.
OPINION OF FINANCIAL ADVISOR
(PAGES 30 THROUGH 35)
In deciding to approve the merger, the SUGEN board considered the opinion
of its financial advisor, Lehman Brothers Inc., that the merger consideration
was fair to SUGEN stockholders from a financial point of view.
The full text of the written opinion of Lehman Brothers, which sets forth
assumptions made, matters considered, procedures followed
2
<PAGE> 10
and the scope of the review undertaken, is attached to this document as Annex C.
The written opinion of Lehman Brothers is not a recommendation as to how you
should vote in regard to the adoption of the merger agreement. WE ENCOURAGE YOU
TO READ THE OPINION OF LEHMAN BROTHERS IN ITS ENTIRETY.
THE MERGER AGREEMENT (PAGE 41)
The merger agreement is attached as Annex A to this document. We encourage
you to read the merger agreement. It is the most important legal document
governing the merger.
THE MERGER (PAGE 22)
In the merger, University Acquisition Corp. will be merged with and into
SUGEN. SUGEN will be the surviving corporation and will become a wholly owned
subsidiary of Pharmacia & Upjohn. As a result of the merger, each holder of
SUGEN stock will be entitled to receive from Pharmacia & Upjohn, in exchange for
each share of SUGEN stock, a fraction of a share of Pharmacia & Upjohn stock.
EXCHANGE RATIO
If the merger agreement is adopted, you will receive a fraction of a share
of Pharmacia & Upjohn common stock in exchange for each share of SUGEN common
stock that you own.
The fraction will be calculated by dividing $31.00 by the volume weighted
average closing price of Pharmacia & Upjohn common stock on the New York Stock
Exchange during the 20 trading days ending on (and including) the third trading
day before the special meeting.
- - If this average closing price is greater than $49.21875 and less than
$60.15625, you will receive $31.00 worth of Pharmacia & Upjohn common stock
for each share of SUGEN common stock.
- - If this average closing price is equal to or less than $49.21875, you will
receive 0.62984 of a share of Pharmacia & Upjohn common stock, which may be
worth less than $31.00 a share, for each share of SUGEN common stock.
- - If the average closing price is equal to or greater than $60.15625, you will
receive 0.51533 of a share of Pharmacia & Upjohn common stock, which may be
worth more than $31.00 a share, for each share of SUGEN common stock.
In no event would you receive less than 0.51533 or more than 0.62984 of a
share of Pharmacia & Upjohn common stock for each share of SUGEN common stock.
You will not receive fractional shares of Pharmacia & Upjohn common stock.
Instead, you will receive the cash value, without interest, of any fractional
share of Pharmacia & Upjohn common stock you might otherwise have been entitled
to receive.
For example, if you currently own 100 shares of SUGEN common stock, the
following table shows the applicable exchange ratio and what you will receive in
the merger based on the indicated volume weighted average closing price of
Pharmacia & Upjohn common stock during the above-described 20 trading day
period:
<TABLE>
<CAPTION>
EXCHANGE NUMBER OF FRACTIONAL
AVERAGE CLOSING PRICE RATIO SHARES SHARES
- --------------------- -------- --------- ----------
<S> <C> <C> <C>
Equal to or less than
$49.21875 0.62984 62 .984
$50 0.62000 62 0
$52 0.59620 59 .62
$54 0.57410 57 .41
$56 0.55360 55 .36
$58 0.53450 53 .45
$60 0.51670 51 .67
Equal to or greater
than $60.15625 0.51533 51 .533
</TABLE>
3
<PAGE> 11
CONDITIONS TO THE MERGER
(PAGES 43 THROUGH 46)
We will complete the merger only if we satisfy or waive several conditions,
including the following:
- - holders of a majority of the outstanding shares of SUGEN common stock must
adopt the merger agreement;
- - the waiting period applicable to the consummation of the merger under the
Hart-Scott-Rodino Antitrust Improvements Act must have expired or been
terminated;
- - each of SUGEN and Pharmacia & Upjohn must have made all filings required
pursuant to the merger agreement, and received all consents, approvals and
authorizations from any governmental entity, and (in the case of SUGEN) other
parties, required in connection with the merger;
- - there must be no court order or law in effect that prohibits the merger or
makes the merger illegal;
- - the shares of Pharmacia & Upjohn that are issued in the merger must be
authorized for listing on the New York Stock Exchange;
- - Ernst & Young LLP, independent auditors for SUGEN, must deliver to Pharmacia &
Upjohn and SUGEN a letter dated as of the closing date of the merger, stating
that based upon discussions with officials of SUGEN responsible for financial
and accounting matters, and information furnished to Ernst & Young LLP to the
date of its letter, Ernst & Young LLP concurs with SUGEN management's
conclusion that, as of the date of its letter, no conditions exist related to
SUGEN that would preclude Pharmacia & Upjohn from accounting for the merger as
a pooling of interests;
- - PricewaterhouseCoopers LLP, independent accountants for Pharmacia & Upjohn,
must deliver to Pharmacia & Upjohn a letter dated as of the closing date of
the merger, stating that based upon discussions with officials of Pharmacia &
Upjohn responsible for financial and accounting matters and the letter
provided by Ernst & Young LLP to Pharmacia & Upjohn and SUGEN,
PricewaterhouseCoopers LLP concurs with Pharmacia & Upjohn management's
conclusions that the merger will qualify as a pooling of interests transaction
under Opinion 16 of the Accounting Principles Board and applicable SEC rules
and regulations;
- - each of Pharmacia & Upjohn and SUGEN must certify to the other that its
representations and warranties contained in the merger agreement are true and
correct except for breaches of representations and warranties as of the
closing date of the merger that do not relate to matters that are reasonably
likely to have a material adverse effect on the representing party;
- - each of SUGEN and Pharmacia & Upjohn must certify to each other that they have
performed in all material respects all obligations required to be performed
under the merger agreement; and
- - Pharmacia & Upjohn and SUGEN must each receive a legal opinion confirming that
the merger will qualify as a tax-free reorganization.
If Pharmacia & Upjohn or SUGEN waives the condition of receipt of an
opinion from tax counsel and there is a material change in the tax consequences
of the transaction, we will amend this Proxy Statement/Prospectus and
recirculate it to the SUGEN stockholders.
FUNDING ARRANGEMENT (PAGE 54)
Pharmacia & Upjohn has agreed to cause one of its wholly owned subsidiaries
to make available up to $35 million in loans to SUGEN, subject to certain
conditions and on terms to be determined by agreement of Pharmacia & Upjohn and
SUGEN or by mediation.
4
<PAGE> 12
TERMINATION, AMENDMENT OR WAIVER
(PAGE 51)
Pharmacia & Upjohn and SUGEN can agree to terminate the merger agreement
without completing the merger, and either company can terminate the merger
agreement if any of the following occurs:
- - the merger is not completed by November 30, 1999; or if there is a delay due
to requests for information by antitrust authorities, then the termination
date shall be no later than January 31, 2000;
- - a court order permanently prohibits the merger;
- - SUGEN's stockholders fail to adopt the merger agreement; or
- - a party breaches any representation or warranty or any covenant in the merger
agreement, such breach is reasonably likely to have a material adverse effect
on the opposite party, and such breach is not curable by November 30, 1999
through the exercise of reasonable best efforts.
In addition, SUGEN may terminate the merger agreement as a result of an
acquisition proposal from a potential acquiror if:
- - Pharmacia & Upjohn does not make, within five days of notification of the
acquisition proposal, an offer that is at least as favorable to SUGEN
stockholders as the acquisition proposal.
In addition, Pharmacia & Upjohn may terminate the merger agreement if:
- - the SUGEN board fails to recommend or withdraws its approval or recommendation
of the merger.
TERMINATION FEE AND EXPENSE REIMBURSEMENT (PAGE 53)
If there is a bona fide acquisition proposal with respect to SUGEN which
has been made public, there has been no material adverse change to Pharmacia &
Upjohn, the special meeting is convened, and SUGEN stockholders do not adopt the
merger agreement, then Pharmacia & Upjohn or SUGEN may terminate the merger
agreement and SUGEN may be required to pay Pharmacia & Upjohn a termination fee
equal to $16.9 million, plus up to $5 million for expenses. See "The Merger
Agreement -- Termination Fee and Expense Reimbursement" beginning on page 53 for
a complete discussion of the circumstances in which SUGEN would be required to
pay the termination fee and expenses.
THE STOCK OPTION AGREEMENT (PAGE 55)
Pharmacia & Upjohn and SUGEN have entered into a stock option agreement
granting Pharmacia & Upjohn an option to purchase approximately 19.9% of SUGEN's
outstanding common stock at $31.00 per share. The stock option is exercisable
under the same circumstances under which the termination fee referred to in the
previous section would be payable. The stock option agreement is attached as
Annex B to this document.
If the stock option is exercised, SUGEN may, under certain circumstances,
repurchase all or any portion of the SUGEN common stock issued pursuant to the
stock option. Pharmacia & Upjohn's total profit allowed under the stock option
agreement is $21.9 million, including any termination fee paid under the merger
agreement. SUGEN believes that the exercisability of the stock option could
prohibit any other acquiror of SUGEN during the next two years from accounting
for any such acquisition as a pooling of interests. In addition, Pharmacia &
Upjohn would have a significant stake in SUGEN if it exercised the stock option
and held the stock. See "Stock Option Agreement -- Effect of Stock Option
Agreement" on page 56 for a discussion of the effect of the stock option
agreement.
REGULATORY APPROVALS (PAGE 38)
The Hart-Scott-Rodino Antitrust Improvements Act prohibits Pharmacia &
Upjohn and SUGEN from completing the merger until Pharmacia & Upjohn and SUGEN
have
5
<PAGE> 13
furnished certain information and materials to the Antitrust Division of the
Department of Justice and the Federal Trade Commission and the required waiting
period has ended. On July 7, 1999, Pharmacia & Upjohn and SUGEN each filed the
required notification and report forms. The required waiting period expires on
August 6, 1999, unless extended.
NO APPRAISAL RIGHTS (PAGE 39)
Under Delaware corporation law, no appraisal rights are available to SUGEN
stockholders.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 36)
The exchange of your shares for Pharmacia & Upjohn common stock will be
tax-free to you for federal income tax purposes. However, you will have to pay
taxes on cash received for fractional shares. To review the tax consequences to
stockholders in greater detail, see "The Merger -- Material Federal Income Tax
Consequences" on page 31.
ACCOUNTING TREATMENT (PAGE 37)
Pharmacia & Upjohn and SUGEN expect the merger to qualify as a pooling of
interests for accounting and financial reporting purposes, which means that
Pharmacia & Upjohn and SUGEN will be treated as if they had always been combined
for accounting and financial reporting purposes.
RISK FACTORS & CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS (PAGES
14 THROUGH 18)
Both companies have made forward-looking statements in this document and in
the documents that are incorporated by reference. Forward-looking statements are
subject to risks and uncertainties. Forward-looking statements include
information concerning possible or assumed future results of operations of
Pharmacia & Upjohn, SUGEN or the combined company. When words such as
"believes," "expects," "anticipates" or similar expressions are used, we are
making forward-looking statements.
You should note that an investment in securities of Pharmacia & Upjohn
involves risks and uncertainties. These risk factors should be considered by you
in evaluating how to vote at the special meeting. Such risk factors include the
following:
- - If the trading price of Pharmacia & Upjohn common stock falls below $49.22
prior to the special meeting, you may receive less than $31.00 worth of
Pharmacia & Upjohn common stock for each share of SUGEN common stock.
- - Pharmacia & Upjohn common stock could experience fluctuations in price and
volume which could affect the number and value of shares issued to SUGEN
stockholders.
- - The pharmaceutical industry is highly competitive and Pharmacia & Upjohn must
maintain its competitive position.
- - Price controls imposed by government and health-care providers limit Pharmacia
& Upjohn's revenues.
- - Pharmaceutical research and development requires the expenditure of
substantial resources with no guarantee of success.
- - Pharmacia & Upjohn's drug products are highly regulated and the approval time
for a new product is lengthy.
- - Product liability claims may result in substantial damage awards.
- - Hazardous materials used in the development and manufacture of drugs may cause
environmental damage and result in legal liability.
- - Year 2000 conversion problems.
- - Conversion to the Euro.
- - Foreign exchange fluctuations.
6
<PAGE> 14
COMPARISON OF RIGHTS OF SUGEN STOCKHOLDERS AND PHARMACIA & UPJOHN STOCKHOLDERS
(PAGE 62)
SUGEN's charter and bylaws and Delaware corporate law govern the rights of
SUGEN stockholders. Pharmacia & Upjohn's charter and bylaws and Delaware
corporate law will govern your rights as a stockholder of Pharmacia & Upjohn.
Your rights under Pharmacia & Upjohn's charter and bylaws will differ in some
respects from your rights under SUGEN's charter and bylaws.
RECENT DEVELOPMENTS
PHARMACIA & UPJOHN
Pharmacia & Upjohn recently reported sales for the second quarter of 1999
of $1.7 billion, an increase of 11% over the same period in 1998, adjusted for
the 1998 divestment of Pharmacia & Upjohn's nutrition business. Net sales for
the first half of 1999 were $3.5 billion, a 14% increase over the first half of
1998. On a reported basis, sales increased 6% over the second quarter of 1998
and 9% over the first half of the prior year. Net earnings for the quarter were
$216 million (41 cents per share of Pharmacia & Upjohn Common Stock) compared to
$187 million (36 cents per share of Pharmacia & Upjohn Common Stock) in the
second quarter of 1998, an increase of 15%, excluding an unusual 1998 item
relating to a settlement of a lawsuit with retail pharmacies. For the first half
of 1999, net earnings were $437 million (83 cents per share), an increase of 16%
over the prior-year period, excluding the unusual item. On a reported basis, net
earnings rose 47% in the second quarter and 30% for the first half. A more
complete description of Pharmacia & Upjohn's second quarter and first half 1999
results is set forth in Pharmacia & Upjohn's current report on Form 8-K filed on
July 30, 1999. See "Where You Can Find More Information" on page 71.
SUGEN
SUGEN recently reported revenues of $2.5 million and a net loss of $33.0
million, or $1.95 per SUGEN share, for the second quarter of 1999. For the same
period in 1998, SUGEN recorded revenues of $2.4 million and a net loss of $10.9
million, or $0.69 per SUGEN share, and for the quarter ended March 31, 1999,
SUGEN recorded revenues of $4.3 million and a net loss of $14.9 million, or
$0.89 per SUGEN share. The loss for the quarter ended June 30, 1999 includes the
recording of a one time, non-cash interest expense required by derivative
accounting procedures associated with the warrants issued with the 12% senior
convertible notes issued in March 1999. SUGEN also reported revenues of $6.7
million and a net loss of $47.9 million, or $2.85 per SUGEN share, for the first
half of 1999. These results compare with revenues of $4.0 million and a net loss
of $20.0 million, or $1.28 net loss per SUGEN share, for the same period in
1998. As of June 30, 1999, SUGEN had cash, cash equivalents and short-term
investments of approximately $47.6 million, compared to $61.9 million as of
March 31, 1999 and $47.3 million as of December 31, 1998. A more complete
description of SUGEN's second quarter and first half 1999 results is set forth
in SUGEN's current report on Form 8-K filed on August 2, 1999. See "Where You
Can Find More Information" on page 71.
7
<PAGE> 15
SUMMARY OF SUGEN SELECTED FINANCIAL DATA
The following selected financial information of SUGEN is provided to aid
your analysis of the financial aspects of the merger. We derived this
information from audited financial statements for the years ended December 31,
1994 through 1998 and unaudited financial statements for the three months ended
March 31, 1998 and March 31, 1999. This information is only a summary, and you
should read it in conjunction with SUGEN's historical financial statements and
related notes and Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in the annual reports, quarterly reports and
other information on file with the Securities and Exchange Commission. See
"Where You Can Find More Information" on page 71.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- --------- -------- -------- -------- --------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue(1)................ $ 4,262 $ 1,645 $ 14,916 $ 6,031 $ 13,650 $ 13,843 $ 6,270
Costs and expenses:
Research and development........... 16,528 9,432 46,851 34,585 29,792 23,226 17,079
General and administrative......... 2,673 1,845 9,517 6,227 5,529 5,086 3,106
--------- --------- --------- -------- -------- -------- --------
Total costs and expenses........... 19,201 11,277 56,368 40,812 35,321 28,312 20,185
--------- --------- --------- -------- -------- -------- --------
Operating loss..................... (14,939) (9,632) (41,452) (34,781) (21,671) (14,469) (13,915)
--------- --------- --------- -------- -------- -------- --------
Other income and expense:
Interest income.................... 521 979 3,373 2,786 2,481 1,988 529
Interest expense................... (487) (468) (1,548) (1,065) (691) (494) (278)
Gain on sale of investment in
Selectide Corporation............ -- -- -- -- -- 1,006 --
--------- --------- --------- -------- -------- -------- --------
Other income, net.................. 34 511 1,825 1,721 1,790 2,500 251
--------- --------- --------- -------- -------- -------- --------
Net loss........................... $ (14,905) $ (9,121) $ (39,627) $(33,060) $(19,881) $(11,969) $(13,664)
========= ========= ========= ======== ======== ======== ========
Basic and diluted net loss per
share(2)......................... $ (0.89) $ (0.59) $ (2.49) $ (2.47) $ (1.81) $ (1.32) $ (4.37)
========= ========= ========= ======== ======== ======== ========
Shares used in computing basic and
diluted net loss per share(2).... 16,682 15,345 15,934 13,387 10,966 9,085 3,129
Pro forma net loss per share(3).... $ (2.27)
========
Shares used in computing pro forma
net loss per share(3)............ 6,013
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term Investments........... $ 61,899 $ 68,279 $ 47,297 $ 75,295 $ 56,334 $ 53,253 $ 22,414
Total assets....................... 74,525 77,508 59,333 84,825 61,936 59,243 28,455
Capital lease
obligations -- non-current
portion.......................... 6,257 3,412 5,724 3,152 2,938 3,651 2,087
Senior convertible notes........... 31,293 17,029 5,694 17,500 -- -- --
Accumulated deficit................ (145,542) (100,159) (130,599) (90,988) (57,997) (37,964) (26,270)
Stockholders' equity............... 13,361 41,052 24,718 49,013 48,530 43,441 18,319
</TABLE>
- -------------------------
(1) Includes amounts from related party.
(2) Basic and diluted loss per share for 1994 applies the requirements of Staff
Accounting Bulletin No. 98 ("SAB 98"), issued by the SEC in February 1998.
Under SAB 98, certain shares of common stock and options and warrants to
purchase shares of common stock at prices substantially below the per share
price of shares sold in the Company's initial public offering previously
included in the computation of shares outstanding pursuant to Staff
Accounting Bulletins Nos. 55, 64 and 83 are now excluded from the
computation.
(3) Pro forma net loss per share information gives effect to the conversion of
all preferred stock outstanding from the date of issuance.
8
<PAGE> 16
SUMMARY OF PHARMACIA & UPJOHN SELECTED FINANCIAL DATA
The following selected financial information of Pharmacia & Upjohn is
provided to aid your analysis of the financial statements for the years ended
December 31, 1994 through 1998 and unaudited financial statements for the three
months ended March 31, 1998 and March 31, 1999. This information is only a
summary, and you should read it in conjunction with Pharmacia & Upjohn's
historical financial statements and related notes and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in the
annual reports, quarterly reports and other information on file with the
Securities and Exchange Commission. See "Where You Can Find More Information" on
page 71.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
AT MARCH 31, YEAR ENDED AT DECEMBER 31,
----------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- -------- -------- -------- -------- --------
(UNAUDITED) (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF EARNINGS
DATA:
Net sales.............................. $ 1,774 $ 1,586 $ 6,758 $ 6,586 $ 7,176 $ 6,949 $ 6,704
Cost of products sold.................. 493 486 2,031 2,047 2,116 1,967 1,877
Research and development............... 327 278 1,202 1,217 1,266 1,254 1,163
Selling, general and administrative.... 668 566 2,543 2,635 2,448 2,592 2,558
Interest income, net................... (11) (18) (64) (77) (103) (122) (45)
All other, net......................... (19) (3) (62) (20) 148 18 (142)
Restructuring charges.................. -- -- 92 316 518 104 20
Gain on sale of subsidiary stock....... -- -- -- -- (55) -- --
------- ------- ------- ------- ------- ------- -------
Earnings before income taxes........... 316 277 1,016 468 838 1,136 1,273
Provision for income taxes............. 95 88 325 145 276 397 438
------- ------- ------- ------- ------- ------- -------
Net earnings........................... $ 221 $ 189 $ 691 $ 323 $ 562 $ 739 $ 835
======= ======= ======= ======= ======= ======= =======
Net earnings per common share:
Basic................................ $ 0.43 $ 0.37 $ 1.33 $ 0.61 $ 1.08 $ 1.44 $ 1.63
======= ======= ======= ======= ======= ======= =======
Diluted.............................. $ 0.42 $ 0.36 $ 1.31 $ 0.61 $ 1.07 $ 1.41 $ 1.60
======= ======= ======= ======= ======= ======= =======
CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION DATA:
Cash and cash equivalents.............. $ 1,007 $ 821 $ 857 $ 775 $ 641 $ 841 $ 652
Short-term investments................. 268 447 352 539 696 974 1,134
Total assets........................... 10,131 10,320 10,312 10,380 11,173 11,461 10,947
Short-term debt(1)..................... 890 657 332 401 235 524 766
Long-term debt and guarantee of ESOP
debt(2).............................. 479 602 508 634 823 870 953
Total shareholders' equity............. 5,379 5,469 5,600 5,538 6,241 6,387 5,610
Total liabilities and shareholders'
equity............................... 10,131 10,320 10,312 10,380 11,173 11,461 10,947
</TABLE>
- -------------------------
(1) Including current maturities of long-term debt.
(2) See Note 11 to the audited annual consolidated financial statements
incorporated by reference herein.
9
<PAGE> 17
COMPARATIVE PER SHARE DATA
MARKET PRICE DATA
The table below presents the high and low closing prices per share of
Pharmacia & Upjohn common stock and SUGEN common stock on the New York Stock
Exchange and the Nasdaq National Market, respectively, on June 15, 1999, the
last full trading day immediately preceding the public announcement of the
proposed merger, and on July 29, 1999, the last practicable day for which
closing prices were available at the time of the mailing of this Proxy
Statement/Prospectus, as well as the "equivalent stock price" of shares of SUGEN
common stock on such dates. The "equivalent stock price" of shares of SUGEN
common stock represents the per share closing price for Pharmacia & Upjohn
common stock on the New York Stock Exchange at such specified date, multiplied
by the exchange ratio of .57011, which is the number of shares of Pharmacia &
Upjohn common stock that a SUGEN stockholder would receive for each share of
SUGEN common stock if the average closing price used to calculate the number of
shares of Pharmacia & Upjohn common stock was equal to the closing price of
Pharmacia & Upjohn common stock on July 29, 1999. Keep in mind that because of
market price fluctuations the "equivalent stock price" may be greater than or
less than the value of the Pharmacia & Upjohn common stock and cash in lieu of
fractional shares that a SUGEN stockholder will receive for each share of SUGEN
common stock in connection with the merger. SUGEN stockholders should obtain
current market quotations for the shares of Pharmacia & Upjohn common stock and
SUGEN common stock prior to making any decision with respect to the merger.
<TABLE>
<CAPTION>
PHARMACIA &
UPJOHN SUGEN SUGEN EQUIVALENT
COMMON STOCK COMMON STOCK STOCK PRICE
(DOLLARS PER SHARE) (DOLLARS PER SHARE) (DOLLARS PER SHARE)(1)
------------------- ------------------- -----------------------
HIGH LOW HIGH LOW HIGH LOW
-------- -------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
June 15, 1999 $54 7/8 $53 3/8 $23 $22 1/4 $ 31 5/16 $30 7/16
July 29, 1999 $55 9/16 $53 5/8 $30 1/4 $29 1/2 $ 31 11/16 $30 9/16
</TABLE>
- ---------------
(1) Calculation does not represent the value of Pharmacia & Upjohn common stock
to be issued to the SUGEN stockholders in the merger. At the indicated
prices of Pharmacia & Upjohn common stock, in the merger SUGEN stockholders
would receive shares of Pharmacia & Upjohn common stock and cash in lieu of
fractional shares with a total value of $31.00 per share of SUGEN common
stock.
Following the consummation of the merger, shares of SUGEN common stock will
cease to be traded on the Nasdaq National Market.
10
<PAGE> 18
SUMMARY COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The table below presents historical basic and diluted net income (loss)
applicable to common stock per share, cash dividends on common stock per share
and book value applicable to common stock per share data of Pharmacia & Upjohn
and SUGEN. It also presents unaudited pro forma combined per share data of
Pharmacia & Upjohn and unaudited equivalent pro forma combined per share data of
SUGEN. The pro forma combined per share amounts reflect the merger. The
equivalent SUGEN pro forma combined per share amounts assume an exchange ratio
of .57011, which is the number of shares of Pharmacia & Upjohn common stock that
a SUGEN stockholder would receive for each share of SUGEN common stock if the
average closing price used to calculate the number of shares of Pharmacia &
Upjohn common stock was equal to the closing price of Pharmacia & Upjohn common
stock on July 29, 1999. However, this ratio may decrease or increase, depending
on the trading prices of SUGEN common stock during the 20 trading day period
ending on (and including) the third trading day before the special meeting. The
unaudited pro forma data does not necessarily indicate results that we will
obtain on a combined basis and is based on a preliminary analysis assuming we do
not obtain a tax benefit resulting from SUGEN's tax attributes. You should read
the data along with (1) the historical financial statements and the related
notes incorporated by reference in this Proxy Statement/Prospectus and (2) the
summary selected historical financial data included in this Proxy
Statement/Prospectus summary.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------ ---------------------
PHARMACIA EQUIVALENT
& UPJOHN SUGEN COMBINED SUGEN
--------- ------ -------- ----------
<S> <C> <C> <C> <C>
BASIC NET INCOME (LOSS) PER COMMON SHARE:
Three months ended March 31, 1999............ $ 0.43 $(0.89) $ 0.39 $ 0.22
Year ended December 31, 1998................. 1.33 (2.49) 1.24 0.70
Year ended December 31, 1997................. 0.61 (2.47) 0.54 0.31
Year ended December 31, 1996................. 1.08 (1.81) 1.03 0.59
DILUTED NET INCOME (LOSS) PER COMMON SHARE:
Three months ended March 31, 1999............ $ 0.42 $(0.89) $ 0.38 $ 0.22
Year ended December 31, 1998................. 1.31 (2.49) 1.21 0.69
Year ended December 31, 1997................. 0.61 (2.47) 0.54 0.31
Year ended December 31, 1996................. 1.07 (1.81) 1.01 0.58
CASH DIVIDENDS PER COMMON SHARE:
Three months ended March 31, 1999............ $ 0.27 -- $ 0.27 $ 0.15
Year ended December 31, 1998................. 1.08 -- 1.08 0.62
Year ended December 31, 1997................. 1.08 -- 1.08 0.62
Year ended December 31, 1996................. 1.08 -- 1.08 0.62
BOOK VALUE PER COMMON SHARE:
March 31, 1999............................... $10.63 $0.79 $10.45 $ 5.96
December 31, 1998............................ 11.02 1.49 10.87 6.20
</TABLE>
11
<PAGE> 19
MARKET PRICE AND DIVIDEND DATA
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION
SUGEN
SUGEN common stock is quoted on the Nasdaq National Market under the symbol
"SUGN." The following tables set forth, for the calendar quarters indicated, the
high and low market prices of shares of SUGEN common stock as reported on the
Nasdaq National Market. SUGEN has never declared or paid cash dividends on its
common stock.
<TABLE>
<CAPTION>
SUGEN
COMMON STOCK
-------------
HIGH LOW
---- ---
<S> <C> <C>
1996
Quarter ended March 31, 1996.............................. $15 7/8 $11 3/4
Quarter ended June 30, 1996............................... 15 1/4 11 1/4
Quarter ended September 30, 1996.......................... 12 3/4 9 3/8
Quarter ended December 31, 1996........................... 14 1/2 11 1/4
1997
Quarter ended March 31, 1997.............................. $15 1/4 $ 9 7/8
Quarter ended June 30, 1997............................... 13 1/4 10
Quarter ended September 30, 1997.......................... 20 15/16 11 7/8
Quarter ended December 31, 1997........................... 21 1/8 12 5/8
1998
Quarter ended March 31, 1998.............................. $15 1/2 $11 5/8
Quarter ended June 30, 1998............................... 18 12 5/8
Quarter ended September 30, 1998.......................... 18 15/16 9 3/4
Quarter ended December 31, 1998........................... 17 1/4 11 1/8
1999
Quarter ended March 31, 1999.............................. $23 5/8 $13 5/8
Quarter ended June 30, 1999............................... 29 9/16 15
July 1, 1999 to July 29, 1999............................. 30 15/16 29 3/8
</TABLE>
12
<PAGE> 20
PHARMACIA & UPJOHN
Pharmacia & Upjohn common stock is listed for trading on the New York Stock
Exchange under the symbol "PNU." Swedish Depositary Shares, each representing
one share of common stock, are traded on the Stockholm Stock Exchange under the
symbol "PH&U." The following table sets forth, for the calendar quarters
indicated, the high and low market prices of shares of Pharmacia & Upjohn common
stock as reported on the New York Stock Exchange Composite Transaction Tape and
the dividends paid on such shares as well as the corresponding prices of the
Swedish Depositary Shares trading on the Stockholm Stock Exchange.
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN COMMON STOCK
--------------------------------------------------------------
STOCKHOLM
NYSE STOCK EXCHANGE
-------------------------------------- --------------------
HIGH LOW DIVIDENDS HIGH LOW
---- --- --------- ------- -------
(SEK PER SWEDISH
DEPOSITARY SHARE)(1)
<S> <C> <C> <C> <C> <C>
1996
Quarter ended March 31, 1996............... $44 3/8 35 7/8 0.27 305.0 234.0
Quarter ended June 30, 1996................ 44 3/8 36 5/8 0.27 292.0 249.0
Quarter ended September 30, 1996........... 44 5/8 38 5/8 0.27 302.0 260.0
Quarter ended December 31, 1996............ 42 3/4 34 1/8 0.27 281.0 225.0
1997
Quarter ended March 31, 1997............... $41 1/8 35 3/4 0.27 307.0 262.5
Quarter ended June 30, 1997................ 36 7/8 27 1/2 0.27 284.0 214.5
Quarter ended September 30, 1997........... 38 5/8 33 15/16 0.27 310.0 264.0
Quarter ended December 31, 1997............ 37 1/2 28 7/8 0.27 294.0 215.0
1998
Quarter ended March 31, 1998............... $45 7/8 33 3/4 0.27 356.0 270.0
Quarter ended June 30, 1998................ 46 11/16 38 1/4 0.27 369.0 297.0
Quarter ended September 30, 1998........... 51 11/16 40 7/16 0.27 405.0 323.0
Quarter ended December 31, 1998............ 57 3/8 44 7/8 0.27 460.0 340.0
1999
Quarter ended March 31, 1999............... $63 13/16 51 7/8 0.27 524.0 516.0
Quarter ended June 30, 1999................ 66 3/8 51 9/16 0.27 472.5 468.0
July 1, 1999 to July 29, 1999.............. 59 9/16 53 5/8 0.27 507.0 445.5
</TABLE>
- -------------------------
(1) On July 29, 1999, 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 was US$1.00 = SEK 8.21.
13
<PAGE> 21
RISK FACTORS
You should consider the following risk factors in determining how to vote
at the special meeting.
SUGEN STOCKHOLDERS MAY RECEIVE LESS THAN $31.00 WORTH OF PHARMACIA & UPJOHN
COMMON STOCK FOR EACH SHARE OF SUGEN COMMON STOCK
Upon consummation of the merger, each share of SUGEN common stock will be
converted into a fraction of a share of Pharmacia & Upjohn common stock equal to
the exchange ratio. If the average closing price of Pharmacia & Upjohn common
stock is equal to or less than $49.21875 during the 20 trading day period ending
on (and including) the third trading day prior to the meeting, you will receive
0.51533 of a share of Pharmacia & Upjohn common stock, which may be worth less
than $31.00 a share, for each share of SUGEN common stock. SUGEN cannot
terminate the merger agreement on the basis that such initial value is below
$31.00. The actual number of shares of Pharmacia & Upjohn common stock to be
issued to holders of SUGEN common stock will not be determined until three
trading days prior to the special meeting. The volume weighted average closing
price of Pharmacia & Upjohn common stock for the 20 trading day period may be
lower than the market price as of the date of execution of the merger agreement,
the date hereof or the date on which stockholders vote on the merger.
PHARMACIA & UPJOHN COMMON STOCK COULD EXPERIENCE FLUCTUATIONS IN PRICE AND
VOLUME WHICH COULD AFFECT THE NUMBER AND VALUE OF SHARES ISSUED TO SUGEN
STOCKHOLDERS
Recently, the stock market and the trading price for Pharmacia & Upjohn
common stock have experienced price and volume fluctuations. The broad market
fluctuations may adversely affect the market price of Pharmacia & Upjohn common
stock. The value of Pharmacia & Upjohn common stock at the time of the special
meeting of SUGEN's stockholders, the date on which the merger is completed, the
date that SUGEN stockholders receive shares of Pharmacia & Upjohn common stock
or the date the stockholders eventually sell their Pharmacia & Upjohn shares may
be significantly different than the price of Pharmacia & Upjohn common stock
today. In addition, the exchange ratio is based upon the volume weighted average
closing price of Pharmacia & Upjohn common stock over a 20 trading day period.
The volume weighted average closing price over these 20 trading days may be
significantly greater than or less than the actual trading price of Pharmacia &
Upjohn common stock at the time of the special meeting, the date that SUGEN
stockholders receive shares of Pharmacia & Upjohn common stock or the date the
stockholders eventually sell their Pharmacia & Upjohn shares. SUGEN stockholders
are advised to obtain recent market quotations for Pharmacia & Upjohn common
stock. Neither company may terminate the merger agreement or elect not to
complete the merger solely because of changes in their stock prices.
PHARMACIA & UPJOHN FACES INTENSE
COMPETITION FROM NEW PRODUCTS AND
FROM LOWER-COST GENERIC PRODUCTS
The pharmaceutical industry is highly competitive and rapidly changing.
Pharmacia & Upjohn's principal competitors are major international corporations
with substantial resources for research and development, production and
marketing.
Pharmacia & Upjohn's products that are under patent protection face intense
competition from competitors' proprietary products. This competition may
increase as new products enter the market. Pharmacia & Upjohn also faces
increasing competition from lower-cost generic products after patents on its
products expire.
As new products enter the market, Pharmacia & Upjohn's products may become
obsolete or its competitors' products may be more effective or more effectively
marketed and sold than its products.
14
<PAGE> 22
If Pharmacia & Upjohn fails to maintain its competitive position, this
could have a material adverse effect on its business and results of operations.
PRICE CONTROLS CAN LIMIT PHARMACIA & UPJOHN'S REVENUES AND ADVERSELY AFFECT ITS
BUSINESS AND RESULTS OF OPERATIONS
In addition to normal price competition in the marketplace, the prices of
Pharmacia & Upjohn's products are restricted by price controls imposed by
governments and health care providers in most countries where it sells products.
Price controls operate differently in different countries and can cause wide
differences in prices between markets. Currency fluctuations can aggravate these
differences. The existence of price controls can limit the revenues earned by
Pharmacia & Upjohn on its products and may have an adverse effect on its
business and results of operations.
PHARMACIA & UPJOHN'S RESEARCH AND DEVELOPMENT EFFORTS MAY NOT SUCCEED OR ITS
COMPETITORS MAY DEVELOP MORE EFFECTIVE OR SUCCESSFUL PRODUCTS
In order to remain competitive, Pharmacia & Upjohn must commit substantial
resources each year to research and development. In each of 1997 and 1998,
Pharmacia & Upjohn spent approximately $1,200 million on research and
development.
The research and development process takes from 10 to 15 years from
discovery to commercial product launch. This process is conducted in various
stages, and during each stage there is a substantial risk that Pharmacia &
Upjohn will not achieve its goals and have to abandon a product in which it has
invested substantial amounts. There can be no assurance that Pharmacia & Upjohn
will continue to succeed in its research and development efforts. If Pharmacia &
Upjohn fails to continue developing commercially successful products, or if
competitors develop more effective products or a greater number of successful
new products, this could have a material adverse effect on its business and
results of operations.
PRODUCT REGULATION MAY ADVERSELY AFFECT PHARMACIA & UPJOHN'S ABILITY TO BRING
NEW PRODUCTS TO MARKET
Pharmacia & Upjohn and its competitors are subject to strict government
controls on the development, manufacture, labeling, distribution and marketing
of products. Pharmacia & Upjohn must obtain and maintain regulatory approval for
a pharmaceutical product from a country's national regulatory agency before the
product may be sold in a particular country.
The submission of an application to a regulatory authority does not
guarantee that it will grant a license to market the product. Each authority may
impose its own requirements and delay or refuse to grant approval, even though a
product has been approved in another country.
In Pharmacia & Upjohn's principal markets, the approval process for a new
product is complex and lengthy. The time taken to obtain approval varies by
country but generally takes from six months to four years from the date of
application. This increases the cost to Pharmacia & Upjohn of developing new
products and increases the risk that Pharmacia & Upjohn will not succeed in
selling them successfully.
PRODUCT LIABILITY CLAIMS COULD ADVERSELY AFFECT PHARMACIA & UPJOHN'S BUSINESS
AND RESULTS OF OPERATIONS
Product liability is a significant commercial risk for Pharmacia & Upjohn.
Substantial damage awards have been made in certain jurisdictions against
pharmaceutical companies based upon claims for injuries allegedly caused by the
use of their products.
Pharmacia & Upjohn is involved in a substantial number of product liability
cases claiming damages as a result of the use of its products. Pharmacia &
Upjohn believes that any potentially unaccrued costs and liabilities associated
with such matters will not have a material adverse effect on its consolidated
financial position, results of operations or liquidity. There can, however, be
no assurance that a future product liability claim or series of claims brought
against Pharmacia & Upjohn would not
15
<PAGE> 23
have an adverse effect on its business or results of operations.
PHARMACIA & UPJOHN'S BUSINESS EXPOSES IT TO RISKS OF ENVIRONMENTAL LIABILITIES
Pharmacia & Upjohn uses hazardous materials, chemicals, viruses and
compounds in its product development programs and manufacturing processes.
Although Pharmacia & Upjohn believes that its handling and disposing of these
materials complies with applicable laws and regulations, the risk of accidental
contamination or injury still exists. If such an accident occurred, Pharmacia &
Upjohn could be held liable for any damages or fines, which could have an
adverse effect on its business and results of operations.
Pharmacia & Upjohn has made provision for various environmental
liabilities, including exposures related to several industrial and disposal
sites and its closed chemical plant in North Haven, Connecticut. Pharmacia &
Upjohn's estimates of the total cost it will incur in connection with
environmental situations could change because of uncertainties at many sites
regarding cleanup remedies, the estimated cost of cleanup and its share of the
site's cleanup cost.
Pharmacia & Upjohn may soon be required to submit a corrective measures
study report to the United States Environmental Protection Agency regarding the
closed North Haven chemical facility. As the corrective action process
progresses, Pharmacia & Upjohn may need to reevaluate the amount of reserves
designated for remediation of the North Haven site as a result of changing
circumstances. It is reasonably possible that Pharmacia & Upjohn will be
required to make a material increase in accrued liabilities for the North Haven
site, but it is not possible to determine what, if any, additional exposure
exists at this time.
PHARMACIA & UPJOHN'S YEAR 2000 PROGRAM MAY NOT SUCCEED, OR OUTSIDE FACTORS COULD
CAUSE THE YEAR 2000 PROBLEM TO DISRUPT ITS OPERATIONS
Pharmacia & Upjohn has established a global Year 2000 program to review its
systems and to develop plans to correct Year 2000 date recognition problems. The
program consists of assessment and remediation of Pharmacia & Upjohn's
information technology ("IT") systems and embedded systems, assessment of
high-level business risks and the development of contingency plans to address
these risks. Pharmacia & Upjohn has completed assessment, remediation and
testing for over 90% of its IT and embedded systems and expects to complete this
work on its remaining systems in the third quarter of 1999. During the latter
half of 1999, Pharmacia & Upjohn also plans to conduct integration testing to
ensure that critical systems will work together properly. Pharmacia & Upjohn
also is working with key external parties whose systems may affect its own, in
order to determine what remediation and contingency actions may be necessary. As
of March 31, 1999, Pharmacia & Upjohn had spent approximately $115 million of
its total projected costs of $150 million for Year 2000-related compliance
actions.
There can be no assurance that Pharmacia & Upjohn's Year 2000 program will
succeed. Many factors outside its control could cause the Year 2000 problem to
seriously disrupt its operations. The more critical of these risks include:
- A disruption in its supply of products, particularly as a result of
failures of raw material suppliers, third party manufacturers and
external distributors;
- Infrastructure failures such as by utilities and communications
providers;
- Internal infrastructure failures such as in communications, IT services
and integrated IT systems;
- U.S. and non-U.S. government failures, especially as they impact imports
and exports; and
- Major customer failures or interruptions.
16
<PAGE> 24
The scope of Pharmacia & Upjohn's efforts regarding these risks is limited
to key products, key markets, critical supplies and major customers.
Pharmacia & Upjohn has substantially finalized its contingency plans to
address these risks. Management believes that Pharmacia & Upjohn's Year 2000
program will prevent the Year 2000 problem from having a material adverse effect
on its business, financial position, results of operations and liquidity. There
can, however, be no assurance that the Year 2000 problem will not have such an
impact on Pharmacia & Upjohn.
CONVERSION TO THE EURO MAY ADVERSELY AFFECT PHARMACIA & UPJOHN'S BUSINESS
On January 1, 1999, several European countries began operating with a new
common currency, the euro. The euro will completely replace these countries'
national currencies by January 1, 2002. The conversion to the euro will require
Pharmacia & Upjohn to modify some of its systems and certain commercial
arrangements. The cost of this is not expected to be material. The conversion to
the euro may have competitive implications on pricing and marketing strategies,
but any such impact is not known at this time. Pharmacia & Upjohn expects the
conversion to have a limited impact on its outstanding derivatives and other
financial instruments, and a limited impact on currency risk.
Pharmacia & Upjohn management believes that the euro conversion will not
have a significant impact on Pharmacia & Upjohn's business; however, it is
uncertain what effects the new euro currency will have on the marketplace. There
can be no assurance that all problems will be foreseen and corrected, or that
there will not be a material disruption of Pharmacia & Upjohn's business.
FOREIGN EXCHANGE FLUCTUATIONS MAY ADVERSELY AFFECT PHARMACIA & UPJOHN'S EARNINGS
AND THE VALUE OF ITS NON-U.S. ASSETS
Pharmacia & Upjohn records its transactions and prepares its financial
statements in U.S. dollars, but a significant portion of its earnings and
expenditures are in other currencies. Changes in exchange rates between the U.S.
dollar and such currencies can result in increases or decreases in Pharmacia &
Upjohn's costs and earnings. Fluctuations in exchange rates between the U.S.
dollar and other currencies may also affect the book value of Pharmacia &
Upjohn's assets outside the United States and the amount of shareholders'
equity. Pharmacia & Upjohn seeks to minimize its currency exposure by engaging
in hedging transactions where it deems it appropriate.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Proxy Statement/Prospectus
contains (or incorporates by reference) certain "forward-looking statements"
concerning Pharmacia & Upjohn, such as statements concerning Pharmacia &
Upjohn's anticipated financial or product performance, Pharmacia & Upjohn's
ability to pay dividends and other non-historical facts. Since these statements
are based on factors that involve risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements. Such factors include, among others:
- sales and earnings projections;
- the effectiveness of current and future projects and their estimated
expenses, including restructuring plans, the Year 2000 date recognition
problem and conversion to the euro;
- Pharmacia & Upjohn's management's ability to make further progress under
its global turnaround plan;
- Pharmacia & Upjohn's ability to successfully market new and existing
products in new and existing domestic and international markets;
17
<PAGE> 25
- the success of Pharmacia & Upjohn's research and development activities
and the speed at which Pharmacia & Upjohn achieves regulatory
authorizations and product rollouts;
- fluctuations in currency exchange rates;
- the effects of Pharmacia & Upjohn's accounting policies and general
changes in generally accepted accounting practices;
- Pharmacia & Upjohn's exposure to product liability lawsuits and
contingencies related to actual or alleged environmental contamination;
- Pharmacia & Upjohn's exposure to antitrust lawsuits;
- domestic and foreign social, legal and political developments, especially
those relating to health care reform and product liabilities;
- general economic and business conditions;
- Pharmacia & Upjohn's ability to attract and retain current management and
other employees; and
- other risks and factors detailed in this Proxy Statement/Prospectus and
Pharmacia & Upjohn's other Exchange Act filings which are incorporated by
reference.
In addition to historical information, this Proxy Statement/Prospectus
contains (or incorporates by reference) certain "forward-looking statements"
concerning SUGEN, such as statements concerning SUGEN's plans to: continue
development of its current product candidates; conduct clinical trials with
respect to SU101, SU5416, SU6668 and other product candidates; utilize SUGEN's
capital resources and the time periods related thereto; seek regulatory
approvals; engage third-party manufacturers to supply its clinical trials and
commercial requirements; engage third-party marketing, sales and distribution
capability; and evaluate additional product candidates for subsequent clinical
and commercial development. Since these statements are based on factors that
involve risks and uncertainties, actual results may differ from those expressed
or implied by such forward-looking statements. Such factors include, among
others:
- SUGEN's technological success in developing lead compounds and products;
- the availability and terms of financing of SUGEN's operations;
- the actions of third parties, including collaborators and competitors;
- the demonstration of the safety and efficacy of SUGEN's products at each
stage of clinical development;
- the ability to obtain patent and other proprietary rights protection for
SUGEN's products;
- the receipt of timely regulatory approval of SUGEN's products;
- the ability to manufacture product candidates in commercial quantities at
reasonable costs and in a manner acceptable to various regulatory
authorities;
- market acceptance of SUGEN's products; and
- other risks and factors detailed in this Proxy Statement/Prospectus and
SUGEN's other Exchange Act filings which are incorporated by reference
herein.
18
<PAGE> 26
THE SUGEN SPECIAL MEETING
GENERAL; DATE, TIME AND PLACE
This Proxy Statement/Prospectus is being furnished by the SUGEN board of
directors to SUGEN's stockholders in connection with the solicitation of proxies
by the SUGEN board for use at the special meeting of SUGEN stockholders to be
held on Tuesday, August 31, 1999, at SUGEN's executive offices, 230 East Grand
Avenue, South San Francisco, California, commencing at 10:00 a.m., local time,
and at any adjournments or postponements, continuations or reschedulings
thereof.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of SUGEN on or about August 3, 1999.
MATTERS TO BE CONSIDERED
At the special meeting, holders of SUGEN common stock will be asked to
consider and vote upon the following:
- a proposal to adopt the merger agreement, dated as of June 15, 1999,
among SUGEN, Pharmacia & Upjohn and University Acquisition Corp.; and
- such other matters as may properly be brought before the special meeting
or any adjournment or postponement thereof.
RECOMMENDATION OF SUGEN'S BOARD OF DIRECTORS
SUGEN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SUGEN STOCKHOLDERS
VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
STOCKHOLDERS ENTITLED TO VOTE; VOTE REQUIRED
SUGEN's board of directors has fixed the close of business on July 29, 1999
as the record date for the determination of the holders of SUGEN common stock
entitled to notice of and to vote at the special meeting. Accordingly, only
holders of record of SUGEN common stock on the record date will be entitled to
notice of, and to vote at, the special meeting. As of the record date, there
were 16,977,588 shares of SUGEN common stock outstanding and entitled to vote,
which shares were held by approximately 288 holders of record. Each holder of
record of SUGEN common stock on the record date is entitled to one vote per
share, which may be cast either in person or by properly executed proxy, at the
special meeting. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of SUGEN common stock entitled
to vote at the special meeting is necessary to constitute a quorum at the
special meeting.
The adoption of the merger agreement will require the affirmative vote of
the holders of a majority of the shares of SUGEN common stock outstanding on the
record date.
Shares of SUGEN common stock represented in person or by proxy will be
counted for the purpose of determining whether a quorum is present at the
special meeting. Shares which abstain from voting, and shares held in the name
of a broker or other nominee who has not been given the authority to vote on a
particular matter, will be treated as shares that are present and entitled to
vote at the special meeting for purposes of determining whether a quorum exists.
Because the merger agreement must be adopted by the holders of a majority of the
shares of SUGEN common stock outstanding on the record date,
19
<PAGE> 27
abstentions and shares held in the name of a broker or other nominee who has not
been given the authority to vote will have the same effect as a vote against
adoption of the merger agreement.
VOTING AGREEMENT
Zeneca Limited, holder of 3,036,016 shares of SUGEN common stock, and
Stephen Evans-Freke, SUGEN's Chairman of the Board and Chief Executive Officer
and the holder of 544,136 shares of SUGEN common stock, have agreed, pursuant to
a voting agreement dated as of June 15, 1999, to vote their shares of SUGEN
common stock FOR adoption of the merger agreement.
PROXIES
This Proxy Statement/Prospectus is being furnished to SUGEN stockholders in
connection with the solicitation of proxies by SUGEN's board of directors.
All shares of SUGEN common stock which are entitled to vote and are
represented at the special meeting by properly executed proxies received prior
to or at the special meeting, and not revoked, will be voted at the special
meeting in accordance with the instructions indicated on such proxies. Except in
cases where a broker or other nominee has indicated on a proxy that it does not
have the power to vote, each proxy, when properly executed, will be voted in the
manner specified in such proxy. If a proxy is properly executed but no vote is
specified, such proxy will be voted FOR adoption of the merger agreement.
In their discretion, the persons named in the enclosed form of proxy will
be authorized to vote upon such other business as may properly come before the
special meeting or any adjournments, postponements, continuations or
reschedulings thereof, including, among other things, consideration of a motion
to adjourn such special meeting to another time and/or place for such purposes
as soliciting additional proxies or allowing additional time for the
satisfaction of conditions to the merger. However, no proxy that is voted
against the adoption of the merger agreement will be voted in favor of
adjournment, postponement, continuation or rescheduling of the special meeting
for the purpose of allowing additional votes or proxies in favor of adoption of
the merger agreement.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, located at
230 East Grand Avenue, South San Francisco, California 94080, a written notice
of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at the meeting
will not, by itself, revoke a proxy.
SOLICITATION
All expenses of SUGEN's solicitation of proxies will be borne by SUGEN, and
the cost of preparing and mailing this Proxy Statement/Prospectus to SUGEN
stockholders will be paid by SUGEN. In addition to solicitation by use of the
mails, proxies may be solicited from SUGEN stockholders by directors, officers
and employees of SUGEN in person or by telephone, telegram 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. SUGEN has retained
20
<PAGE> 28
D.F. King & Co., Inc., a proxy solicitation firm, for assistance in connection
with the solicitation of proxies for the special meeting at a cost of
approximately $7,000, plus reimbursement of reasonable out-of-pocket expenses.
Arrangements will also be made with broker-dealers, custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held of record by such broker-dealers, custodians, nominees and
fiduciaries, and SUGEN will reimburse such broker-dealers, custodians, nominees
and fiduciaries for their reasonable expenses incurred in connection therewith.
SUGEN STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS
21
<PAGE> 29
THE COMPANIES
PHARMACIA & UPJOHN
Pharmacia & Upjohn, Inc. is a global pharmaceutical group engaged in the
research, development, manufacture and sale of pharmaceutical and healthcare
products. It is engaged in the research, development, manufacturing, sales and
marketing of various prescription human pharmaceutical products, nonprescription
drugs, pharmaceutical chemicals and intermediates, and pharmaceutical products
for both food and companion animals. Pharmacia & Upjohn's principal executive
offices are located at 95 Corporate Drive, Bridgewater, New Jersey 08807, and
its telephone number is (908) 306-4400.
Additional information concerning Pharmacia & Upjohn is included in
Pharmacia & Upjohn's reports filed under the Exchange Act that are incorporated
by reference in this Proxy Statement/Prospectus. See "Where You Can Find More
Information" on page 71.
SUGEN
SUGEN is a biopharmaceutical company focused on the discovery and
development of small molecule drugs which target specific cellular signal
transduction pathways. SUGEN was incorporated in Delaware in 1991. SUGEN's
principal executive offices are located at 230 East Grand Avenue, South San
Francisco, California 94080, and its telephone number is (650) 553-8300.
Additional information concerning SUGEN is included in SUGEN's reports
filed under the Exchange Act that are incorporated by reference in this Proxy
Statement/ Prospectus. See "Where You Can Find More Information" on page 71.
THE MERGER
GENERAL
The following section summarizes the material terms of the merger
agreement, a copy of which is included in this Proxy Statement/Prospectus as
Annex A and incorporated herein by reference. We urge you to read the merger
agreement in its entirety for a more complete description of the terms and
conditions upon which the merger is to be effected.
If the merger agreement is adopted by the holders of a majority of the
outstanding shares of SUGEN common stock entitled to vote at the special meeting
and the other conditions to closing are satisfied or waived, University
Acquisition Corp., a wholly owned subsidiary of Pharmacia & Upjohn, will be
merged with and into SUGEN. SUGEN will be the surviving corporation and will
become a wholly owned subsidiary of Pharmacia & Upjohn. As a result of the
merger, each holder of SUGEN common stock will be entitled to receive from
Pharmacia & Upjohn, in exchange for each share of SUGEN stock, a fraction of a
share of Pharmacia & Upjohn common stock equal to an exchange ratio.
MERGER CONSIDERATION
If the merger agreement is adopted, each share of SUGEN common stock will
be converted into a fraction of a share of Pharmacia & Upjohn common stock equal
to an exchange ratio. The exchange ratio will be calculated by dividing $31.00
by the volume weighted average closing price of Pharmacia & Upjohn common stock
on the New York Stock Exchange as reported by Bloomberg Financial Markets during
the 20 trading day
22
<PAGE> 30
period ending on (and including) the third trading day before the special
meeting. The exchange ratio will be rounded to the nearest 1/10,000. SUGEN
stockholders would not receive less than 0.51533 or more than 0.62984 of a share
of Pharmacia & Upjohn common stock for each share of SUGEN common stock. If the
volume weighted average closing price of Pharmacia & Upjohn common stock is
greater than $49.21875 and less than $60.15625 during such trading period, SUGEN
stockholders will receive $31.00 worth of Pharmacia & Upjohn common stock for
each share of SUGEN common stock. If the volume weighted average closing price
of Pharmacia & Upjohn common stock is equal to or less than $49.21875 during
such trading period, SUGEN stockholders will receive 0.62984 of a share of
Pharmacia & Upjohn common stock, which may be worth less than $31.00 a share,
for each share of SUGEN common stock. Conversely, if the volume weighted average
closing price of Pharmacia & Upjohn common stock is equal to or greater than
$60.15625 during such trading period, SUGEN stockholders will receive 0.51533 of
a share of Pharmacia & Upjohn common stock, which may be worth more than $31.00
a share, for each share of SUGEN common stock.
SUGEN stockholders will not receive fractional shares of Pharmacia & Upjohn
common stock. Instead, a stockholder will receive a cash payment, without
interest, for any fractional share of Pharmacia & Upjohn common stock SUGEN
stockholders might otherwise have been entitled to receive, which payment
represents the stockholder's proportionate interest in the net proceeds from the
sale by an exchange agent of the aggregate fractional shares of Pharmacia &
Upjohn common stock.
For example, if a stockholder currently owns 100 shares of SUGEN common
stock, the following table shows the applicable exchange ratio and what the
stockholder will receive in the merger based on the indicated volume weighted
average closing price of Pharmacia & Upjohn common stock during the 20 trading
day period:
<TABLE>
<CAPTION>
EXCHANGE NUMBER FRACTIONAL
AVERAGE CLOSING PRICE RATIO OF SHARES SHARES
--------------------- -------- --------- ----------
<S> <C> <C> <C>
Equal to or less than $49.21875........ 0.62984 62 .984
$50......................... 0.62000 62 0
$52......................... 0.59620 59 .62
$54......................... 0.57410 57 .41
$56......................... 0.55360 55 .36
$58......................... 0.53450 53 .45
$60......................... 0.51670 51 .67
Equal to or greater than $60.15625..... 0.51533 51 .533
</TABLE>
23
<PAGE> 31
SCHEDULE OF IMPORTANT DAYS
The following schedule shows important dates and events in connection with
the special meeting and the merger.
<TABLE>
<CAPTION>
DATES EVENTS
- ----- ------
<S> <C>
July 29, 1999........................ Record date for special meeting
July 30, 1999 through August 26,
1999............................... The pricing period that will be used to compute
the exchange ratio (unless the special meeting is
adjourned or rescheduled)
August 31, 1999...................... Special meeting and target date for completion of
the merger
</TABLE>
BACKGROUND OF THE MERGER
On February 28, 1999, Dr. Goran Ando, the Executive Vice President and
President of Research and Development of Pharmacia & Upjohn, and Mr. Samuel
Hamad, the Acting Chief Executive Officer of SUGEN Europe, a wholly owned
subsidiary of SUGEN, spoke by telephone about potential distribution partnering
arrangements between SUGEN and Pharmacia & Upjohn in certain European countries.
On March 11, 1999, Mr. Tom Kassberg, Mr. Hamad, Dr. Peter Hirth and Dr.
Peter Langecker, all of SUGEN, and Dr. Ando, Ms. Alison Ayers, Mr. Jeff
Buchalter, Mr. Mike DuBois, Dr. Fredrik Henell and Dr. Langdon Miller, all of
Pharmacia & Upjohn, met at Pharmacia & Upjohn's headquarters in Bridgewater, New
Jersey, reviewed certain clinical data and conducted discussions concerning
possible collaborative arrangements between Pharmacia & Upjohn and SUGEN. Also
on March 11, Pharmacia & Upjohn and SUGEN executed a confidentiality agreement
relating to the confidential treatment of certain information provided to
Pharmacia & Upjohn by SUGEN.
On March 15, 1999, Mr. DuBois telephoned Mr. Hamad with the intention of
discussing a possible equity investment by Pharmacia & Upjohn in SUGEN. Mr.
Hamad replied that he was not authorized to discuss an equity investment
transaction.
On March 19, 1999, Mr. Hamad telephoned Mr. DuBois and reported that SUGEN
executives were authorized to pursue parallel discussions on a potential equity
investment and on a licencing arrangement.
On March 31, 1999, Mr. DuBois sent to Mr. Hamad a tentative proposal of
Pharmacia & Upjohn with respect to a co-promotion arrangement in the U.S. and a
partnering arrangement in Europe.
On April 8, 1999, Mr. Fred Hassan, Chief Executive Officer of Pharmacia &
Upjohn, Dr. Ando, Mr. Stephen Evans-Freke, Chairman and Chief Executive Officer
of SUGEN and Mr. Hamad met in Bridgewater and discussed the potential purchase
by Pharmacia & Upjohn of a significant percentage of SUGEN's equity in a
transaction patterned on the 1992 investment in Genentech by Roche Holdings.
On April 9, 1999, Dr. Les Hudson and Dr. Terje Kalland of Pharmacia &
Upjohn, met in suburban New Jersey with Dr. Hirth and discussed the potential
for collaboration on cell signal-related targets and drug discovery in cancer.
On April 20, 1999, at a meeting of SUGEN's board of directors, SUGEN's
board reviewed the status of the discussion with Pharmacia & Upjohn and
authorized SUGEN's
24
<PAGE> 32
management to pursue further discussions with Pharmacia & Upjohn related to the
proposed equity investment by Pharmacia & Upjohn.
On April 24, 1999, the executive committee of SUGEN's board of directors
discussed further the Pharmacia & Upjohn proposal.
On April 25, 1999, Messrs. Evans-Freke and Hamad met with Mr. Hassan and
Dr. Ando at the Hilton Hotel in Short Hills, New Jersey and discussed in greater
detail the acquisition by Pharmacia & Upjohn of a significant equity interest in
SUGEN. Both parties agreed to move forward with the analysis and negotiation of
such a transaction, and to engage investment bankers to assist in the process.
On April 26, 1999, certain members of SUGEN's board of directors discussed
the outcome of the April 25 meeting and authorized Mr. Evans-Freke to formally
retain Lehman Brothers as SUGEN's financial advisor.
On April 28, 1999, Pharmacia & Upjohn and SUGEN executed a mutual
confidentiality agreement relating to the confidential treatment of certain
information provided by each party to the other in connection with the ongoing
licensing discussions.
On April 29, 1999, Mr. Luke Fleckenstein, Dr. Henell, Mr. Mats Pettersson
and Mr. Christopher Coughlin, Executive Vice President and Chief Financial
Officer, all of Pharmacia & Upjohn and representatives of Goldman, Sachs & Co.,
financial advisors to Pharmacia & Upjohn met in New York, New York to discuss
the proposed transaction and the accounting effect of a partial acquisition
compared to an acquisition of all of the outstanding equity securities of SUGEN.
Later that day Mr. Hassan, Mr. Pettersson, Mr. Coughlin, Mr. Evans-Freke and Mr.
Hamad, representatives of Goldman Sachs and representatives of Lehman Brothers,
financial advisors to SUGEN, met in New York and discussed a "Genentech/Roche"
type transaction. During the course of such meeting, the parties' discussion of
a "Genentech/Roche" type of transaction evolved into a discussion of a
transaction in which Pharmacia & Upjohn would acquire all of the outstanding
equity securities of SUGEN.
On April 30, 1999, Mr. Hassan and Mr. Evans-Freke met in Bridgewater and
discussed matters related to a transaction between Pharmacia & Upjohn and SUGEN.
Also on April 30, 1999, representatives of Pharmacia & Upjohn met with various
scientific personnel of SUGEN at SUGEN's headquarters in South San Francisco,
California to evaluate SUGEN's pipeline.
On May 6 and 7, 1999, certain scientific personnel of Pharmacia & Upjohn
and SUGEN conducted a meeting in which the SUGEN personnel made certain
presentations concerning SUGEN's research and development activities.
On May 8, 1999, Pharmacia & Upjohn proposed to acquire all of the
outstanding equity of SUGEN for $30.00 per share in a stock-for-stock
transaction accounted for as a pooling of interests.
On May 9, 1999, SUGEN's board of directors held a telephonic board meeting
to discuss the Pharmacia & Upjohn proposal, at which meeting the SUGEN board
determined that the proposal was not acceptable.
On May 13, 1999, Pharmacia & Upjohn revised its proposal to increase the
price to $34.00 per share, subject to completion of its due diligence review of
SUGEN and the negotiation of a definitive merger agreement.
25
<PAGE> 33
On May 14, 1999, SUGEN's board of directors held a telephonic board meeting
to discuss the revised Pharmacia & Upjohn proposal, at which meeting the SUGEN
board authorized SUGEN's management to indicate to Pharmacia & Upjohn that
SUGEN's board of directors was willing to move forward based on the $34.00 per
share proposal, subject to negotiations of a mutually acceptable merger
agreement.
On May 15, 1999, SUGEN provided certain redacted legal due diligence
materials to Pharmacia & Upjohn and its legal, accounting and financial
advisors. Also on May 15, 1999, representatives of Pharmacia & Upjohn and SUGEN
and their financial and legal advisors met in New York to begin Pharmacia &
Upjohn's legal due diligence review of SUGEN.
On May 19, 1999, Pharmacia & Upjohn's board of directors held a telephonic
board meeting, at which meeting the Pharmacia & Upjohn board approved a merger
with SUGEN, subject to the completion of due diligence and the negotiation of a
satisfactory merger agreement, and authorized Mr. Hassan to pursue further
discussions with SUGEN and to approve the final terms of such a merger.
Following such board meeting, Pharmacia & Upjohn's legal counsel provided an
initial draft of the merger agreement with respect to the proposed merger to
SUGEN's legal counsel.
On May 20, 1999, SUGEN's board of directors met in New York to discuss the
status of the transaction. Mr. Hassan and Dr. Ando attended a portion of the
meeting to discuss Pharmacia & Upjohn's plans with respect to the Pharmacia &
Upjohn business and the operation of SUGEN in the event the proposed merger was
consummated. Also on May 20, Messrs. Hassan and Evans-Freke met and discussed
various issues related to the proposed transaction.
On May 21, 1999, Pharmacia & Upjohn and SUGEN executed reciprocal
confidentiality agreements relating to the confidential treatment of information
provided by each party to the other relating to a possible business combination.
Also on May 21, Dr. Kalland and Dr. Sara Courtneidge of SUGEN met in Bridgewater
to discuss certain scientific matters, and Dr. Ando and Mr. Evans-Freke
conferred by telephone to discuss various issues related to the proposed
transaction.
On May 23, 1999, SUGEN's legal advisors provided to Pharmacia & Upjohn's
legal advisors initial written comments to the May 19 draft merger agreement.
From May 25 through May 27, 1999, various scientific personnel of Pharmacia
& Upjohn and SUGEN and their respective intellectual property counsel met at
various times in San Francisco, California to conduct scientific and
intellectual property due diligence.
On May 26, 1999, various representatives of Pharmacia & Upjohn and SUGEN
and their financial, accounting and legal advisors met in New York to discuss
and negotiate the terms of the proposed merger.
On May 27, 1999, various representatives of Pharmacia & Upjohn and SUGEN
and their financial and accounting advisors met in New York to discuss
accounting issues related to the proposed transaction, and the legal advisors to
Pharmacia & Upjohn and SUGEN met in New York to discuss the proposed merger
agreement.
From June 2 through June 4, 1999, representatives of Pharmacia & Upjohn and
SUGEN and their financial, accounting and legal advisors met in New York to
discuss and negotiate the terms of the proposed merger. Also from June 2 through
June 4, 1999, representatives of Pharmacia & Upjohn, including Dr. Ando, met
with certain of
26
<PAGE> 34
SUGEN's senior scientific personnel and other members of management to discuss
the proposed merger and the terms of potential employment arrangements that
would be effective after the completion of the proposed merger.
On June 3, 1999, the SUGEN board of directors held a telephonic meeting to
discuss the status of the proposed merger and to discuss the material terms of
the transaction. Later that day, representatives of Pharmacia & Upjohn and SUGEN
and their financial, accounting and legal advisors met in New York to continue
to discuss and negotiate the terms of the proposed merger.
On June 6, 1999, Pharmacia & Upjohn's senior management convened in a
telephonic meeting chaired by Mr. Hassan and discussed the proposed transaction.
Various Pharmacia & Upjohn personnel and representatives of Pharmacia & Upjohn's
financial and legal advisors participated in the call. Pharmacia & Upjohn's
senior management determined to modify the price that Pharmacia & Upjohn was
willing to pay to SUGEN stockholders in the merger to $31.00 per share.
On the morning of June 7, 1999, a representative of Goldman Sachs contacted
a representative of Lehman Brothers, Mr. Hassan contacted Mr. Evans-Freke and
Mr. Coughlin contacted Mr. James Knighton, Chief Financial Officer of SUGEN, to
indicate that Pharmacia & Upjohn had determined to modify the price that it was
willing to pay to SUGEN stockholders in the merger to $31.00 per share. Later
that day, a number of discussions were held between officers of Pharmacia &
Upjohn and SUGEN related to this issue.
On June 7, 1999, SUGEN's board of directors held a telephonic meeting to
discuss the status of the proposed merger and the proposed price change, but did
not take any formal action in response to the price change.
On June 8, 10 and 14, 1999, SUGEN's board of directors held telephonic
meetings to discuss the status of the proposed merger and the material terms of
the transaction. Mr. Hassan and Dr. Ando attended a portion of the June 14
meeting. Between June 8 and June 15, Pharmacia & Upjohn and SUGEN and their
financial, accounting and legal advisors finalized the terms of the merger
agreement and other transaction documents.
As of June 15, 1999, the board of directors and sole stockholder of
University Acquisition Corp., a wholly owned subsidiary of Pharmacia & Upjohn,
approved and adopted the merger agreement.
On June 15, 1999, the SUGEN board of directors held a telephonic meeting to
consider the approval of the merger agreement and the merger, at which meeting
the SUGEN Board determined that the merger agreement and the merger were in the
best interests of SUGEN and its stockholders, and approved the execution of the
merger agreement and unanimously determined to recommend that SUGEN stockholders
vote to adopt the merger agreement. Following such meeting, Pharmacia & Upjohn,
SUGEN and University Acquisition Corp. executed and delivered the merger
agreement, Pharmacia & Upjohn and SUGEN executed and delivered the stock option
agreement, and Pharmacia & Upjohn, Zeneca Limited and Mr. Evans-Freke executed
and delivered the voting agreement. Pharmacia & Upjohn and SUGEN thereafter
jointly issued a press release announcing that they had executed the merger
agreement.
At a regular meeting of Pharmacia & Upjohn's board of directors held on
June 20 and 21, 1999, Pharmacia & Upjohn's board of directors ratified and
approved the merger agreement, the stock option agreement and the voting
agreement.
27
<PAGE> 35
SUGEN'S REASONS FOR THE MERGER; RECOMMENDATION OF THE SUGEN BOARD
SUGEN's board of directors has approved the merger agreement and believes
that the merger is fair to and in the best interests of SUGEN and its
stockholders. SUGEN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SUGEN
STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
In reaching this unanimous decision, the board considered and reviewed with
SUGEN's management a number of factors relevant to the merger. Included in the
factors considered are the following:
- the SUGEN board's view that, in order to remain independent, SUGEN would
need to raise a significant amount of capital over the next eighteen
months due to:
- SUGEN's approximately $61.9 million cash and investment balances as of
March 31, 1999 and the use of $12.9 million (net of debt financing) of
cash and investments in the quarter ended March 31, 1999;
- Anticipated increased expenses associated with multiple Phase III
clinical trials that SUGEN plans to commence in 1999; and
- Anticipated increased expenses associated with the need to establish,
de novo, an effective U.S. based sales and marketing organization in
order to launch the first of SUGEN's cancer drug candidates;
- the SUGEN board's view that SUGEN's plan to raise the necessary capital
was subject to considerable risks given the current financing environment
for development stage biopharmaceutical companies;
- the SUGEN board's view that even if it would be possible to raise the
necessary capital to fund current activities, it is unlikely that SUGEN
would be able to maintain the financial flexibility to allow for
appropriate contingency planning regarding potential setbacks or delays
in achieving FDA approval for its lead product candidates;
- the SUGEN board's view that SUGEN as an independent company was unable to
devote the appropriate level of resources required to realize the value
of its research and drug discovery capabilities in disease areas outside
cancer;
- the SUGEN board's view, based in part on the opinion of Lehman Brothers,
that $31.00 a share was a fair price to SUGEN's stockholders and
represented a significant premium over historic valuations of SUGEN (the
merger consideration represented a premium of approximately 38%, 63%, 31%
and 218% over the closing price of SUGEN common stock on June 15, 1999
and May 17, 1999 and the 52-week high and 52-week low for the period
ending June 15, 1999, respectively);
- the SUGEN board's view that Pharmacia & Upjohn's stock was valued
attractively related to comparable companies in the pharmaceutical
industry, given the growth prospects in its underlying business;
- the SUGEN board's view that the proposed structure of a stock-for-stock
transaction could potentially benefit SUGEN stockholders due to the
potential positive impact of SUGEN drug candidates on Pharmacia &
Upjohn's business and stockholder value;
28
<PAGE> 36
- the SUGEN board's view that Pharmacia & Upjohn would make a desirable
partner for the following reasons:
- Pharmacia & Upjohn's executive management has a proven track record in
dealing with smaller, innovative, entrepreneurial biotechnology
organizations;
- Pharmacia & Upjohn is an established presence in the oncology field
with marketing and sales capabilities focused on the cancer market;
- Pharmacia & Upjohn has the capability to utilize SUGEN technology in
non-oncology applications and, therefore, to maximize the potential
value of the technology;
- Pharmacia & Upjohn is well capitalized and has the willingness to
commit resources to the development of SUGEN's clinical candidates as
well as the development of the base platform technology;
- Pharmacia & Upjohn has an established commercial infrastructure on a
worldwide basis; and
- Pharmacia & Upjohn has existing strengths in pharmaceutical drug
development and proven experience in successfully navigating
regulatory processes;
- the expected tax and accounting treatment of the merger;
- the compatibility of management of the two companies;
- a comparison of selected recent acquisition and merger transactions in
the industry as well as trading performance for comparable companies in
the industry;
- the presentation delivered by Lehman Brothers to the SUGEN board and the
written opinion of Lehman Brothers to the effect that, as of the date of
the opinion and based on and subject to the matters set forth in the
opinion, the consideration to be offered to the stockholders of SUGEN was
fair from a financial point of view, to the SUGEN stockholders;
- the belief that the terms of the merger agreement, including the parties'
mutual representations, warranties and covenants, are reasonable and the
fact that the merger agreement did not contain any extraordinary
conditions to Pharmacia & Upjohn's obligations to consummate the merger;
- the SUGEN board also considered a number of potential negative factors
with respect to the merger, including, but not limited to:
- the substantial dilution to the SUGEN stockholders of the potential
benefits of one or more of its product candidates being successfully
commercialized;
- the loss of control over the future operations of SUGEN following the
merger;
- the risk that the benefits sought to be achieved in the merger will
not be achieved;
- risks associated with product development and approval; and
- the fixed nature of the exchange ratio within the given range and the
resulting risk that, should there be a significant decrease in the
market value of Pharmacia & Upjohn common stock, the value of the
consideration to be received by SUGEN stockholders would be reduced.
29
<PAGE> 37
The SUGEN board discussed with SUGEN's management and financial advisor the
prospects for combinations with companies other than Pharmacia & Upjohn, the
possibility that the benefits described above or other benefits could be
achieved through any other combination and the risks and benefits of continuing
to remain independent.
This discussion of information and factors considered by the SUGEN board is
not intended to be exhaustive but is believed to include certain material
factors considered by the SUGEN board. The SUGEN board did not quantify or
otherwise assign relative weight to the factors considered.
OPINION OF SUGEN'S FINANCIAL ADVISOR
SUGEN's board of directors engaged Lehman Brothers to act as its financial
advisor in connection with the merger. On June 15, 1999, Lehman Brothers
rendered its oral and written opinion to SUGEN's board of directors that, as of
such date and based upon and subject to certain matters stated therein, the
consideration to be paid to the stockholders of SUGEN by Pharmacia & Upjohn in
the merger was fair from a financial point of view to SUGEN's stockholders.
THE FULL TEXT OF LEHMAN BROTHERS' WRITTEN OPINION, DATED JUNE 15, 1999 (THE
"LEHMAN BROTHERS OPINION"), IS ATTACHED AS ANNEX C TO THIS PROXY STATEMENT/
PROSPECTUS. STOCKHOLDERS MAY READ THE LEHMAN BROTHERS OPINION FOR A DISCUSSION
OF THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, FACTORS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS OPINION. THE
FOLLOWING IS A SUMMARY OF THE LEHMAN BROTHERS OPINION.
Lehman Brothers' advisory services and opinion were provided for the
information and assistance of SUGEN's board of directors in connection with its
consideration of the merger. The Lehman Brothers Opinion is not intended to be
and does not constitute a recommendation to any stockholder of SUGEN as to how
such stockholder should vote with respect to the merger. Lehman Brothers was not
requested to opine as to, and the Lehman Brothers Opinion does not address,
SUGEN's underlying business decision to proceed with or effect the merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
- the merger agreement and the specific terms of the merger;
- such publicly available information concerning SUGEN and Pharmacia &
Upjohn that Lehman Brothers believed to be relevant to its analysis,
including their respective Annual Reports on Form 10-K for the year ended
December 31, 1998 and Quarterly Reports on Form 10-Q for the period ended
March 31, 1999;
- financial and operating information with respect to the business,
operations and prospects of SUGEN as furnished to Lehman Brothers by
SUGEN;
- a trading history of SUGEN's common stock from May 19, 1998 to June 14,
1999 and a comparison of that trading history with those of other
companies that Lehman Brothers deemed relevant;
- a trading history of Pharmacia & Upjohn's common stock from May 19, 1998
to June 14, 1999 and a comparison of that trading history with those of
other companies that Lehman Brothers deemed relevant;
- a comparison of the historical financial results and present financial
condition of SUGEN with those of other companies that Lehman Brothers
deemed relevant;
30
<PAGE> 38
- a comparison of the financial terms of the merger with the financial
terms of certain other transactions that Lehman Brothers deemed relevant;
- published estimates of third party research analysts with respect to the
future financial performance of Pharmacia & Upjohn; and
- SUGEN's current cash flow forecast and limited cash position, its ability
to meet its liquidity requirements in the future and the potential
alternatives available to SUGEN to fund such requirements.
In addition, Lehman Brothers had discussions with the management of SUGEN
concerning its business, operations, assets, financial condition and prospects,
as well as prior discussions held by SUGEN with third parties with respect to a
possible business combination with SUGEN, and undertook such other studies,
analyses and investigations as it deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by Lehman
Brothers without assuming any responsibility for independent verification of
such information and further relied upon the assurances of management of SUGEN
that they were not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of SUGEN, upon the advice of SUGEN, Lehman Brothers assumed that such
projections were reasonably prepared on a basis reflecting the then best
currently available estimates and judgments of the management of SUGEN as to its
future financial performance. However, for purposes of its analysis, Lehman
Brothers also considered more conservative assumptions and estimates which
resulted in certain adjustments to the projections provided by SUGEN's
management. Lehman Brothers discussed these adjusted projections with the
management of SUGEN and they consented to the use of such adjusted projections
in performing the analysis. Lehman Brothers was not provided with, and did not
have access to, any financial projections of Pharmacia & Upjohn. Accordingly,
Lehman Brothers assumed that the published estimates of third party research
analysts were a reasonable basis upon which to evaluate the future financial
performance of Pharmacia & Upjohn and that Pharmacia & Upjohn will perform
substantially in accordance with such estimates. In arriving at its opinion,
Lehman Brothers did not conduct a physical inspection of the properties and
facilities of SUGEN or Pharmacia & Upjohn and did not make or obtain any
evaluations or appraisals of the assets or liabilities of SUGEN or Pharmacia &
Upjohn. In addition, SUGEN's management did not authorize Lehman Brothers to
solicit, and it did not solicit, any indications of interest from any third
party with respect to a purchase of or business combination with SUGEN. Upon
advice of SUGEN and its legal and accounting advisors, Lehman Brothers assumed
that the merger will qualify (i) for pooling-of-interests accounting treatment
and (ii) as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and therefore as a tax-free
transaction to the stockholders of SUGEN. The Lehman Brothers Opinion
necessarily was based upon market, economic and other conditions as they existed
on, and can be evaluated as of, the date of such opinion.
In arriving at its opinion, Lehman Brothers did not ascribe a specific
range of value to SUGEN, but rather made its determination as to the fairness,
from a financial point of view, to the stockholders of SUGEN of the
consideration to be paid by Pharmacia & Upjohn in the merger on the basis of
financial and comparative analyses. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial and comparative analysis and the application of those
31
<PAGE> 39
methods to the particular circumstances, and therefore, such an opinion is not
readily susceptible to summary description. Furthermore, in arriving at its
opinion, Lehman Brothers did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Lehman
Brothers believes that its analyses must be considered as a whole and that
considering any portion of such analyses and factors, without considering all
analyses and factors as a whole, could create a misleading or incomplete view of
the process underlying its opinion. In its analyses, Lehman Brothers made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
SUGEN and Pharmacia & Upjohn. None of SUGEN, Pharmacia & Upjohn, Lehman Brothers
or any other person assumes responsibility if future results are materially
different from those discussed. Any estimates contained in these analyses were
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
VALUATION ANALYSIS
The following is a summary of the material financial analyses used by
Lehman Brothers in connection with providing its opinion to SUGEN's board of
directors. Certain of the summaries of financial analyses include information
presented in tabular format. In order to fully understand the financial analyses
used by Lehman Brothers, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. In particular, you should note that in applying the various
valuation methods to the particular circumstances of SUGEN and the merger,
Lehman Brothers made qualitative judgments as to the significance and relevance
of each analysis and factor. In addition, Lehman Brothers made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of SUGEN and
Pharmacia & Upjohn. Accordingly, the analyses listed in the tables and described
below must be considered as a whole. Considering any portion of such analyses
and of the factors considered, without considering all analyses and factors,
could create a misleading or incomplete view of the process underlying the
Lehman Brothers Opinion.
COMPARABLE COMPANY TRADING ANALYSIS
The comparable company trading analysis provides a relative valuation of
SUGEN based on the market value and technology values of selected comparable
companies. The "market value" is calculated as the total outstanding common
equity plus the net proceeds of the exercisable and in-the-money stock options
and warrants. The "technology value" is the market value minus cash and cash
equivalents plus short- and long-term debt. For this analysis, Lehman Brothers
analyzed the market values, technology values and other relevant financial
parameters of two groups of comparable companies: (1) selected biotechnology
companies with cancer drug candidates in late stage clinical trials; and (2)
signal transduction companies having a technology platform comparable to
SUGEN's. A summary of the analysis is set forth below.
32
<PAGE> 40
<TABLE>
<CAPTION>
MARKET TECHNOLOGY NET LTM NET YEARS OF
VALUE(A) VALUE CASH CASH BURN RATE(B) CASH(C)
-------- ---------- ----- ----- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
SUGEN..................... $442.6 $389.9 $61.9 $52.7 $47.4 1.3
Late-stage cancer
companies
Mean.................... $397.2 $349.3 $84.2 $47.9 $43.3 2.1
Median.................. 450.7 357.9 45.6 29.0 39.9 1.4
Signal transduction
companies
Mean.................... $181.2 $190.2 $28.1 $(9.0) $29.9 1.7
Median.................. 92.4 70.6 23.8 13.5 20.6 1.2
</TABLE>
- -------------------------
(a) Market value as of June 15, 1999.
(b) LTM net burn rate is calculated as net loss plus depreciation and
amortization expense, less capital expenditures. Based on publicly available
information as of March 31, 1999.
(c) Years of cash is calculated as cash divided by the LTM net burn rate.
Pursuant to the terms of the merger, at $31.00 per share of SUGEN common stock
the implied market value of SUGEN would be $728.9 million and the implied
technology value would be $604.5 million.
Because of the inherent differences between the businesses, operations,
financial conditions and prospects of SUGEN and the businesses, operations,
financial conditions and prospects of the companies included in the comparable
company groups, Lehman Brothers believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the analysis, and
accordingly, also made qualitative judgments concerning differences between the
financial and operating characteristics of SUGEN and the companies in the
comparable company groups that would affect the public trading values of SUGEN
and such comparable companies.
PREMIUMS PAID ANALYSIS
The premiums paid analysis provides a market benchmark based on the
premiums paid in other comparable stock-for-stock transactions in the
biotechnology sector that were publicly announced since January 1, 1995.
<TABLE>
<CAPTION>
PREMIUM TO SHARE PRICE PRIOR TO TRANSACTION
-------------------------------------------
52 WEEK 52 WEEK
ONE DAY 30 DAY HIGH LOW
-------- ------- -------- --------
<S> <C> <C> <C> <C>
PHARMACIA &
UPJOHN/SUGEN MERGER.................... 37.8% 62.6% 30.5%* 218.0%*
Mean................................... 35.8% 41.1% (12.4)% 124.0%
Median................................. 26.9% 40.4% 0.4% 119.7%
High................................... 91.7% 142.5% 37.0% 220.9%
Low.................................... (7.9)% (13.6)% (62.3)% 10.2%
</TABLE>
- -------------------------
* SUGEN's 52-Week High of $23.75 occurred on June 14, 1999; the 52-Week Low of
$9.75 occurred on September 1, 1998.
33
<PAGE> 41
DISCOUNTED CASH FLOW ANALYSIS
The discounted cash flow analysis provides a valuation of SUGEN based on
the net present value of SUGEN's projected after-tax unlevered free cash flows
(defined as operating cash flows available after working capital, capital
spending, tax and other operating requirements). Lehman Brothers performed a
discounted cash flow analysis based upon SUGEN's projected financial performance
through 2008 under three different scenarios. These scenarios were based on: (1)
the revenue projections for each of SUGEN's drug candidates and operating margin
assumptions provided by SUGEN's management (the "Management Case"); (2) the
revenue projections and operating margins suggested by Lehman Brothers
reflecting more conservative assumptions (the "Adjusted Case"); and (3) the
Management Case projections after delaying certain product launches by one year
("Management -- Delay Case"). All of the projections associated with SUGEN's
existing pre-clinical and clinical drug candidates were probability-adjusted to
reflect the likelihood of their successful commercialization. Lehman Brothers
calculated a range of present values for SUGEN using a range of after-tax
discount rates from 20% to 25% and a terminal value based upon a range of
multiples of estimated 2008 EBIT (earnings before interest and taxes) from 24x
to 30x. Furthermore, in calculating SUGEN's per shares values Lehman Brothers
considered the possibility that SUGEN would have to issue additional equity to
obtain needed financing. In particular, SUGEN expects that it would need
approximately $150 million to finance its clinical trials and operations over
the next three years. As of March 31, 1999, SUGEN had cash balances of $61.9
million, which based on its expected cash expenditures for 1999 of $55 million,
would only be enough to sustain SUGEN for another year. In order to account for
SUGEN's additional financing needs, Lehman Brothers assumed that SUGEN would
have to issue an additional 7.0 million shares of common stock. As a result, the
per share discounted cash flow values were calculated for both the Management
Case and the Adjusted Case on the basis of the existing number of shares of
SUGEN common stock (23.5 million on a diluted basis) plus an additional 7.0
million shares. Moreover, in the Management -- Delay Case, Lehman Brothers
assumed that an additional 10.0 million (versus 7.0 million) shares of SUGEN
common stock would have to be issued in order to meet the even greater cash
requirements created by the delays. The following table presents the range of
implied equity values per share of SUGEN's common stock based upon such range of
the discount rates and terminal values.
<TABLE>
<CAPTION>
RANGE OF EQUITY VALUES RANGE OF VALUES PER SHARE
---------------------- -------------------------
<S> <C> <C>
MANAGEMENT CASE(a)................ $865.3 - $1,422.4 $28.36 - $46.62
ADJUSTED CASE(a).................. $481.9 - $867.8 $15.79 - $28.44
MANAGEMENT -- DELAY CASE(b)....... $742.5 - $1,282.8 $22.15 - $38.28
</TABLE>
- -------------------------
(a) Assumes the issuance of an additional 7.0 million shares to reflect future
financing needs; accordingly, the per share values are calculated assuming
30.5 million shares of common stock.
(b) Assumes the issuance of an additional 10.0 million shares to reflect future
financing needs; accordingly, the per share values are calculated assuming
33.5 million shares of common stock.
34
<PAGE> 42
FINANCING ALTERNATIVES AVAILABLE TO SUGEN
Lehman Brothers also reviewed the current financing environment for U.S.
and European biotechnology companies to ascertain the ability of SUGEN to obtain
funds to continue the development and commercialization of its drug candidates
on its own. Among the factors reviewed was the number of public follow-on equity
offerings completed since June 1998 in the U.S. biotechnology sector, and the
stock price performance of certain U.S. and European biotechnology indices
relative to broader market indices. Based on Lehman Brothers' review, only four
biotechnology follow-on equity offerings were completed in the United States
since June 1998 despite the U.S. equity markets being at record levels. The
performance of these issues is set forth below.
<TABLE>
<CAPTION>
ONE-DAY AFTER
OFFER PRICE TO ONE- OFFER PRICE TO 6/15/99 PRICE TO
DAY PRE-FILE PRICE OFFER PRICE OFFER PRICE
------------------- -------------- ----------------
<S> <C> <C> <C>
QLT PHOTOTHERAPEUTICS..... (4.9)% 4.7% 15.8%
ABGENIX................... (11.8)% 0.0% 3.3%
COULTER PHARMACEUTICAL.... (13.4)% 2.5% (23.3)%
GLIATECH.................. (24.4)% 3.2% 75.0%
</TABLE>
Lehman Brothers also noted that between June 16, 1998 and June 15, 1999, the
biotechnology indices of comparable companies traded significantly lower than
certain broader market measures. In the United States, the average share prices
of the selected late-stage development cancer companies and signal transduction
companies decreased by 15.3% and 17.5%, respectively, between June 16, 1998 and
June 15, 1999. Over the same periods, the AMEX Biotechnology Index, comprised of
larger biotechnology companies, and the NASDAQ Composite increased by 34.8% and
37.7%, respectively. Likewise, in Europe, the Lehman Brothers European
Biotechnology Index decreased by 57.7% between June 16, 1998 and June 15, 1999,
while the broader based FTSE 350 Health Index only declined by 0.8%.
As noted above, based on SUGEN's management estimates, SUGEN would require
approximately $150 million in additional capital between now and 2001 to finance
the continued development and commercialization of its lead products. Lehman
Brothers estimated that raising this amount of additional capital would dilute
the existing stockholders' ownership interest considerably.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. SUGEN's board of directors selected
Lehman Brothers because of its expertise, reputation and familiarity with SUGEN,
Pharmacia & Upjohn and the biotechnology and pharmaceutical industries generally
and because Lehman Brothers' investment banking professionals have substantial
experience in transactions comparable to the merger.
As compensation for its services in connection with the merger, SUGEN has
agreed to pay Lehman Brothers a fee equal to 1.00% of the consideration involved
in the merger (the amount of such fees being approximately $7.3 million),
payable upon the merger's consummation; provided, however, that 20% of such fees
shall be payable promptly after the funding mechanism, as defined in the merger
agreement, being provided by
35
<PAGE> 43
Pharmacia & Upjohn is made available to SUGEN. In addition, SUGEN has agreed to
reimburse Lehman Brothers up to $50,000 for reasonable out-of-pocket expenses
incurred in connection with the merger and to indemnify Lehman Brothers for
certain liabilities that may arise out of its engagement by SUGEN and the
rendering of the Lehman Brothers Opinion. Lehman Brothers has previously
rendered investment banking services to SUGEN and received customary fees for
such services.
In the ordinary course of its business, Lehman Brothers may actively trade
in the debt or equity securities of SUGEN and Pharmacia & Upjohn for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated U.S. federal income
tax consequences of the merger to owners of SUGEN common stock who hold the
stock as a capital asset. This summary is based on the Internal Revenue Code of
1986, Treasury regulations, administrative rulings and court decisions, all as
in effect as of the date hereof and all of which are subject to change at any
time, possibly with retroactive effect. This summary is not a complete
description of all the consequences of the merger and, in particular, may not
address U.S. federal income tax considerations applicable to stockholders
subject to special treatment under U.S. federal income tax law, which would
include, for example, non-U.S. persons, financial institutions, dealers in
securities, insurance companies, tax-exempt entities, stockholders who are
subject to the alternative minimum tax provisions of the Internal Revenue Code,
and owners who hold SUGEN common stock as part of a hedge, straddle or
conversion transaction. In addition, no information is provided herein with
respect to the tax consequences of the merger under applicable foreign, state or
local laws. HOLDERS OF SUGEN COMMON STOCK ARE URGED TO CONSULT WITH THEIR OWN
TAX ADVISORS REGARDING THE FEDERAL INCOME AND OTHER TAX CONSEQUENCES OF THE
MERGER TO THEM, INCLUDING THE EFFECTS OF STATE, LOCAL AND FOREIGN TAX LAWS.
The obligations of the parties to consummate the merger are conditioned
upon the receipt by Pharmacia & Upjohn of an opinion from Sullivan & Cromwell,
and the receipt by SUGEN of an opinion from Cooley Godward LLP, in each case
subject to the qualifications discussed below, regarding the characterization of
the merger as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code. As a reorganization, the merger will have, in the opinion
of Cooley Godward LLP and Sullivan & Cromwell, the following principal U.S.
federal income tax consequences:
- no gain or loss will be recognized by Pharmacia & Upjohn, University
Acquisition Corp. or SUGEN as a result of the merger;
- no gain or loss will be recognized by the holders of SUGEN common stock
who exchange their SUGEN common stock for Pharmacia & Upjohn common stock
pursuant to the merger, except with respect to any cash received in lieu
of a fractional share of Pharmacia & Upjohn common stock;
- the aggregate tax basis of the Pharmacia & Upjohn common stock received
in the merger by each holder of SUGEN common stock will be the same as
the aggregate tax basis of the SUGEN common stock surrendered in exchange
therefor, reduced
36
<PAGE> 44
by any amount of tax basis allocable to a fractional share interest in
Pharmacia & Upjohn common stock for which cash is received; and
- the holding period of Pharmacia & Upjohn common stock received in the
merger will include the holding period for the SUGEN common stock
surrendered in exchange therefor.
Sullivan & Cromwell and Cooley Godward LLP will render their respective tax
opinions on the basis of facts, representations and assumptions set forth or
referred to in the opinions which are intended to be consistent with the state
of facts existing at the time the merger is consummated. In rendering its tax
opinion, each such counsel will require and rely upon representations and
covenants including those contained in certificates of officers of Pharmacia &
Upjohn, University Acquisition Corp. and SUGEN, reasonably satisfactory in form
and substance to such counsel. Such opinions will not be binding on the IRS nor
preclude the IRS from adopting a contrary position. A successful IRS challenge
to the reorganization status of the merger would result in significant adverse
tax consequences to the SUGEN stockholders. A SUGEN stockholder would recognize
gain or loss with respect to each share of SUGEN common stock surrendered equal
to the difference between the stockholder's basis in such share and the fair
market value, as of the effective time of the merger, of the Pharmacia & Upjohn
common stock received in exchange therefor. In such event, a stockholder's
aggregate basis in the Pharmacia & Upjohn common stock so received would equal
its fair market value, and the stockholder's holding period for such stock would
begin the day after the closing date of the merger.
Even if the merger qualifies as a reorganization, a recipient of Pharmacia
& Upjohn common stock would recognize income to the extent that, for example,
any such shares were determined to have been received in exchange for services,
to satisfy obligations or in consideration for anything other than the SUGEN
common stock surrendered. In addition, to the extent that a SUGEN stockholder
were treated as receiving (directly or indirectly) consideration other than
Pharmacia & Upjohn common stock in exchange for such stockholder's SUGEN common
stock, gain, if any, would have to be recognized.
Cash received by a holder of SUGEN common stock instead of a fractional
share of Pharmacia & Upjohn common stock will be treated as received in
disposition of such fractional share. A SUGEN stockholder will generally
recognize capital gain or loss measured by the difference between the amount of
cash received and the portion of the tax basis of the stockholder's SUGEN common
stock allocable to the fractional share interest. In the case of individuals,
the maximum federal income tax rate applicable to capital gains is generally the
same as ordinary income rates for capital assets held for one year or less and
20% for capital assets held for more than one year.
ACCOUNTING TREATMENT
The merger is intended to qualify as a pooling of interests. The pooling of
interests method of accounting assumes that the combining companies have been
merged from inception, and the historical financial statements for periods prior
to consummation of the merger may be restated as though the companies had been
combined from inception as required under United States generally accepted
accounting principles.
It is a condition to the merger that:
- Ernst & Young LLP shall have delivered to Pharmacia & Upjohn and SUGEN a
letter dated as of the closing date, stating that based upon discussions
with officials of SUGEN responsible for financial accounting matters, and
information furnished
37
<PAGE> 45
to Ernst & Young LLP to the date of its letter, Ernst & Young LLP concurs
with SUGEN management's conclusion that, as of the date of its letter, no
conditions exist related to SUGEN that would preclude Pharmacia & Upjohn
from accounting for the merger as a pooling of interests.
- PricewaterhouseCoopers LLP shall have delivered to Pharmacia & Upjohn a
letter dated as of the closing date, stating that based upon discussions
with officials of Pharmacia & Upjohn responsible for financial and
accounting matters and the letter provided by Ernst & Young LLP to SUGEN,
PricewaterhouseCoopers LLP concurs with Pharmacia & Upjohn management's
conclusions that the merger will qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations.
REGULATORY APPROVALS
HART-SCOTT-RODINO
The Federal Trade Commission (the "FTC"), and the Antitrust Division of the
Department of Justice (the "DOJ"), frequently scrutinize the legality under the
antitrust laws of transactions such as the merger. At any time before or after
the merger, the DOJ 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 merger or seeking divestiture of substantial assets of Pharmacia &
Upjohn or SUGEN or their subsidiaries. Private parties and state attorneys
general may also bring an action under the antitrust laws under certain
circumstances. There can be no assurance that a challenge to the merger on
antitrust grounds will not be made or, if such a challenge is made, of the
result.
On July 7, 1999, Pharmacia & Upjohn and SUGEN filed their respective
Pre-Merger Notification and Report Forms with the FTC and the DOJ under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, or the HSR Act. The HSR
Act, and the rules and regulations thereunder, provide that certain merger
transactions, including the merger, may not be consummated until required
information and materials have been furnished to the DOJ and the FTC and certain
waiting periods have expired or been terminated. Pursuant to the HSR Act,
Pharmacia & Upjohn and SUGEN requested early termination of the waiting period
applicable to the Offer. There can be no assurances given, however, that the
30-day HSR Act waiting period will be terminated early. If either the FTC or the
DOJ were to request additional information or documentary material from
Purchaser, the waiting period would expire at 11:59 p.m., Eastern time, on the
tenth calendar day after the date of substantial compliance by Pharmacia &
Upjohn and SUGEN with such request. Thereafter, the waiting period could be
extended only by agreement or by court order. Only one extension of the waiting
period pursuant to a request for additional information is authorized by the
rules promulgated under the HSR Act, except by agreement or by court order.
OTHER REGULATORY APPROVALS
The merger is conditioned on all filings required to be made prior to the
effective time of the merger by Pharmacia & Upjohn and SUGEN, and all consents,
approvals and authorizations required to be obtained prior to the effective time
by, Pharmacia & Upjohn and SUGEN from, any governmental entity in connection
with the execution and delivery of the merger agreement and the consummation of
the transactions contemplated hereby by Pharmacia & Upjohn and SUGEN having been
made or obtained.
38
<PAGE> 46
On July 23, 1999, pursuant to Section 39 of Germany's Act against
Restraints of Competition, Pharmacia & Upjohn and SUGEN jointly notified the
German Federal Cartel Office of the pending merger. The Act against Restraints
of Competition and the rules and regulations thereunder provide that certain
merger transactions may not be consummated until required information and
materials have been furnished to the German Federal Cartel Office and a 30-day
review period has expired or voluntarily been terminated prior to the expiration
of the 30-day review period by the Federal Cartel Office as permitted under
applicable German law.
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of Pharmacia & Upjohn common stock received by SUGEN
stockholders in the merger who are not affiliates of SUGEN prior to the merger
will be freely transferable. However, shares of Pharmacia & Upjohn common stock
received by persons who are deemed to be affiliates of SUGEN prior to the merger
may be resold by them only in transactions permitted by the resale provisions of
Rule 145 under the Securities Act of 1933, or Rule 144 promulgated under the
Securities Act in the case of such persons who become affiliates of Pharmacia &
Upjohn, or as otherwise permitted under the Securities Act. Persons deemed to be
affiliates of SUGEN are those individuals or entities that control, are
controlled by, or are under common control with, SUGEN. Affiliates generally
include executive officers and directors of SUGEN as well as certain principal
stockholders of SUGEN. This Proxy Statement/Prospectus does not cover any
resales of Pharmacia & Upjohn common stock received by affiliates of SUGEN in
the merger.
NEW YORK STOCK EXCHANGE LISTING
It is a condition to the merger that the shares of Pharmacia & Upjohn stock
to be issued pursuant to the merger agreement be approved for listing on the New
York Stock Exchange, subject to official notice of issuance. An application for
listing the shares of Pharmacia & Upjohn common stock to be issued in the merger
on the New York Stock Exchange has been approved. If we complete the merger,
SUGEN common stock will no longer be registered under the Exchange Act or quoted
on the Nasdaq National Market.
NO APPRAISAL RIGHTS
In accordance with Section 262 of the Delaware General Corporation Law, no
appraisal rights are available to SUGEN stockholders in connection with the
merger.
EXECUTIVES; EXECUTIVE COMPENSATION;
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE
OFFICERS AND FIVE PERCENT STOCKHOLDERS
Information concerning current directors and officers of Pharmacia &
Upjohn, executive compensation and ownership of Pharmacia & Upjohn common stock
by management and principal stockholders is contained in Pharmacia & Upjohn's
Proxy Statement, dated March 18, 1999, and is incorporated herein by reference.
Information concerning current directors and officers of SUGEN, executive
compensation and ownership of SUGEN common stock by management and principal
stockholders is contained in SUGEN's Proxy Statement, dated April 20, 1999, and
is incorporated herein by reference.
See "Where You Can Find More Information" on page 71.
39
<PAGE> 47
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the SUGEN board with respect to the
merger agreement and the transaction contemplated by that agreement,
stockholders of SUGEN should be aware that certain members of the management and
board of directors of SUGEN have certain interests in the merger that are in
addition to the interests of stockholders of SUGEN generally. All such interests
are described below, to the extent material, and SUGEN believes that, except as
described below, such persons do not have any material interest in the merger
that is different from those of SUGEN stockholders generally. The SUGEN board
was aware of, and considered the interests of, its directors and officers when
it approved the merger agreement and the merger.
SUGEN EMPLOYMENT AGREEMENTS
SUGEN entered into an employment agreement with James L. Knighton (Senior
Vice President and Chief Financial Officer) in 1998. The employment agreement
provides that upon a "change in control," (i) 20,000 shares of SUGEN common
stock that were granted to Mr. Knighton under a restricted stock purchase
agreement (and are therefore subject to repurchase by SUGEN) will be released
from any SUGEN repurchase options and (ii) all unvested stock options held by
Mr. Knighton will immediately become vested and exercisable. The merger
constitutes a "change of control" under such employment agreement. As of June
30, 1999, Mr. Knighton held unvested options to purchase an aggregate of 85,000
shares of SUGEN common stock.
PHARMACIA & UPJOHN EMPLOYMENT AGREEMENTS
Five SUGEN executive officers (Stephen K. Carter, Gerald McMahon, Gregory
D. Plowman, Dorian Rinella and Laura K. Shawver) have entered into employment
agreements with SUGEN and Pharmacia & Upjohn pursuant to which, upon the
completion of one year's service following the closing of the merger, each such
officer will have earned a bonus payment equal to 6-12 months' base salary. Such
employment agreements also provide that in the event of the involuntary
termination of any such officers' employment for reasons other than "cause" or
the voluntary termination of employment by the employee for "good reason" during
the two year period following the closing of the merger, the terminated officer
will be entitled to separation pay in the form of continuation of the payment of
such officer's base salary for a period of 12 to 24 months following termination
of employment. Pharmacia & Upjohn is currently negotiating employment
arrangements with K. Peter Hirth, Executive Vice President and Chairman of the
Research and Development Committee of SUGEN, and Sara A. Courtneidge, Senior
Vice President, Research of SUGEN. In addition, Stephen Evans-Freke, Chairman
and Chief Executive Officer of SUGEN, has entered into an employment agreement
with SUGEN and Pharmacia & Upjohn pursuant to which Mr. Evans-Freke will be
employed for six months following the effective time of the merger to assist the
parties with the integration of the two companies. During such period, Mr.
Evans-Freke will receive his current base salary. Mr. Evans-Freke will also
receive his regular 1999 bonus and a pro-rata portion of such bonus for the
period he works in 2000. Mr. Evans-Freke's employment agreement provides that
upon the completion of Mr. Evans-Freke's six month's service, he will have
earned a bonus payment of $250,000. The agreement also provides that, upon
expiration of the 6 month employment period, Mr. Evans-Freke will be entitled to
separation pay in the form of continuation of the payment of such officer's base
salary for a period 24 months following termination of employment and the bonus
payments that he otherwise would have received. The arrangements set forth in
the employment agreements
40
<PAGE> 48
are generally consistent with Pharmacia & Upjohn's practices with respect to
comparable Pharmacia & Upjohn employees. Pharmacia & Upjohn is currently
negotiating employment arrangements with Mr. Samuel Hamad, the Acting Chief
Executive Officer of SUGEN Europe.
1992 STOCK OPTION PLAN
The merger will cause the acceleration of vesting of all outstanding stock
options under the 1992 Stock Option Plan. As of June 30, 1999, executive
officers and certain directors of SUGEN, as a group, held unvested options to
purchase an aggregate of 613,144 shares of SUGEN common stock at a weighted
average price of $13.46 per share (at exercise prices ranging from $8.125 to
$20.625 per share). See "The Merger Agreement -- Exchange of SUGEN Stock
Options" on page 42.
1994 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The merger will cause the acceleration of vesting of all outstanding stock
options under the 1994 Non-Employee Directors' Stock Option Plan. As of June 30,
1999, non-employee directors of SUGEN held unvested options to purchase an
aggregate of 50,000 shares of SUGEN common stock at a weighted average price of
$18.92 per share (at exercise prices ranging from $13.875 to $20.625 per share).
See "The Merger Agreement -- Exchange of SUGEN Stock Options" on page 42.
INDEMNIFICATION
Pursuant to the merger agreement, Pharmacia & Upjohn has agreed that, after
the effective time of the merger, it will provide certain indemnification and
liability insurance benefits to certain indemnified parties, including directors
and executive officers of SUGEN. See "The Merger Agreement -- Indemnification
and Insurance" on page 54.
THE MERGER AGREEMENT
The merger agreement contemplates the merger of University Acquisition
Corp., a wholly owned subsidiary of Pharmacia & Upjohn, into SUGEN, with SUGEN
thereby becoming a wholly owned subsidiary of Pharmacia & Upjohn. This section
of the Proxy Statement/Prospectus describes the material provisions of the
merger agreement. Because the description of the merger agreement contained in
this Proxy Statement/Prospectus is a summary, it does not contain all the
information that may be important to you. You should carefully read the entire
copy of the merger agreement attached as Annex A to this Proxy
Statement/Prospectus before you decide how to vote.
CLOSING AND EFFECTIVE TIME OF THE MERGER
CLOSING
The closing of the merger will take place on the first business day after
the date on which all closing conditions have been satisfied or waived or such
other time as agreed to in writing by Pharmacia & Upjohn and SUGEN. The closing
is expected to take place shortly after the approval of the merger by the SUGEN
stockholders.
EFFECTIVE TIME
The merger will be effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware. We anticipate that such
filing will be made
41
<PAGE> 49
simultaneously with, or as soon as practicable after, the closing of the merger.
See "The Merger Agreement -- Conditions to the Merger" on page 43.
EXCHANGE OF STOCK CERTIFICATES
SUGEN STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARD
AND SHOULD NOT SURRENDER STOCK CERTIFICATES PRIOR TO THE ADOPTION OF THE MERGER
AGREEMENT AND THE RECEIPT OF A TRANSMITTAL FORM.
FRACTIONAL SHARES
No fractional shares of Pharmacia & Upjohn common stock will be issued to
any SUGEN stockholder in connection with the merger. Each SUGEN stockholder who
would otherwise have been entitled to receive a fraction of a share of Pharmacia
& Upjohn common stock will receive cash, without interest, in an amount equal to
such stockholder's proportionate interest in the net proceeds from the sale by
the exchange agent on behalf of all such stockholders of the aggregate
fractional shares of Pharmacia & Upjohn common stock that such stockholders
otherwise would be entitled to receive.
EXCHANGE PROCEDURES
Promptly after the effective time of the merger, transmittal forms and
exchange instructions will be mailed to each holder of record of SUGEN common
stock to be used to surrender and exchange certificates formerly evidencing
shares of SUGEN common stock for certificates evidencing the shares of Pharmacia
& Upjohn common stock and any other distributions and cash in lieu of fractional
shares to which such holder has become entitled. After receiving such
transmittal forms, each holder of certificates formerly representing SUGEN
common stock will be able to surrender such certificates to the exchange agent,
such certificate shall be cancelled, and each such holder will receive in
exchange therefor certificates evidencing the number of whole shares of
Pharmacia & Upjohn common stock to which such holder is entitled, any cash which
may be payable in lieu of a fractional share of Pharmacia & Upjohn common stock
and any dividends or other distributions with respect to Pharmacia & Upjohn
common stock with a record date at or after the effective time of the merger.
DIVIDENDS, DISTRIBUTIONS AND VOTING
All shares of Pharmacia & Upjohn common stock to be issued pursuant to the
merger shall be deemed issued and outstanding as of the effective time of the
merger. Whenever a dividend or other distribution is declared in respect of
Pharmacia & Upjohn common stock, and the record date for such dividend or
distribution is at or after the effective time of the merger, that declaration
shall include dividends or other distributions in respect of all shares of
Pharmacia & Upjohn common stock issuable pursuant to the merger agreement. No
dividends or other distributions in respect of the Pharmacia & Upjohn common
stock shall be paid to any holder of any unsurrendered certificate formerly
representing SUGEN common stock until the certificate is surrendered for
exchange.
After the effective time of the merger, a holder of unsurrendered
certificates formerly representing SUGEN common stock will be entitled to vote
at any meeting of Pharmacia & Upjohn stockholders the number of whole shares of
Pharmacia & Upjohn common stock represented by such certificates, regardless of
whether such holder has exchanged such certificates.
42
<PAGE> 50
EXCHANGE OF SUGEN STOCK OPTIONS
At the effective time, automatically and without any action on the part of
the holder thereof, each outstanding SUGEN stock option, whether vested or
unvested, shall be deemed to constitute an option to acquire, on substantially
the same terms and conditions as were applicable under such SUGEN stock option,
the same number of shares of Pharmacia & Upjohn common stock as the holder of
such SUGEN stock option would have been entitled to receive pursuant to the
merger had such holder exercised such option in full immediately prior to the
effective time of the merger, at an exercise price per share equal to (i) the
aggregate exercise price for the SUGEN common stock otherwise purchasable
pursuant to such SUGEN stock option divided by (ii) the number of full shares of
Pharmacia & Upjohn common stock deemed purchasable pursuant to such SUGEN stock
option.
EXCHANGE OF SUGEN WARRANTS AND CONVERTIBLE SECURITIES
Pursuant to the terms of the merger agreement and certain outstanding
warrants to purchase SUGEN common stock, at the effective time, automatically
and without any action on the part of the holder thereof, certain outstanding
warrants to purchase SUGEN common stock shall be deemed to constitute warrants
to acquire, on the same terms and conditions as were applicable under such SUGEN
warrants, the same number of shares of Pharmacia & Upjohn common stock the
holder of such SUGEN warrant would have been entitled to receive pursuant to the
merger agreement had such holder exercised such SUGEN warrant in full
immediately prior to the effective time of the merger.
At the effective time, automatically and without any action on the part of
the holder thereof, outstanding (i) SUGEN 12% Senior Convertible Notes due 2002
("Notes"), (ii) warrants to purchase SUGEN 12% Senior Convertible Notes
("Warrants"), (iii) SUGEN 12% Senior Convertible Notes ("Warrant Notes")
issuable upon exercise of the Warrants and (iv) SUGEN common stock warrants
issuable upon redemption of the Notes, Warrants and Warrant Notes, shall be
deemed to constitute securities convertible into, on the same terms and
conditions as were applicable under such Notes, Warrants, Warrant Notes and
common stock warrants, the same number of shares of Pharmacia & Upjohn common
stock the holder of such outstanding SUGEN Note, Warrant, Warrant Note or common
stock warrant would have been entitled to receive pursuant to the merger
agreement had such holder exercised such SUGEN warrant in full immediately prior
to the effective time of the merger.
CONDITIONS TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS
The respective obligations of SUGEN, Pharmacia & Upjohn and University
Acquisition Corp. to effect the merger are subject to the satisfaction or
waiver, at or prior to the effective time of the merger, of each of the
following conditions:
- STOCKHOLDER APPROVAL. The merger agreement shall have been adopted by
vote of the holders of a majority of the shares of SUGEN common stock
outstanding as of the record date for the special meeting.
- HART-SCOTT-RODINO ACT. The waiting period applicable to the consummation
of the merger under the Hart-Scott-Rodino Act shall have expired or been
terminated.
- LITIGATION. No court or governmental entity of competent jurisdiction
shall have enacted, issued, enforced or entered any statute, rule,
regulation, judgment, decree,
43
<PAGE> 51
injunction or other order that is in effect and restrains, enjoins or
otherwise prohibits consummation of the transactions contemplated by the
merger agreement (collectively, an "Order"), and no governmental entity
shall have instituted any proceeding seeking any such Order; and
- EFFECTIVE REGISTRATION STATEMENT. The Registration Statement of which
this Proxy Statement/Prospectus is a part shall have become effective
under the Securities Act and no stop order suspending the effectiveness
of the Registration Statement shall have been issued and no proceeding
for that purpose shall have been initiated or threatened overtly by the
SEC.
ADDITIONAL CONDITIONS TO SUGEN'S OBLIGATIONS
The obligation of SUGEN to effect the merger is also subject to the
satisfaction or waiver, prior to the effective time of the merger, of the
following additional conditions:
- REPRESENTATIONS AND WARRANTIES.
- The representations and warranties of Pharmacia & Upjohn and
University Acquisition Corp. set forth in the merger agreement shall
be true and correct in all material respects as of the date of the
merger agreement;
- The representations and warranties of Pharmacia & Upjohn and
University Acquisition Corp. regarding capital structure and corporate
authority shall be true and correct in all material respects as of the
closing date of the merger; and
- The representations and warranties of Pharmacia & Upjohn and
University Acquisition Corp. set forth in the merger agreement (other
than the representations and warranties regarding capital stock and
corporate authority), considered without regard to any materiality
qualification, shall be true and correct as of the closing date of the
merger, except for such failures of such representations and
warranties to be true and correct as arise from events, occurrences or
matters that, individually and in the aggregate, have not had and are
not reasonably likely to have a material adverse effect on Pharmacia &
Upjohn.
- PERFORMANCE OF OBLIGATIONS OF PHARMACIA & UPJOHN AND UNIVERSITY
ACQUISITION CORP. Each of Pharmacia & Upjohn and University Acquisition
Corp. shall have performed in all material respects all obligations
required to be performed by it under the merger agreement and the stock
option agreement at or prior to the closing date of the merger.
- REGULATORY CONSENTS. All filings required to be made prior to the
effective time of the merger by Pharmacia & Upjohn with (and all
consents, approvals and authorizations required to be obtained prior to
the effective time of the merger by Pharmacia & Upjohn from) any
governmental entity in connection with the execution and delivery of the
merger agreement and the consummation of the transactions contemplated by
the merger agreement by Pharmacia & Upjohn and University Acquisition
Corp. shall have been made or obtained, except where the failure to so
make or obtain will not result in either a material adverse effect on
SUGEN or a material adverse effect on Pharmacia & Upjohn.
- TAX OPINION. SUGEN shall have received the opinion of Cooley Godward
LLP, to the effect that the merger will be treated for Federal income tax
purposes as a
44
<PAGE> 52
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code, and that each of Pharmacia & Upjohn, University Acquisition
Corp., and SUGEN will be a party to that reorganization within the
meaning of Section 368(b) of the Internal Revenue Code.
- NYSE LISTING. The shares of Pharmacia & Upjohn common stock to be
delivered pursuant to the merger shall have been duly authorized for
listing on the NYSE, subject to official notice of issuance.
- ACCOUNTANT'S LETTER. Ernst & Young LLP shall have delivered to SUGEN a
letter dated as of the closing date, stating that based upon discussions
with officials of SUGEN responsible for financial accounting matters, and
information furnished to Ernst & Young LLP to the date of its letter,
Ernst & Young LLP concurs with SUGEN management's conclusion that, as of
the date of its letter, no conditions exist related to SUGEN that would
preclude Pharmacia & Upjohn from accounting for the merger as a pooling
of interests.
ADDITIONAL CONDITIONS TO PHARMACIA & UPJOHN'S OBLIGATIONS
The obligations of Pharmacia & Upjohn and University Acquisition Corp. to
effect the merger are also subject to the satisfaction or waiver, prior to the
effective time of the merger, of the following additional conditions:
- REPRESENTATIONS AND WARRANTIES.
- The representations and warranties of SUGEN set forth in the merger
agreement shall be true and correct in all material respects as of the
date of the merger agreement;
- The representations and warranties of SUGEN regarding capital
structure, corporate authority and the absence of antitakeover
restrictions shall be true and correct in all material respects as of
the closing date of the merger; and
- The representations and warranties of SUGEN set forth in the merger
agreement (other than the representations and warranties, regarding
capital stock, corporate authority and the absence of antitakeover
restrictions), considered without regard to any materiality
qualification, shall be true and correct as of the closing date of the
merger, except for such failures of such representations and
warranties to be true and correct as arise from events, occurrences or
matters that, individually and in the aggregate, have not had and are
not reasonably likely to have a material adverse effect on SUGEN.
- PERFORMANCE OF OBLIGATIONS OF SUGEN. SUGEN shall have performed in all
material respects all obligations required to be performed by it under
the merger agreement and the stock option agreement at or prior to the
closing date of the merger.
- REGULATORY CONSENTS. All filings required to be made prior to the
effective time of the merger by SUGEN with (and all consents, approvals
and authorizations required to be obtained prior to the effective time of
the merger by SUGEN from) any governmental entity in connection with the
execution and delivery of the merger agreement and the consummation of
the transactions contemplated by the merger agreement by SUGEN shall have
been made or obtained, except where the failure to so make or obtain will
not result in either a material adverse effect on SUGEN or a material
adverse effect on Pharmacia & Upjohn or have a significant
45
<PAGE> 53
adverse effect on the benefits to Pharmacia & Upjohn of the transactions
contemplated by the merger agreement.
- CONSENTS UNDER AGREEMENTS. SUGEN shall have obtained the consent or
approval of each person whose consent or approval shall be required under
each contract to which SUGEN is a party, except those for which the
failure to obtain such consent or approval, individually or in the
aggregate, is not reasonably likely to have a material adverse effect on
SUGEN, is not reasonably likely to materially adversely affect the
ability of SUGEN to consummate the transactions contemplated by the
merger agreement and is not reasonably likely to impair the ability of
Pharmacia & Upjohn or any of its affiliates, following consummation of
the merger, to conduct any material business or operations in any
jurisdiction where they are now being conducted.
- TAX OPINION. Pharmacia & Upjohn shall have received the opinion of
Sullivan & Cromwell, to the effect that the merger will be treated for
Federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, and that each of Pharmacia &
Upjohn, University Acquisition Corp. and SUGEN will be a party to that
reorganization within the meaning of Section 368(b) of the Internal
Revenue Code.
- RIGHTS AGREEMENT. All necessary action shall have been taken to ensure
that neither the entering into of the merger agreement nor the
consummation of the merger will cause the preferred stock purchase rights
issued pursuant to SUGEN's stockholder protection rights agreement to
become exercisable, cause Pharmacia & Upjohn to become an "acquiring
person" (as such term is defined in such rights agreement), or give rise
to a "distribution date" or a "shares acquisition date" (as such terms
are defined in such rights agreement).
- AFFILIATES LETTERS. Pharmacia & Upjohn shall have received an affiliates
letter from each person identified as an affiliate of SUGEN, including
Zeneca Limited. An "affiliates letter" generally provides that the
affiliate signing the affiliates letter will not engage in certain
conduct (such as certain stock sales) which could affect the availability
of pooling of interests accounting treatment for a business combination.
- ACCOUNTANTS' LETTERS.
- Ernst & Young LLP shall have delivered to Pharmacia & Upjohn the
letter to be delivered to SUGEN by Ernst & Young LLP.
- PricewaterhouseCoopers LLP shall have delivered to Pharmacia & Upjohn
a letter dated as of the closing date, stating that, based upon
discussions with officials of Pharmacia & Upjohn responsible for
financial and accounting matters and the letter provided by Ernst &
Young LLP to SUGEN, PricewaterhouseCoopers LLP concurs with Pharmacia
& Upjohn management's conclusions that the merger will qualify as a
pooling of interests transaction under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations, unless the
failure to receive such letter has been proximately caused by
Pharmacia & Upjohn's failure to issue or sell shares of Pharmacia &
Upjohn common stock.
46
<PAGE> 54
REPRESENTATIONS AND WARRANTIES OF PHARMACIA & UPJOHN AND SUGEN
The merger agreement contains various customary representations and
warranties of SUGEN and Pharmacia & Upjohn relating to, among other things:
- corporate organization, good standing and qualification;
- capital structure;
- corporate power and authority to execute, deliver and perform its
obligations under the merger agreement, and to consummate the merger;
- governmental consents and regulatory approvals necessary to complete the
merger;
- documents filed with the SEC, including financial statements, and the
accuracy of the information contained therein;
- the fact that the transactions contemplated by the merger agreement will
not violate Pharmacia & Upjohn's or SUGEN's organizational documents, the
contracts to which SUGEN is a party or any law, rule or regulation;
- the absence of certain material adverse changes or events;
- material litigation;
- compliance with applicable laws and required licenses and permits;
- accounting and tax matters, including qualification of the merger as a
"pooling of interests" transaction; and
- brokers and finders.
In addition, the merger agreement contains additional representations and
warranties of SUGEN relating to:
- employee benefit plans;
- antitakeover statutes;
- environmental matters;
- tax matters, including tax return filings, audits and international tax
rulings;
- regulatory matters, including Food and Drug Administration warning
letters, problem reports, product recall and material regulatory
communications;
- intellectual property matters;
- product registration files;
- Year 2000 compliance;
- labor matters;
- SUGEN's stockholder rights agreement;
- supply arrangements; and
- investigational compounds.
47
<PAGE> 55
CONDUCT OF THE BUSINESSES OF SUGEN AND PHARMACIA & UPJOHN PRIOR TO THE MERGER
SUGEN
Pursuant to the merger agreement, SUGEN has agreed that, prior to the
effective time of the merger, unless Pharmacia & Upjohn otherwise consents in
writing and except as otherwise expressly contemplated in the merger agreement
and the stock option agreement:
- it will carry out its business and that of its subsidiaries, in all
material respects, in the ordinary and usual course, and will use its
commercially reasonable best efforts to preserve its business
organization substantially intact and substantially maintain its existing
relations and goodwill with customers, suppliers, distributors,
creditors, lessors, employees and business associates;
- it will not issue, sell, pledge, dispose of or encumber any capital stock
owned by it or by any of its subsidiaries;
- it will not amend its certificate or bylaws or amend, modify or terminate
the rights agreement, except as otherwise agreed;
- it will not split, combine or reclassify its outstanding shares of
capital stock;
- it will not declare, set aside or pay any dividend payable in cash, stock
or other property in respect of any capital stock;
- it will not repurchase, redeem or otherwise acquire, except in connection
with its stock option and stock purchase plans, any shares of its capital
stock or any securities convertible into or exchangeable for any shares
of its capital stock;
- it will not, and it will not permit any of its subsidiaries to, issue,
sell, pledge, dispose of or encumber any shares of, or securities
convertible into or exchangeable or exercisable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares
of its capital stock of any class or any voting debt or any other
property or assets, with certain exceptions;
- it will not, and it will not permit any of its subsidiaries to, other
than in the ordinary and usual course of business, transfer, lease,
license, guarantee, sell, mortgage, pledge, dispose of or encumber any
other property or assets (including capital stock of any of its
subsidiaries) or incur or modify any material indebtedness or other
liability;
- it will not, and it will not permit any of its subsidiaries to, make any
commitments for, make or authorize any capital expenditures other than in
the amounts set forth with respect to particular items in SUGEN's 1999
budget or, by any means, make any acquisition of, or investment in,
assets or stock of any other person or entity;
- it will not, except as may be required by existing contractual
commitments, existing corporate policy with respect to severance or
termination pay or as required by applicable law, enter into any new
agreements or commitments for any severance or termination pay to, or
enter into employment or severance agreements with, any of its directors,
officers or employees, or terminate, establish, adopt, enter into, make
any new grants or awards under, amend or otherwise modify, any
compensation and benefit plans or increase or accelerate the salary,
wage, bonus or other compensation of any employees, officers or directors
(except for increases in salaries, wages and cash bonuses of nonexecutive
employees made in the ordinary course of business consistent with past
practice) or pay or agree to pay any pension,
48
<PAGE> 56
retirement allowance or other employee benefit not required by any
existing compensation and benefit plan;
- it will not, and it will not permit any of its subsidiaries to, settle or
compromise any material claims or litigation or modify, amend or
terminate any of its material contracts or waive, release or assign any
material rights or claims;
- it will not, and it will not permit any of its subsidiaries to, make any
tax election or permit any insurance policy naming it as a beneficiary or
loss-payable payee to be canceled or terminated except in the ordinary
and usual course of business;
- it will not, and it will not permit any of its subsidiaries to, except as
may be required as a result of a change in law or in generally accepted
accounting principles, change any of the accounting practices or
principles used by it or its subsidiaries;
- it will not, and it will not permit any of its subsidiaries to, adopt a
plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization, or other reorganization
of it or any of its subsidiaries not constituting an inactive subsidiary
(other than the merger);
- it will not, and it will not permit any of its subsidiaries to, knowingly
take any action, or knowingly fail to take any action, that is reasonably
likely to jeopardize the treatment of the merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code or that would
cause any of its representations and warranties in the merger agreement
to be or become untrue in any material respect;
- it will not, and it will not permit any of its subsidiaries to, suffer or
permit expenditures made or incurred by it or its subsidiaries for any
period to materially exceed the projected expenses in SUGEN's 1999 budget
for such period except for expenses incurred in connection with the
transactions contemplated by the merger agreement; and
- it will not, and it will not permit any of its subsidiaries to, offer to,
or enter into an agreement to, do any of the foregoing.
PHARMACIA & UPJOHN
Pursuant to the merger agreement, Pharmacia & Upjohn has agreed that, prior
to the effective time unless SUGEN shall otherwise consent in writing and except
as otherwise expressly contemplated by the merger agreement and the stock option
agreement:
- it shall not amend the terms of the Pharmacia & Upjohn common stock;
- it shall not acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any
other manner, any business of any corporation, partnership, joint
venture, association or other business organization or division thereof,
or otherwise acquire or agree to acquire, or dispose of or agree to
dispose of, any assets of any person, which, in each case, could
reasonably be expected to delay materially the consummation of, or
increase materially the risk of non-consummation of, the transaction
contemplated by the merger agreement;
49
<PAGE> 57
- it shall not, except as may be required as a result of a change in law or
in generally accepted accounting principles, change, in any material
respect, any of the accounting practices or principles used by it;
- it shall not knowingly take any action that would result in a failure of
Pharmacia & Upjohn common stock to be listed on the NYSE;
- it will not, and it will not permit any of its subsidiaries to, knowingly
take any action, or knowingly fail to take any action, that is reasonably
likely to jeopardize the treatment of the merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code or that would
cause any of its representations and warranties in the merger agreement
to be or become untrue in any material respect; and
- it will not, and it will not permit any of its subsidiaries to, offer to,
or enter into any agreement to, do any of the foregoing.
NO SOLICITATION OF ACQUISITION PROPOSALS
The merger agreement provides that SUGEN shall, and shall cause its
nonstockholder affiliates and the officers, directors and employees of SUGEN and
its subsidiaries to, and shall instruct its stockholder affiliates and the
representatives and agents of SUGEN and its subsidiaries (including, without
limitation, any investment banker, attorney or accountant retained by SUGEN or
any of its subsidiaries) to:
- immediately cease and terminate any existing activities, discussions or
negotiations, if any, with any parties conducted with respect to any
acquisition or exchange of all or any material portion of the assets of,
or more than 15% of the equity interest in, SUGEN or any of its
subsidiaries or any business combination, merger or similar transaction
with or involving SUGEN or any subsidiary; and
- not, directly or indirectly, knowingly encourage, solicit, participate in
or initiate discussions or negotiations with, or provide any information
or data to, any corporation, partnership, person or other entity or group
with respect to any inquiries or the making of any offer or proposal
concerning an acquisition proposal or otherwise knowingly facilitate any
effort or attempt to make or implement an acquisition proposal.
However, prior to the adoption of the merger by SUGEN's stockholders, SUGEN
may furnish information and access, but only in response to a request for
information or access, to any person or entity making a bona fide written
acquisition proposal to the board of directors of SUGEN which was not knowingly
encouraged, solicited or initiated by SUGEN or any of its affiliates or any
director, employee, representative or agent of SUGEN or any of its subsidiaries
and may participate in discussions and negotiate with such person or entity
concerning any such acquisition proposal, if:
- SUGEN's board of directors determines in good faith, taking into account
the written, reasoned advice of outside counsel to SUGEN, that failing to
provide such information or access or to participate in such discussions
or negotiations would constitute a breach of such board's fiduciary
duties under applicable law;
- SUGEN's board of directors determines in good faith, taking into account
the advice of financial advisors to SUGEN, that such acquisition
proposal, if accepted, is reasonably likely to be consummated and would
result in a transaction more
50
<PAGE> 58
favorable to SUGEN's stockholders from a financial point of view than the
transaction contemplated by the merger agreement; and
- SUGEN's board of directors receives from the person making such
acquisition proposal an executed confidentiality agreement which is no
less favorable to SUGEN and no less restrictive to the person making the
acquisition proposal than the confidentiality agreement between SUGEN and
Pharmacia & Upjohn.
The merger agreement requires that SUGEN:
- notify Pharmacia & Upjohn within 36 hours if any such inquiries or
proposals are received by, any such information is requested from, or any
such negotiations or discussions are sought to be initiated or continued
with SUGEN;
- indicate to Pharmacia & Upjohn the identity of the offeror and the terms
and conditions of any such proposal and thereafter keep Pharmacia &
Upjohn informed of the status and terms of such proposals and the status
of such negotiations or discussions; and
- provide Pharmacia & Upjohn with copies of any such acquisition proposals
made in writing and five days' advance notice of its intention to enter
into any agreement with or to provide any information to any person or
entity making any such inquiry or proposal.
An "acquisition proposal" is any offer or proposal concerning any
acquisition or exchange of all or any material portion of the assets of, or more
than 15% of the equity interest in, SUGEN or any of its subsidiaries or any
business combination, merger or similar transaction with or involving SUGEN or
any of its subsidiaries or any division of SUGEN.
CONDUCT OF THE BUSINESS OF THE COMBINED COMPANIES FOLLOWING THE MERGER
Following the merger, SUGEN will be a wholly owned subsidiary of Pharmacia
& Upjohn. Pursuant to the merger agreement, the certificate and bylaws of
incorporation of University Acquisition Corp. as in effect immediately prior to
the effective time of the merger shall be the certificate of incorporation and
bylaws of SUGEN, and thereafter may be amended in accordance with their
respective terms as provided in the Delaware General Corporation Law.
AFFILIATE AGREEMENTS
Prior to the effective time of the merger, Pharmacia & Upjohn has agreed to
deliver to SUGEN the names of those persons who are, in the opinion of Pharmacia
& Upjohn, affiliates of SUGEN within the meaning of Rule 145 under the
Securities Act and for the purposes of applicable interpretations regarding the
pooling of interests method of accounting. SUGEN has agreed to provide to
Pharmacia & Upjohn such information as Pharmacia & Upjohn shall reasonably
request regarding such persons. SUGEN has agreed to use reasonable efforts to
deliver or cause to be delivered to Pharmacia & Upjohn, prior to the date of the
stockholders meeting, from each of such affiliates of SUGEN, including Zeneca
Limited, an affiliates letter. An "affiliates letter" generally provides that
the affiliate which signs the affiliates letter will not engage in certain
conduct (such as certain stock sales) which could affect the availability of
pooling of interests accounting treatment for a business combination.
51
<PAGE> 59
TERMINATION, AMENDMENT OR WAIVER
TERMINATION
The merger agreement may be terminated at any time prior to the closing
date, whether before or after the approval by the stockholders of SUGEN:
- by the mutual written consent of SUGEN, Pharmacia & Upjohn and University
Acquisition Corp., by action of their respective boards of directors; or
- by either Pharmacia & Upjohn or SUGEN if:
- the merger is not completed by the termination date for the merger
agreement, which is November 30, 1999, so long as the failure to
consummate the merger by such date was not proximately caused by, or
the result of, a breach of the merger agreement by the terminating
party, provided, however, that if a request for additional information
is received from the antitrust authorities, such date will be extended
to the thirtieth day following certification by Pharmacia & Upjohn
and/or SUGEN, as applicable, have complied substantially with such
request, but in any event not later than January 31, 2000;
- the special meeting of SUGEN stockholders shall have been convened and
the adoption of the merger agreement shall not have been obtained at
the special meeting; or
- any order permanently restraining, enjoining or otherwise prohibiting
the merger shall become final and non-appealable, provided, that the
right to terminate the merger for this reason will not be available to
any party which has breached its covenant to use commercially
reasonable best efforts to prevent such order from being issued and to
use commercially reasonable best efforts to cause such order to be
lifted; or
- by Pharmacia & Upjohn if:
- the SUGEN board of directors shall have withdrawn or adversely
modified its approval or recommendation of the merger agreement or
failed to reconfirm its recommendation of the merger agreement within
five calendar days after a written request by Pharmacia & Upjohn to do
so; or
- there has been a material breach by SUGEN of any representation,
warranty, covenant or agreement of SUGEN contained in the merger
agreement such that the conditions to the obligations of Pharmacia &
Upjohn relating to the accuracy of SUGEN's representations or the
performance by SUGEN of its obligations will not be satisfied;
provided, however, that, if such breach is curable by SUGEN through
the exercise of reasonable best efforts and such cure is reasonably
likely to be completed prior to the termination date for the merger
agreement, then for so long as SUGEN continues to exercise reasonable
best efforts, Pharmacia & Upjohn may not terminate the merger
agreement under this provision; or
- by SUGEN if:
- SUGEN is not in material breach of any of the terms of the merger
agreement; and
- SUGEN's board of directors authorizes SUGEN, subject to the terms of
the merger agreement, to enter into a binding written agreement
concerning an
52
<PAGE> 60
acquisition proposal as to which SUGEN's board of directors has made
the determinations summarized in the first two bullet points in the
second paragraph under "No Solicitation of Acquisition Proposals"
above, and SUGEN notifies Pharmacia & Upjohn in writing that it
intends to enter into such an agreement, attaching the most current
version of such agreement to such notice; and
- Pharmacia & Upjohn does not make, within five calendar days of receipt
of SUGEN's written notification of its intention to enter into such an
agreement, an offer that is at least as favorable, from a financial
point of view, to the stockholders of SUGEN as the proposal as to
which SUGEN gave notice; or
- if there has been a material breach by Pharmacia & Upjohn or
University Acquisition Corp. of any representation, warranty, covenant
or agreement of Pharmacia & Upjohn or University Acquisition Corp.
contained in the merger agreement such that the conditions to the
obligations of SUGEN relating to the accuracy of Pharmacia & Upjohn's
and University Acquisition Corp.'s representations or the performance
by them of their obligations will not be satisfied; provided, however,
that, if such breach is curable by Pharmacia & Upjohn through the
exercise of reasonable best efforts and such cure is reasonably likely
to be completed prior to the termination date for the merger
agreement, then for so long as Pharmacia & Upjohn continues to
exercise reasonable best efforts to cure such breach, SUGEN may not
terminate the agreement under this provision.
AMENDMENT
Subject to the provisions of applicable law, at any time prior to the
effective time of the merger, the parties to the merger agreement may modify or
amend the merger agreement, by written agreement executed and delivered by duly
authorized officers of such parties.
WAIVER
The conditions to each of the parties' obligations to consummate the merger
are for the sole benefit of such party and may be waived by such party in whole
or in part to the extent permitted by applicable law.
TERMINATION FEE AND EXPENSE REIMBURSEMENT
SUGEN has agreed to pay to Pharmacia & Upjohn a termination fee equal to
$16,900,000 and to reimburse Pharmacia & Upjohn's expenses up to $5,000,000 if:
- the merger agreement is terminated as a result of the occurrence of all
of the following events:
- a bona fide acquisition proposal shall have been made to SUGEN or any
of its subsidiaries or any of its stockholders, or any person shall
have announced an intention to make an acquisition proposal with
respect to SUGEN or any of its subsidiaries, and on or following the
date of the merger agreement but prior to the date of the stockholders
meeting such acquisition proposal is or becomes publicly known; and
- on or following the date of the merger agreement and prior to the time
such acquisition proposal is or becomes publicly known, the occurrence
of a material
53
<PAGE> 61
adverse effect on Pharmacia & Upjohn shall not have become publicly
known; and
- on or following the date on which such acquisition proposal, is or
becomes publicly known, the merger agreement is terminated by either
Pharmacia & Upjohn or SUGEN because the special meeting shall have
been convened and the adoption of the merger agreement shall not have
been obtained at the special meeting; or
- the merger agreement is terminated by SUGEN because it received an
acquisition proposal as to which SUGEN's board of directors has made the
determinations summarized in the first two bullet points in the second
paragraph under "No Solicitations of Acquisition Proposals" above, and
Pharmacia & Upjohn, did not make, within five days of receipt of written
notice of such proposal, an offer that is at least as favorable, from a
financial point of view, to the stockholders of SUGEN as such acquisition
proposal; or
- the merger agreement is terminated by Pharmacia & Upjohn because the
SUGEN board withdrew or adversely modified its approval or recommendation
of the merger agreement or failed to reconfirm its recommendation within
five calendar days after a written request by Pharmacia & Upjohn to do
so.
No termination fee shall be payable to Pharmacia & Upjohn because of a
termination involving a bona fide acquisition proposal or the failure of
Pharmacia & Upjohn to make an offer at least as favorable as an existing
acquisition proposal unless and until any person or entity (other than Pharmacia
& Upjohn) has acquired, by purchase, merger, consolidation, sale, assignment,
lease, transfer or otherwise, in one transaction or any related series of
transactions within 18 months of such termination, a majority of the voting
power of the outstanding securities of SUGEN or there has been consummated a
merger, consolidation or similar business combination between SUGEN and an
acquiring party or an affiliate thereof as a result of which the stockholders of
SUGEN immediately prior to the transaction do not own at least 75% of the
surviving entity.
FUNDING ARRANGEMENT
Pharmacia & Upjohn agreed to cause one of its wholly owned subsidiaries,
referred to as the Lender, to make available as a loan to SUGEN:
- $15 million, or such lesser amount as SUGEN elects to borrow, on
September 1, 1999; and
- an additional $10 million, or such lesser amount as SUGEN elects to
borrow, on November 1, 1999; and
- an additional $10 million, or such lesser amount as SUGEN elects to
borrow, on December 31, 1999.
The Lender will not be obligated to make any loan if, on or prior to the
funding date for such loan, there has been a material breach by SUGEN of any
covenant or agreement contained in the merger agreement. In addition, the Lender
shall not be obligated to make the second or third loan if, on or prior to the
funding date for any such loan:
- the special meeting shall have been convened and the SUGEN stockholders
shall not have adopted the merger agreement; or
54
<PAGE> 62
- SUGEN shall have terminated the merger agreement, other than pursuant to
the provisions described in the first or third subclause of the first
bullet point under the heading "Termination, Amendment or
Waiver -- Termination" beginning on page 51 or the provision described in
the second subclause of the third bullet point under such heading.
Unless the Lender and SUGEN agree otherwise, each loan will mature on a
date not later than the fifth anniversary of the funding date for such loan
determined, if possible, by mutual agreement between Pharmacia & Upjohn and
SUGEN or, if necessary, by mediation. The maturity date of each loan will be
changed to the first anniversary of the funding date for such loan upon the
occurrence of one of the events described in either sentence of the previous
paragraph.
Pharmacia & Upjohn and SUGEN have agreed that the terms and conditions of,
and the definitive documentation concerning the loans will be reasonable and
customary in light of SUGEN's creditworthiness, business prospects and industry.
Pharmacia & Upjohn and SUGEN have agreed to negotiate in good faith concerning
the terms and conditions of, and documentation for, the loans and the consents,
waivers and approvals necessary or appropriate in connection with the funding of
the loans on and subject to the terms and conditions of, and documentation for,
the loans. The terms, conditions, documentation and waivers will be determined,
if possible, by the mutual agreement of Pharmacia & Upjohn and SUGEN or, if
necessary, by mediation.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that following the merger, Pharmacia & Upjohn
will indemnify, defend and hold harmless, and provide advancement of expenses
to, all individuals entitled to indemnification pursuant to SUGEN's certificate
of incorporation and bylaws as in effect on June 15, 1999, against any costs or
expenses (including reasonable attorneys' fees) incurred in connection with any
claims or action arising out of matters existing or occurring at or prior to the
merger. However, any person to whom expenses are advanced must provide an
undertaking to repay such advance if it is ultimately determined that such
person is not entitled to indemnification. All indemnification will be made to
the fullest extent that SUGEN would have been permitted prior to or at the
merger date under the Delaware General Corporation Law.
STOCK OPTION AGREEMENT
As a condition and inducement to entering into the merger agreement, SUGEN
granted to Pharmacia & Upjohn an option to purchase shares of its common stock
equal to 19.9% of its currently outstanding shares pursuant to a stock option
agreement. Because the description of the stock option agreement contained in
this Proxy Statement/ Prospectus is a summary, it does not contain all the
information that may be important to you. You should carefully read the entire
copy of the stock option agreement attached as Annex B to this Proxy
Statement/Prospectus.
TERMS OF THE OPTION
NUMBER OF SHARES AND EXERCISE PRICE
Under the stock option agreement, SUGEN has granted to Pharmacia & Upjohn
an option to purchase up to 19.9% of SUGEN common stock at an exercise price per
share equal to $31.00.
55
<PAGE> 63
The number and type of securities subject to the stock option and the
related exercise price will be adjusted for any change in or distribution in
respect of SUGEN's common stock by reason of a reclassification,
recapitalization, stock split, split-up, combination, exchange of shares, stock
dividend, dividend payable in any other securities, or any similar event so as
to preserve the economic benefits provided under the stock option agreement. The
number of shares of SUGEN's stock subject to the stock option will also be
adjusted in the event SUGEN issues additional shares of its stock such that the
number of shares of SUGEN common stock subject to the stock option, together
with shares previously purchased pursuant thereto, represents 19.9% of SUGEN's
common stock then issued and outstanding, without giving effect to shares
subject to or issuable pursuant to the stock option.
EXERCISE RIGHTS
Pharmacia & Upjohn may exercise the stock option if:
- any of the three triggering events described in the first paragraph under
"Termination Fee and Expense Reimbursement" on page 53 occurs, or
- SUGEN notifies Pharmacia & Upjohn that it has received an acquisition
proposal as to which SUGEN's board of directors has made the
determinations summarized in the first two bullet points in the second
paragraph under "The Merger Agreement -- No Solicitation of Acquisition
Proposals" beginning on page 49 and Pharmacia & Upjohn notifies SUGEN
that it does not intend to match such acquisition proposal.
EXPIRATION
To the extent the stock option has not been exercised, the stock option
agreement will expire upon the earliest of:
- the effective time of the merger;
- twelve months after the date of termination of the merger agreement
pursuant to a negative SUGEN stockholder vote, a superior proposal which
is not met by Pharmacia & Upjohn or a withdrawal or adverse modification
by the SUGEN board of its recommendation of the merger; and
- fifteen days following the termination of the merger agreement prior to a
purchase event.
REPURCHASE AT THE OPTION OF SUGEN
Pursuant to the stock option agreement, SUGEN has the right to repurchase
any shares of SUGEN common stock purchased by Pharmacia & Upjohn pursuant to the
stock option for a period of 180 days after each date on which the stock option
is exercised. The price per share SUGEN will pay upon a repurchase event is
equal to the higher of the purchase price and the volume weighted average of the
daily closing prices of SUGEN's common stock during the period after which the
particular option was exercised and before the SUGEN repurchase request.
REGISTRATION RIGHTS
Pursuant to the stock option agreement, Pharmacia & Upjohn has the right to
require SUGEN to file up to two registration statements under the Securities Act
in order to
56
<PAGE> 64
permit the sale or other disposition of any stock option shares. In addition, if
SUGEN files a registration statement for other shares of its common stock, SUGEN
will allow Pharmacia & Upjohn to participate in such registration, subject to
certain limitations. In connection with any registration described above, SUGEN
and Pharmacia & Upjohn will provide to each other and any underwriter of the
offering customary representations, warranties, covenants, indemnifications and
contributions.
LIMITATION OF PROFIT
Pharmacia & Upjohn's total profit under the stock option agreement shall in
no event exceed $21,900,000. The total profit under the stock option agreement
is the sum of any termination fee paid by SUGEN to Pharmacia & Upjohn pursuant
to the merger agreement plus any net cash proceeds received by Pharmacia &
Upjohn from the transfer or sale of SUGEN common stock to a third party which
acquires more than 50% of SUGEN's outstanding voting securities.
EFFECT OF STOCK OPTION AGREEMENT
The stock option agreement increases the likelihood that the merger will be
consummated in accordance with the terms of the merger agreement. The stock
option agreement would have the effect of making an acquisition or other
combination of SUGEN by or with a third party more costly because of the need in
any such transaction to acquire, account for or pay the price of the stock
option shares that would be issued under the stock option agreement. SUGEN
believes that the exercisability of the stock option could prohibit any other
acquiror of SUGEN during the next two years from accounting for any such
acquisition by using the pooling of interests accounting method. Accordingly,
the stock option agreement may discourage a third party who might be interested
in effecting such an acquisition or combination from considering or proposing
the transaction or may cause such third party to offer to pay a lower price than
such party would have proposed if pooling of interest accounting were available.
In addition, Pharmacia & Upjohn would have a significant stake in SUGEN if it
exercised the stock option and held the stock.
VOTING AGREEMENT
Contemporaneously with the execution and delivery of the merger agreement,
Pharmacia & Upjohn, Zeneca Limited, the holder of 3,036,016 shares of SUGEN
common stock, and Stephen Evans-Freke, SUGEN's Chairman of the Board and Chief
Executive Officer and the holder of 544,136 shares of SUGEN common stock,
executed and delivered a voting agreement pursuant to which such stockholders
agreed:
- to vote FOR adoption of the merger agreement at every meeting of SUGEN
stockholders at which such matter is considered and at every adjournment
thereof; and
- not to enter into any voting trust or voting agreement or grant any
proxies or powers of attorney with respect to such stockholder's shares
of SUGEN common stock; and
- not to solicit or knowingly encourage acquisition proposals.
57
<PAGE> 65
The voting agreement will terminate on the earliest to occur of:
- the termination of the merger agreement; or
- the effective time of the merger; or
- June 15, 2000.
The foregoing is a summary description of the voting agreement. The voting
agreement is an exhibit to the registration statement that Pharmacia & Upjohn
has filed with the SEC in connection with the merger.
DESCRIPTION OF PHARMACIA & UPJOHN CAPITAL STOCK
The following summary is a description of the material terms of Pharmacia &
Upjohn capital stock, does not purport to be complete and is subject in all
respects to the applicable provisions of the Delaware General Corporation Law,
Pharmacia & Upjohn's certificate of incorporation and Pharmacia & Upjohn's
bylaws, all of which are on file with the SEC.
AUTHORIZED CAPITAL STOCK
Pharmacia & Upjohn's authorized capital stock consists of 1,500,000,000
shares of common stock, par value $0.01 per share, and 100,000,000 shares of
preferred stock, par value $0.01 per share, of which 7,500 shares are designated
Series A Convertible Perpetual Preferred Stock.
PREFERRED STOCK
As of July 29, 1999, 6,777 shares of Series A Convertible Perpetual
Preferred Stock were outstanding. 5,066,651 shares are designated Participating
Preferred Stock and are reserved for issuance upon exercise of the rights
distributed to the holders of Pharmacia & Upjohn common stock pursuant to the
Pharmacia & Upjohn rights agreement referred to below.
SERIES A CONVERTIBLE PERPETUAL PREFERRED STOCK
DESIGNATION AND AMOUNT. The Series A Convertible Perpetual Preferred Stock
has a par value of $0.01 per share and a liquidation preference of $40,300.00
per share, plus accrued and unpaid dividends. The authorized number of shares of
Series A Convertible Perpetual Preferred Stock is 7,500.
RANK. With respect to dividend rights and rights on liquidation,
dissolution and winding-up, the Series A Convertible Perpetual Preferred Stock
ranks senior to all classes of stock of Pharmacia & Upjohn except those classes
of preferred stock expressly designated as ranking on a parity with the Series A
Convertible Perpetual Preferred Stock.
DIVIDENDS. The holders of Series A Convertible Perpetual Preferred Stock
are entitled to receive, when, as and if declared by Pharmacia & Upjohn'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
accrues on accumulated but unpaid dividends. Holders of shares of Series A
Convertible Perpetual Preferred Stock are not entitled to any other dividends.
REDEMPTION. Upon the giving of notice, on or after July 20, 1999,
Pharmacia & Upjohn, at its option, will be entitled to redeem any or all shares
of Series A Convertible
58
<PAGE> 66
Perpetual 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").
In addition, Pharmacia & Upjohn must redeem the Series A Convertible
Perpetual Preferred Stock at the Redemption Price 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 promissory note given
by Pharmacia & Upjohn's Employee Stock Option Plan from the trustee for the
Employee Stock Option Plan to Pharmacia & Upjohn or any indebtedness, expenses
or costs incurred by the holder for the benefit of the Employee Stock Option
Plan, or (ii) in the event that the Employee Stock Option Plan is not initially
determined by the Internal Revenue Service to be qualified. In lieu of paying
the Redemption Price in cash, Pharmacia & Upjohn may, at its sole option, make
payment of the Redemption Price in shares of common stock, or in a combination
of common stock and cash, with any such shares of common stock to be valued at
the fair market value (as that term is defined in Pharmacia & Upjohn's
Certificate of Incorporation) of the common stock on the date as of which the
Series A Convertible Perpetual Preferred Stock is to be redeemed.
CONVERSION RIGHTS. The holders of shares of Series A Convertible Perpetual
Preferred Stock have the right, at their option, to convert any or all of such
shares into shares of common stock initially at a conversion price equal to
$40.30 per share of common stock, with each share of Series A Convertible
Perpetual Preferred Stock being valued at $40,300 for such purpose. The current
conversion price is 1,450 shares of common stock per share of Series A
Convertible Perpetual Preferred Stock.
VOTING RIGHTS. Each share of Series A Convertible Perpetual Preferred
Stock has voting rights equal to the number of shares of common stock into which
such Series A Convertible Perpetual Preferred Stock is convertible, voting
together with the holders of common stock as one class. The vote of at least
66 2/3% of the outstanding Series A Convertible Perpetual Preferred Stock,
voting separately as a series, is required to adopt any alteration, amendment or
repeal of any provision of Pharmacia & Upjohn's certificate of incorporation, if
such amendment, alteration or repeal would alter or change the powers,
preferences or special rights of the Series A Convertible Perpetual Preferred
Stock so as to affect them adversely.
LIQUIDATION RIGHTS. Upon any voluntary or involuntary liquidation,
dissolution or winding-up of Pharmacia & Upjohn (collectively, a "Liquidation"),
the holders of Series A Convertible Perpetual 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 common
stock or on any other class of Pharmacia & Upjohn stock ranking junior as to
dividends or assets distributable upon Liquidation to the holders of shares of
Series A Convertible Perpetual Preferred Stock. After the payment to the holders
of the Series A Convertible Perpetual Preferred Stock of the full preferential
amounts described above, the holders of the Series A Convertible Perpetual
Preferred Stock will not be entitled to any further participation in any
distribution or payment by Pharmacia & Upjohn.
CONSOLIDATION, MERGER. In the event Pharmacia & Upjohn consummates any
consolidation or merger or similar business combination, pursuant to which the
outstanding shares of common stock are exchanged solely for or changed,
reclassified or converted solely into stock of any successor or resulting
corporation that constitutes "qualifying
59
<PAGE> 67
employer securities" with respect to a holder of Series A Convertible Perpetual
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 Series A Convertible
Perpetual 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 special rights, and the qualifications, limitations or
restrictions that the Series A Convertible Perpetual Preferred Stock had
immediately prior to such transaction.
In the event Pharmacia & Upjohn consummates any business combination of the
type described in the preceding paragraph pursuant to which the outstanding
shares of common stock are exchanged for consideration that does not constitute
"qualifying employer securities," the outstanding shares of Series A Convertible
Perpetual Preferred Stock shall be automatically converted into the number of
shares of common stock into which such shares of Series A Convertible Perpetual
Preferred Stock is convertible, subject, however, to the right of the holder of
any such share of Series A Convertible Perpetual Preferred Stock to elect
instead to receive from Pharmacia & Upjohn cash equal to the amount payable in
respect of Series A Convertible Perpetual Preferred Stock upon liquidation of
Pharmacia & Upjohn.
OTHER SERIES OF PREFERRED STOCK
Pharmacia & Upjohn's board is authorized to issue shares of 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 Delaware General Corporation
Law. As of the date hereof, no shares of any other series of Pharmacia & Upjohn
preferred stock are outstanding.
COMMON STOCK
As of July 29, 1999, 506,665,132 shares of Pharmacia & Upjohn common stock
were outstanding. In addition, 2,053,475 shares of Pharmacia & Upjohn common
stock were held in the treasury of Pharmacia & Upjohn, and 34,451,128 shares of
Pharmacia & Upjohn common stock were reserved for issuance pursuant to Pharmacia
& Upjohn's employee benefit plans. Immediately following the merger,
approximately 516,344,225 shares of Pharmacia & Upjohn common stock will be
outstanding and approximately 36,128,962 shares of Pharmacia & Upjohn common
stock will be reserved for issuance pursuant to Pharmacia & Upjohn's employee
benefit plans.
The holders of Pharmacia & Upjohn common stock are entitled to receive
ratably, from funds legally available for the payment thereof, dividends when
and as declared by resolution of the Pharmacia & Upjohn board, subject to any
preferential dividend rights which may be granted to holders of any preferred
stock authorized and issued by the Pharmacia & Upjohn board. Pharmacia & Upjohn
will not be able to pay any dividend or make any distribution of assets on
shares of common stock until dividends on shares of Pharmacia & Upjohn Series A
Convertible Perpetual Preferred Stock and on any other shares of Pharmacia &
Upjohn preferred stock then outstanding with dividend or distribution rights
senior to the common stock have been paid. In the event of a liquidation,
dissolution or winding up, each share of Pharmacia & Upjohn common stock is
entitled to share pro rata in any distribution of Pharmacia & Upjohn's assets
after payment or providing for the payment of liabilities and any liquidation
preference of any preferred
60
<PAGE> 68
stock authorized and issued by the Pharmacia & Upjohn board. Each holder of
Pharmacia & Upjohn common stock is entitled to one vote for each share of
Pharmacia & Upjohn common stock held of record on the applicable record date on
all matters submitted to a vote of stockholders, including the election of
directors.
Holders of Pharmacia & Upjohn common stock have no cumulative voting rights
or preemptive rights to purchase or subscribe for any stock or other securities,
and there are no conversion rights, redemption rights or sinking fund provisions
with respect to Pharmacia & Upjohn common stock. The outstanding shares of
Pharmacia & Upjohn common stock are, and the shares of Pharmacia & Upjohn common
stock issued in connection with the merger will be, duly authorized, validly
issued, fully paid and nonassessable.
Harris Trust & Savings Bank is the transfer agent and registrar for
Pharmacia & Upjohn stock.
Pharmacia & Upjohn common stock is listed on the New York Stock Exchange
under the symbol "PNU." Swedish Depositary Shares, each representing one share
of common stock, are traded on the Stockholm Stock Exchange under the symbol
"PH&U." The shares of Pharmacia & Upjohn common stock issuable in the merger
have been approved for listing on the New York Stock Exchange.
RIGHTS AGREEMENT
Pharmacia & Upjohn's Stockholder Protection Rights Agreement, dated as of
March 4, 1997, provides for the issuance of one right to the holder of each
share of Pharmacia & Upjohn common stock ("Rights"). The Rights initially are
represented only by the certificates for the common stock and will not trade
separately from the common stock unless and until:
- ten days after it is announced by Pharmacia & Upjohn that a person or
group has become the beneficial owner of 15% or more of the outstanding
common stock; or
- ten business days (or such later date as the board of directors may fix
by resolution) after the date a person or group commences a tender or
exchange offer that would result in such person or group becoming an
Acquiring Person.
If and when the Rights separate prior to the Flip-in Date occurring (as
described below), each Right will entitle the holder to purchase 1/100 of a
share of Series A Participating Preferred Stock for an exercise price of $150.
Each 1/100 of a share of Participating Preferred Stock would have economic and
voting terms equivalent to one share of Pharmacia & Upjohn common stock.
Upon the tenth day after the announcement by Pharmacia & Upjohn that any
person or group has become an acquiring person (the "Flip-in Date"), each Right
(other than Rights beneficially owned by the Acquiring Person or its
transferees, which Rights will become void) will entitle its holder to purchase,
for the exercise price, a share of common stock having a market value of twice
the exercise price. Also, if, after the Flip-in Date, the Acquiring Person
controls the board of directors and:
- Pharmacia & Upjohn is involved in a merger or similar form of business
combination and (i) any term of the transaction provides for different
treatment of the shares of capital stock held by the Acquiring Person as
compared to the shares of capital stock held by all other stockholders or
(ii) the person with whom such transaction occurs is the Acquiring Person
or an affiliate thereof; or
61
<PAGE> 69
- Pharmacia & Upjohn sells or transfers assets representing more than 50%
of its assets or generating more than 50% of its operating income or cash
flow to any person other than Pharmacia & Upjohn or its wholly owned
subsidiaries,
then each Right will entitle its holder to purchase, for the exercise price, a
share of the common stock of such purchasing person having a market value of
twice the exercise price. If any person or group acquires from 15% to and
including 50% of the common stock, the board of directors may, at its option,
exchange each outstanding Right, except for those held by an Acquiring Person or
their transferees, for one share of common stock.
The Rights will not prevent a takeover of Pharmacia & Upjohn. However, the
Rights may cause substantial dilution to a person or group that acquires 15% or
more of the common stock unless the Rights are first redeemed by the board of
directors.
The Rights expire on March 27, 2007, unless this expiration date is
extended or the Rights are exchanged or redeemed by Pharmacia & Upjohn before
such date. Prior to an announcement by a person or group of its intent to
acquire 15% or more of the outstanding Pharmacia & Upjohn common stock,
Pharmacia & Upjohn may redeem the Rights in whole, but not in part, for $0.01
per Pharmacia & Upjohn Right, or it may amend the rights agreement in any way
without the consent of the holders of the Rights.
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the merger, holders of SUGEN common stock will become
holders of Pharmacia & Upjohn common stock. The following is a summary of
certain of the material differences between the rights of holders of SUGEN
common stock and the rights of holders of Pharmacia & Upjohn common stock.
The following summary does not purport to be a complete statement of the
rights of holders of Pharmacia & Upjohn common stock and SUGEN common stock. You
should also refer to the Delaware General Corporation Law, and the certificates
of incorporation and bylaws of Pharmacia & Upjohn and SUGEN. See "Description of
Pharmacia & Upjohn Capital Stock" on page 57 for a summary of certain other
rights relating to the Pharmacia & Upjohn common stock.
SUGEN stockholders' rights are currently governed by SUGEN's charter and
bylaws and applicable provisions of the Delaware General Corporation Law.
Pharmacia & Upjohn stockholders' rights are currently governed by Pharmacia &
Upjohn's charter and bylaws and the same provisions of the Delaware General
Corporation Law.
Because SUGEN and Pharmacia & Upjohn are both organized under the laws of
the state of Delaware, any differences in your rights as a stockholder of SUGEN
and Pharmacia & Upjohn will arise solely from differences in the charters and
bylaws of SUGEN and Pharmacia & Upjohn rather than from differences of law. The
following summary highlights important similarities and differences between the
rights of current holders of Pharmacia & Upjohn common stock and current holders
of SUGEN common stock. This summary does not purport to be a complete discussion
of the charters and bylaws of SUGEN and Pharmacia & Upjohn. It is qualified in
its entirety by reference to these documents, copies of which are on file with
the SEC.
62
<PAGE> 70
AUTHORIZED CAPITAL STOCK
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SUGEN
------------------ -----
<S> <C>
Pharmacia & Upjohn's charter authorizes SUGEN's charter authorizes SUGEN to issue
Pharmacia & Upjohn to issue 1,600,000,000 50,000,000 shares of capital stock, of
shares of capital stock, of which: which:
- - 1,500,000,000 shares are designated - 30,000,000 shares are designated common
common stock, $0.01 par value per share; stock, $0.01 par value per share; and
and - 20,000,000 shares are designated
- - 100,000,000 shares are designated preferred stock, $0.01 par value per share.
preferred stock, $0.01 par value per
share; including 7,500 shares of Series A
Convertible Perpetual Preferred Stock,
$0.01 par value per share.
</TABLE>
PREFERRED STOCK
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SUGEN
------------------ -----
<S> <C>
Pharmacia & Upjohn's board of directors is The preferred stock may be issued from time
authorized to issue shares of preferred to time in one or more series. The board of
stock in one or more series, and to fix for directors is authorized to fix or alter
each such series the designations and from time to time the designation, powers,
relative powers, preferences, conversion or preferences and rights of the shares of
other rights, voting powers, restrictions, each such series and the qualifications,
limitations as to dividends, limitations or restrictions of any wholly
qualifications, or terms or conditions of unissued series of preferred stock, and to
redemption, as are permitted by the establish from time to time the number of
Delaware General Corporation Law. As of the shares constituting any such series or any
date hereof, no shares of any series of of them; and to increase or decrease the
Pharmacia & Upjohn preferred stock other number of shares of any series subsequent
than Series A Convertible Perpetual to the issuance of shares of that series,
Preferred Stock are outstanding. See but not below the number of shares of such
"Description of Pharmacia & Upjohn Capital series then outstanding. In connection with
Stock" beginning on page 57. the SUGEN Rights Plan, 300,000 shares of
the authorized preferred stock were
designated as Series A Junior Participating
Preferred Stock ("Junior Preferred Stock").
Each share of Junior Preferred Stock
entitles the holder thereof to 100 votes on
all matters submitted to a vote of the
stockholders and shall rank, with respect
to the payment of dividends and the
distribution of assets, junior to all
series of any other class of SUGEN's
preferred stock. Subject to the rights of
the holders of any shares of preferred
stock with respect to dividends, the
holders of shares of Junior Preferred
Stock, in preference to the holders of
common stock, shall be entitled to receive,
when, as and if declared by the SUGEN
board, quarterly dividends.
</TABLE>
63
<PAGE> 71
DIVIDENDS
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SUGEN
------------------ -----
<S> <C>
Common Stock: Subject to all the rights of Common Stock: Subject to all the rights of
the preferred stock, except as may be the preferred stock, except as may be
expressly provided with respect to the expressly provided with respect to the
preferred stock, by law or by the board preferred stock, by law or by the board
pursuant to Article IV of the Certificate pursuant to the Certificate of
of Incorporation, dividends may be declared Incorporation, dividends may be declared
and paid or set apart for payment upon the and paid or set apart for payment upon the
common stock only out of any assets or common stock out of any assets or funds of
funds of Pharmacia & Upjohn legally SUGEN legally available for the payment of
available for the payment of dividends. dividends.
</TABLE>
VOTING RIGHTS
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SUGEN
------------------ -----
<S> <C>
One vote per share of common stock. One vote per share of common stock; 100
votes per share of Junior Preferred Stock.
Holders of common stock may not cumulate Same.
their votes for the election of directors.
The record holders of a majority of the Same.
shares of Pharmacia & Upjohn 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.
When a quorum is present at any meeting of Same.
stockholders, the vote of the record
holders of a majority of the shares shall
govern.
</TABLE>
64
<PAGE> 72
MEETINGS OF STOCKHOLDERS
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SUGEN
------------------ -----
<S> <C>
The Chairman of the Board, the President The Chairman of the Board, the Chief
and Chief Executive Officer, or a majority Executive Officer, or a majority of the
of the board of directors may call a board of directors may call a special
special meeting of Pharmacia & Upjohn meeting of SUGEN stockholders for any
stockholders for any purpose. purpose.
Any stockholder entitled to vote at an At an annual meeting of the stockholders,
annual meeting of stockholders may propose only such business shall be conducted as
business (other than nominations for the shall have been properly brought before the
election of directors) to be included in meeting. To be properly brought before an
the agenda of such meeting only if written annual meeting, business must be: (A)
notice of such stockholder's intent is specified in the notice of meeting (or any
given to the Secretary of Pharmacia & supplement thereto) given by or at the
Upjohn, either personally or by mail, direction of the board of directors, (B)
postage prepaid, not earlier than 90 days otherwise properly brought before the
nor later than 60 days in advance of the meeting by or at the direction of the board
anniversary of the date of the immediately of directors, or (C) otherwise properly
preceding annual meeting or if the date of brought before the meeting by a
the annual meeting occurs more than 30 days stockholder. For business to be properly
before or 60 days after the anniversary of brought before an annual meeting by a
such immediately preceding annual meeting, stockholder, the stockholder must have
not later than the close of business on the given timely notice thereof in writing to
later of (a) the 60th day prior to such the Secretary of SUGEN. To be timely, a
annual meeting and (b) the tenth day stockholder's notice must be delivered to
following the date on which public or mailed and received at SUGEN's principal
announcement of the date of such meeting is executive offices not later than the close
first made. of business on the sixtieth day nor earlier
than the close of business on the ninetieth
day prior to the first anniversary of the
preceding year's annual meeting; provided,
however, that in the event that no annual
meeting was held in the previous year or
the date of the annual meeting has been
changed by more than 30 days from the date
contemplated at the time of the previous
year's proxy statement, notice by the
stockholder to be timely must be so
received not earlier than the close of
business on the ninetieth day prior to such
annual meeting and not later than the close
of business on the later of the sixtieth
day prior to such annual meeting or, in the
event public announcement of the date of
such annual meeting is first made by SUGEN
fewer than 70 days prior to the date of
such annual meeting, the close of business
on the tenth day following the day on which
public announcement of the date of such
meeting is first made by SUGEN.
</TABLE>
65
<PAGE> 73
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SUGEN
------------------ -----
<S> <C>
Each stockholder entitled to vote at a Same.
meeting of stockholders may vote in person
or authorize another person or persons to
act for such stockholder by proxy.
No proxy shall be voted or acted upon more
than three years from this date, unless the
proxy provides for a longer period.
</TABLE>
ACTION BY STOCKHOLDERS WITHOUT A MEETING
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SUGEN
------------------ -----
<S> <C>
Any action required or permitted to be Same.
taken by the stockholders of Pharmacia &
Upjohn 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.
</TABLE>
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SUGEN
------------------ -----
<S> <C>
There are currently twelve Pharmacia & There are currently seven SUGEN directors.
Upjohn directors.
There can be no less than eight and no more The number of directors which shall
than 16 Pharmacia & Upjohn directors, which constitute the board of directors shall be
numbers may be increased or decreased fixed exclusively by one or more
within such parameters by the board. Until resolutions adopted by the board of
the annual meeting of stockholders at which directors.
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 approved by
80% of all the directors and (iii) one-half
of the directors shall be citizens of the
United States or Canada and one-half shall
be nationals from EU member states or
Sweden.
Each Pharmacia & Upjohn director serves a Same.
three-year term. The Pharmacia & Upjohn
board is classified into 3 classes which
are to be as nearly equal as possible.
Pharmacia & Upjohn stockholders elect the
members of one class at each annual meeting
of stockholders.
</TABLE>
66
<PAGE> 74
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SUGEN
------------------ -----
<S> <C>
Any or all of the directors may be removed Subject to the rights of the holders of any
for due cause by vote of the record holders series of preferred stock, no director
of a majority of the holders of shares shall be removed without cause. Subject to
entitled to vote thereon at a meeting of any limitations imposed by law, the board
the stockholders; provided, however, that of directors or any individual director may
no such removal can be made at such meeting be removed from office at any time with
unless the notice thereof specifies such cause by the affirmative vote of the
removal and the reasons therefor as one of holders of a majority of the voting power
the matters that will be considered at said of all the then- outstanding shares of
meeting. voting stock of the corporation, entitled
to vote at an election of directors.
Newly created directorships resulting from Subject to the rights of the holders of any
any increase in the number of directors and series of preferred stock, newly created
any vacancies on the board resulting from directorships resulting from any increase
death, resignation, disqualification, in the number of directors and any
removal, or other cause shall be filled vacancies on the board resulting from
solely by the affirmative vote of a death, resignation, disqualification,
majority of the remaining directors then in removal, or other cause shall, unless
office, even though less than a quorum. SUGEN's board of directors determines by
resolution that vacancies or newly created
directorships shall be filled by
stockholders, be filled solely by the
affirmative vote of a majority of the
remaining directors then in office, even
though less than a quorum.
Pharmacia & Upjohn's board of directors or Nomination of persons for election to
any stockholder entitled to vote for the SUGEN's board of directors may be made at a
election of directors may nominate persons meeting of stockholders by or at the
for election to the Pharmacia & Upjohn direction of the board of directors or by
board. any stockholder entitled to vote in the
election of directors at the meeting who
complies with the notice procedures set
forth in SUGEN's bylaws.
</TABLE>
67
<PAGE> 75
INDEMNIFICATION OF DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SUGEN
------------------ -----
<S> <C>
Pharmacia & Upjohn shall indemnify any SUGEN shall indemnify its directors and
person who was or is a party or is officers to the fullest extent not
threatened to be made a party to any prohibited by the Delaware General
threatened, pending or completed action, Corporation Law; provided, however, that
suit or proceeding, whether civil, SUGEN may modify the extent of such
criminal, administrative or investigative indemnification by individual contracts
(other than an action by or in right of with its directors and officers; and,
Pharmacia & Upjohn) by reason of the fact provided, further, that SUGEN shall not be
that he or she is or was a director, required to indemnify any director or
officer, employee or agent of Pharmacia & officer in connection with any proceeding
Upjohn, or is or was serving at the request (or part thereof) initiated by such person
of Pharmacia & Upjohn as a director, unless (i) such indemnification is
officer, employee or agent of another expressly required to be made by law, (ii)
corporation, partnership, joint venture, the proceeding was authorized by SUGEN's
trust or other enterprise, against expenses board of directors, (iii) such
(including attorneys' fees), judgments, indemnification is provided by SUGEN, in
fines and amounts paid in settlement its sole discretion, pursuant to the powers
actually and reasonably incurred by him or vested in the corporation under the
her in connection with such action, suit or Delaware General Corporation Law or (iv)
proceeding if he or she acted in good faith such indemnification is required to be made
and in a manner he or she reasonably under SUGEN's charter or bylaws.
believed to be in, or not opposed to, the
best interests of Pharmacia & Upjohn, and,
with respect to any criminal action or
proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
</TABLE>
AMENDMENT OF CHARTER AND BYLAWS
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SUGEN
------------------ -----
<S> <C>
Pharmacia & Upjohn's certificate of SUGEN reserves the right to amend, alter,
incorporation requires that (A) resolutions change or repeal any provision contained in
to amend, alter, change or repeal (i) the its Certificate of Incorporation, except
name of the corporation or (ii) the that the affirmative vote of the holders of
provisions of the certificate of at least 66 2/3% of the voting power of all
incorporation relating to certain business of the then-outstanding shares of the
combinations must be approved by a vote of voting stock, voting together as a single
80% of the directors and 66 2/3% of the class, is required to alter, amend or
stockholders; and (B) resolutions to amend, repeal bylaws provisions and certificate of
alter, change or repeal (i) the incorporation provisions related to (i) the
classification of the Company board or (ii) designation, tenure and powers of directors
the provision in the certificate of and officers; (ii) director liability; and
incorporation which requires a vote of 80% (iii) amendments.
of the directors or 66 2/3% of the
stockholders in order to amend provisions
of the bylaws, must be approved by a vote
of 80% of the directors.
</TABLE>
68
<PAGE> 76
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SUGEN
------------------ -----
<S> <C>
The Pharmacia & Upjohn bylaws may be The bylaws may be altered or amended by the
amended or repealed or new bylaws adopted affirmative vote of at least 66 2/3% of the
by approval of the record holders of a voting power of all of the outstanding
majority of the shares entitled to vote at shares of the voting stock. The board of
any regular or special meeting of the directors shall also have the power to
stockholders at which a quorum is present adopt, amend, or repeal bylaws.
or by a majority of the directors at a
board meeting at which a quorum is present,
except that (A) a vote of 80% of the
directors is required to approve any
amendment, alteration, change or repeal of
the provisions of the Pharmacia & Upjohn
bylaws relating to (I) the location of the
global corporate management center of
Pharmacia & Upjohn or Pharmacia & Upjohn's
operational headquarters, (ii) the number,
qualifications and terms of office of
directors, (iii) the qualifications of the
Chairman of the Board and the duties and
powers of the Chairman of the Board, (iv)
the composition and terms of committees of
the company board, (v) certain arrangements
relating to dividend payments, (vi) the
maintenance of the Swedish Depositary Share
program, and (vii) the requirement that
communications to stockholders be made in
both the English and Swedish languages; and
(B) a director supermajority vote is
required to approve any amendment. Any
alteration, change or repeal of the
provisions of the Pharmacia & Upjohn bylaws
relating to the location of the annual
meetings of stockholders unless the number
of persons that are residents in or
nationals of Sweden holding shares, whether
directly or as Swedish Depository Shares,
falls below 5% of the total number of
persons holding voting stock or such
persons cease to beneficially own at least
5% of the voting stock (including shares
held by the depositary), in which case such
an amendment, alteration, change or repeal
may be approved by the affirmative vote of
a majority of the directors or the
affirmative vote of the holders of a
majority of the voting stock.
</TABLE>
69
<PAGE> 77
DELAWARE TAKEOVER LAW
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SUGEN
------------------ -----
<S> <C>
Pharmacia & Upjohn is subject to Section SUGEN is similarly subject to Section 203
203 of the Delaware General Corporation of the Delaware General Corporation Law.
Law. In general, Section 203 prohibits a
publicly held Delaware corporation from
engaging in a business combination with an
interested stockholder for a period of
three years after the date of the
transaction in which such party became an
interested stockholder, unless the
transaction is approved by the board of
directors of the corporation, or 66 2/3% of
the non-interested voting stock of the
corporation. An interested person is one
who owns, individually or as part of a
group, 15% or more of a corporation's
voting stock.
</TABLE>
VALIDITY OF SHARES
The validity of the Pharmacia & Upjohn common stock to be issued in
connection with the merger will be passed upon by Sullivan & Cromwell, New York,
New York. Certain tax matters relating to the merger will be passed upon by
Cooley Godward LLP, Palo Alto, California. See "The Merger -- Material Federal
Income Tax Consequences" on page 36.
INDEPENDENT ACCOUNTANTS
The financial statements of Pharmacia & Upjohn incorporated in this Proxy
Statement/ Prospectus by reference to Pharmacia & Upjohn's Annual Report on Form
10-K for the year ended December 31, 1998, have been so incorporated in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting. With respect
to the unaudited financial information of Pharmacia & Upjohn, Inc. for the
three-month period ended March 31, 1999 incorporated by reference in this Proxy
Statement/ Prospectus, PricewaterhouseCoopers LLP reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report dated April 27, 1999
incorporated by reference herein states that they did not audit and they do not
express an opinion on the unaudited 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.
PricewaterhouseCoopers LLP is not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited financial
information because that report is not a "report" or a "part" of the
registration statement prepared or certified by PricewaterhouseCoopers LLP
within the meaning of Sections 7 and 11 of the Act.
The financial statements of SUGEN incorporated in this Proxy
Statement/Prospectus by reference to SUGEN's Annual Report on Form 10-K for the
year ended December 31, 1998, as amended, have been so incorporated in reliance
on the report of Ernst & Young LLP, independent auditors, given on the authority
of said firm as experts in auditing and accounting.
70
<PAGE> 78
WHERE YOU CAN FIND MORE INFORMATION
Pharmacia & Upjohn and SUGEN are each subject to the informational
requirements of the Exchange Act and, in accordance therewith, file reports,
proxy statements and other information with the SEC. The reports, proxy
statements and other information filed by Pharmacia & Upjohn and SUGEN with the
SEC can be inspected and copied at the public reference facilities maintained by
the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC Regional Offices located at 7 World Trade Center, 13th floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material also can be obtained at prescribed rates from the Public
Reference Section of the SEC at 450 Fifth Street, Washington, D.C. 20549.
Information regarding the Public Reference Room may be obtained by calling the
SEC at (800) 732-0330. In addition, Pharmacia & Upjohn and SUGEN are each
required to file electronic versions of such material with the SEC through the
SEC's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The SEC
maintains a World Wide Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. Pharmacia & Upjohn common stock is listed
on the New York Stock Exchange and reports and other information concerning
Pharmacia & Upjohn can also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. SUGEN common stock is
listed on the Nasdaq National Market and reports and other information
concerning SUGEN can also be inspected at the offices of the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C.
20001-1500.
Pharmacia & Upjohn has filed with the SEC a Registration Statement on Form
S-4 under the Exchange Act with respect to the shares of Pharmacia & Upjohn
stock to be issued pursuant to the merger agreement.
The SEC allows Pharmacia & Upjohn and SUGEN to "incorporate by reference"
information into this Proxy Statement/Prospectus, which means that Pharmacia &
Upjohn and SUGEN can disclose important information to you by referring you to
another document filed separately with the SEC. Statements contained in this
Proxy Statement/Prospectus or in any document incorporated by reference in this
Proxy Statement/Prospectus 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 an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference. The information
incorporated by reference is deemed to be part of this Proxy
Statement/Prospectus. This Proxy Statement/Prospectus incorporates by reference
the documents set forth below that Pharmacia & Upjohn and SUGEN have previously
filed with the SEC. These documents contain important information about
Pharmacia & Upjohn and SUGEN and their finances.
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SEC FILINGS
(FILE NO. 1-11557) PERIOD
------------------------------ ------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
Current Reports on Form 8-K Filed on July 1, 1999 and July 30, 1999
</TABLE>
<TABLE>
<CAPTION>
SUGEN SEC FILINGS
(FILE NO. 0-24814) PERIOD
------------------ ------
<S> <C>
Annual Report on Form 10-K, as amended Year ended December 31, 1998
Quarterly Report on Form 10-Q, as amended Quarter ended March 31, 1999
Current Reports on Form 8-K Filed on March 29, 1999, June 21, 1999
and August 2, 1999
</TABLE>
71
<PAGE> 79
We are also incorporating by reference additional documents that we filed
with the Securities and Exchange Commission between the date of this Proxy
Statement/Prospectus and the date of the special meeting.
Pharmacia & Upjohn has supplied all information contained or incorporated
by reference in this Proxy Statement/Prospectus relating to Pharmacia & Upjohn
and SUGEN has supplied all such information relating to SUGEN.
If you are a stockholder, Pharmacia & Upjohn or SUGEN may have sent you
some of the documents incorporated by reference, but you can obtain any of them
through Pharmacia & Upjohn and SUGEN or the SEC. Documents incorporated by
reference are available from Pharmacia & Upjohn and SUGEN without charge,
excluding all exhibits unless SUGEN or Pharmacia & Upjohn have specifically
incorporated by reference an exhibit in this Proxy Statement/Prospectus.
Stockholders may obtain documents incorporated by reference in this Proxy
Statement/Prospectus by requesting them in writing or by telephone from the
appropriate party at the following addresses:
<TABLE>
<S> <C>
PHARMACIA & UPJOHN, INC. SUGEN, INC.
SECRETARY INVESTOR RELATIONS
95 CORPORATE DRIVE 230 EAST GRAND AVENUE
BRIDGEWATER, NEW JERSEY 08807 SOUTH SAN FRANCISCO, CALIFORNIA 94080
(908) 306-4400 (650) 553-8300
</TABLE>
If you would like to request documents from us, please do so by August 24,
1999 in order to receive them before the special meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER AGREEMENT.
PHARMACIA & UPJOHN AND SUGEN HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED AUGUST 2, 1999.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE
MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS OF SUGEN NOR THE
ISSUANCE OF PHARMACIA & UPJOHN STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION
TO THE CONTRARY.
72
<PAGE> 80
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
SUGEN, INC.,
PHARMACIA & UPJOHN, INC.
AND
UNIVERSITY ACQUISITION CORP.
DATED AS OF JUNE 15, 1999
<PAGE> 81
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME
1.1 The Merger.................................................. A-1
1.2. Closing..................................................... A-2
1.3. Effective Time.............................................. A-2
ARTICLE II
CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION
2.1. The Certificate of Incorporation............................ A-2
2.2. The Bylaws.................................................. A-2
ARTICLE III
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
3.1. Directors................................................... A-2
3.2. Officers.................................................... A-2
ARTICLE IV
EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES
4.1. Effect on Capital Stock..................................... A-3
(a) Merger Consideration................................... A-3
(b) Cancellation of Excluded Shares........................ A-3
(c) Merger Sub............................................. A-3
4.2. Exchange of Certificates for Shares......................... A-3
(a) Exchange Agent......................................... A-3
(b) Exchange Procedures.................................... A-4
(c) Distributions with Respect to Unexchanged Shares;
Voting...................................................... A-4
(d) Transfers.............................................. A-5
(e) Fractional Shares...................................... A-5
(f) Termination of Exchange Fund........................... A-5
(g) Lost, Stolen or Destroyed Certificates................. A-5
4.3. Dissenters' Rights.......................................... A-6
4.4. Adjustments to Prevent Dilution............................. A-6
4.5. Treatment of Convertible Notes.............................. A-6
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of the Company
(a) Organization, Good Standing and Qualification.......... A-6
(b) Capital Structure...................................... A-7
(c) Corporate Authority; Approval and Fairness............. A-8
(d) Governmental Filings; No Violations.................... A-9
(e) Company Reports; Financial Statements.................. A-10
(f) Absence of Certain Changes............................. A-10
(g) Litigation and Liabilities............................. A-11
(h) Employee Benefits...................................... A-11
</TABLE>
A-i
<PAGE> 82
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
(i) Compliance............................................ A-13
(j) Antitakeover Statutes................................. A-13
(k) Environmental Matters.................................. A-13
(l) Accounting and Tax Matters............................ A-14
(m) Taxation................................................ A-14
(n) Certain Regulatory Matters............................. A-16
(o) Intellectual Property.................................. A-17
(p) Product Registration Files............................. A-19
(q) Year 2000 Compliance................................... A-20
(r) Labor Matters.......................................... A-20
(s) Rights Agreement....................................... A-20
(t) Brokers and Finders.................................... A-20
(u) Supply Arrangements.................................... A-20
(v) Investigational Compounds.............................. A-21
5.2. Representations and Warranties of Parent and Merger Sub..... A-21
(a) Capitalization of Merger Sub........................... A-21
(b) Organization, Good Standing and Qualification.......... A-21
(c) Capital Structure...................................... A-22
(d) Corporate Authority.................................... A-22
(e) Governmental Filings; No Violations.................... A-23
(f) Parent Reports; Financial Statements................... A-23
(g) Absence of Certain Changes............................. A-24
(h) Litigation and Liabilities............................. A-24
(i) Compliance............................................ A-24
(j) Accounting and Tax Matters............................ A-24
(k) Brokers and Finders.................................... A-25
ARTICLE VI
COVENANTS
6.1. Company Interim Operations.................................. A-25
6.2. Conduct of Business of Parent............................... A-26
6.3. Acquisition Proposals....................................... A-27
6.4. Information Supplied........................................ A-29
6.5. Stockholders Meeting........................................ A-29
6.6. Filings; Other Actions; Notification........................ A-29
6.7. Taxation and Accounting..................................... A-32
6.8. Access...................................................... A-32
6.9. Affiliates.................................................. A-33
6.10. Listing; De-registration.................................... A-34
6.11. Publicity................................................... A-34
6.12. Benefits.................................................... A-34
(a) Stock Options.......................................... A-34
(b) Employee Benefits...................................... A-35
6.13. Expenses.................................................... A-35
6.14. Indemnification; Directors' and Officers' Insurance......... A-35
6.15. Other Actions by the Company and Parent..................... A-36
(a) Rights................................................. A-36
(b) Antitakeover Statutes.................................. A-36
</TABLE>
A-ii
<PAGE> 83
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
6.16. Convertible Notes and Warrants.............................. A-36
6.17. Funding Mechanism........................................... A-37
ARTICLE VII
CONDITIONS
Conditions to Each Party's Obligation to Effect the
7.1. Merger...................................................... A-38
(a) Stockholder Approval................................... A-38
(b) Regulatory Consents.................................... A-38
(c) Litigation............................................. A-38
(d) Registration Statement................................. A-38
7.2. Conditions to Obligations of Parent and Merger Sub.......... A-38
(a) Representations and Warranties......................... A-38
(b) Performance of Obligations of the Company.............. A-39
(c) Regulatory Consents.................................... A-39
(d) Consents Under Agreements.............................. A-39
(e) Tax Opinion............................................ A-39
(f) Rights Agreement....................................... A-39
(g) Affiliates Letters..................................... A-39
(h) Accountants' Letters................................... A-39
7.3. Conditions to Obligation of the Company..................... A-40
(a) Representations and Warranties......................... A-40
(b) Performance of Obligations of Parent and Merger Sub.... A-40
(c) Regulatory Consents.................................... A-40
(d) Tax Opinion............................................ A-40
(e) NYSE Listing........................................... A-40
(f) Accountants' Letters................................... A-40
ARTICLE VIII
TERMINATION
8.1. Termination by Mutual Consent............................... A-41
8.2. Termination by Either Parent or the Company................. A-41
8.3. Termination by the Company.................................. A-41
8.4. Termination by Parent....................................... A-42
8.5. Effect of Termination and Abandonment....................... A-42
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. Survival.................................................... A-44
9.2. Modification or Amendment................................... A-44
9.3. Waiver of Conditions........................................ A-44
9.4 Counterparts................................................ A-44
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL............... A-44
9.6. Notices..................................................... A-45
9.7. Entire Agreement............................................ A-46
9.8. No Third Party Beneficiaries................................ A-46
9.9. Obligations of Parent and of the Company.................... A-46
9.10. Severability................................................ A-46
9.11. Specific Performance........................................ A-46
</TABLE>
A-iii
<PAGE> 84
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
9.12. Interpretation.............................................. A-46
9.13. Assignment.................................................. A-47
9.14. Captions.................................................... A-47
</TABLE>
A-iv
<PAGE> 85
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated
as of June 15, 1999, among SUGEN, Inc., a Delaware corporation (the "Company"),
Pharmacia & Upjohn, Inc., a Delaware corporation ("Parent"), and University
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ("Merger Sub," the Company and Merger Sub sometimes being hereinafter
collectively referred to as the "Constituent Corporations").
RECITALS
WHEREAS, the respective boards of directors of each of Parent, Merger Sub
and the Company have approved the merger of Merger Sub with and into the Company
(the "Merger") and approved the Merger upon the terms and subject to the
conditions set forth in this Agreement and have determined that the Merger and
the other transactions contemplated by this Agreement are fair to, and in the
best interest of, their respective stockholders;
WHEREAS, it is intended that, for federal income tax purposes, the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code");
WHEREAS, for financial accounting purposes, it is intended that the Merger
shall be accounted for as a "pooling-of-interests;"
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company is entering into a stock option agreement with Parent
(the "Stock Option Agreement"), pursuant to which the Company has granted to
Parent an option to purchase Shares (as defined in Section 4.1(a)) under the
terms and conditions set forth in the Stock Option Agreement; and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, certain holders of Shares are entering into a voting agreement with
Parent (the "Voting Agreement") pursuant to which such holders have made certain
agreements with respect to the Shares held by them.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein and in
the Stock Option Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME
1.1. The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, at the Effective Time (as defined in Section 1.3) Merger Sub
shall be merged with and into the Company and the separate corporate existence
of Merger Sub shall thereupon cease. The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Delaware, and the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger, except as set forth in Articles II and III. The Merger shall have
the effects specified in the Delaware General Corporation Law, as amended
A-1
<PAGE> 86
(the "DGCL"). Parent, as the sole stockholder of Merger Sub, hereby approves the
Merger and this Agreement.
1.2. Closing. The closing of the Merger (the "Closing") shall take place
(i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York
at 10:00 a.m. on the latest to occur of (A) the business day on which the
condition set forth in Section 7.1(a) shall be satisfied or waived in accordance
with this Agreement and (B) the first business day following the date on which
the last to be satisfied or waived of the other conditions set forth in Article
VII (other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or waiver of those conditions) shall be
satisfied or waived in accordance with this Agreement, or (ii) at such other
place and time and/or on such other date as the Company and Parent may agree in
writing (the "Closing Date").
1.3. Effective Time. As soon as practicable following the Closing, the
Company will cause a Certificate of Merger (the "Certificate of Merger") to be
executed, acknowledged and filed with the Secretary of State of Delaware as
provided in Section 251 of the DGCL. The Merger shall become effective at the
time when the Certificate of Merger has been duly filed with the Secretary of
State of the State of Delaware or, if agreed to by Parent and the Company, such
later time or date set forth in the Certificate of Merger (the "Effective
Time").
ARTICLE II
CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION
2.1. The Certificate of Incorporation. The certificate of incorporation
of Merger Sub as in effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation (the "Charter"),
except that Article FIRST of the Charter shall be amended to read in its
entirety as follows: "The name of the corporation is SUGEN, Inc."
2.2. The Bylaws. The bylaws of Merger Sub in effect immediately prior to
the Effective Time shall be the bylaws of the Surviving Corporation (the
"Bylaws"), until thereafter amended as provided therein or by applicable law.
ARTICLE III
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
3.1. Directors. The directors of Merger Sub immediately prior to the
Effective Time shall, from and after the Effective Time, be the directors of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the Charter and Bylaws. Prior to the Effective Time, the Company shall take
all actions necessary to obtain any resignations of its directors necessary to
give effect to the provisions of this Section.
3.2. Officers. The officers of the Company immediately prior to the
Effective Time shall, from and after the Effective Time, be the officers of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the Charter and Bylaws.
A-2
<PAGE> 87
ARTICLE IV
EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES
4.1. Effect on Capital Stock. At the Effective Time, as a result of the
Merger and without any action on the part of the Company, Parent, Merger Sub or
any holder of any capital stock of the Company:
(a) Merger Consideration. (i) Each share of common stock, par value
$0.01 per share, of the Company (each a "Share" or, collectively, the
"Shares") issued and outstanding immediately prior to the Effective Time
(other than Shares owned by Parent or any direct or indirect Subsidiary of
Parent (collectively, the "Parent Companies") or Shares that are owned by
the Company or any direct or indirect Subsidiary of the Company (and in
each case not held on behalf of third Parties)("Excluded Shares")) shall,
subject to Section 4.2(e), be converted into, and become exchangeable for
the right to receive (the "Merger Consideration") that number of shares
(the "Exchange Ratio") of common stock, par value $0.01 per share (the
"Parent Common Stock"), of Parent determined by dividing $31.00 by the
Average Price (as defined below); provided, that (A) if the Average Price
is equal to or less than $49.21875, the Exchange Ratio shall be .62984; and
(B) if the Average Price is equal to or greater than $60.15625, the
Exchange Ratio shall be .51533. "Average Price" means the average (rounded
to the nearest 1/10,000, or if there shall not be a nearest 1/10,000, to
the next highest 1/10,000) of the volume weighted averages (rounded to the
nearest 1/10,000, or if there shall not be a nearest 1/10,000, to the next
highest 1/10,000) of the trading prices of Parent Common Stock on the New
York Stock Exchange, Inc. (the "NYSE") as reported by Bloomberg Financial
Markets (or such other source as the parties shall agree in writing) for
each of the NYSE Trading Days; and (ii) "NYSE Trading Days" means the 20
NYSE trading days ending on (and including) the third trading day
immediately preceding the Stockholders Meeting (as defined in Section 6.5).
(ii) At the Effective Time, all Shares shall no longer be outstanding
and shall be canceled and retired and shall cease to exist, and each
certificate (a "Certificate") formerly representing any of such Shares
(other than Excluded Shares) shall thereafter represent only the right to
receive the Merger Consideration, cash in lieu of fractional shares
pursuant to Section 4.2(e), if any, and any distribution or dividend
pursuant to Section 4.2(c).
(b) Cancellation of Excluded Shares. Each Excluded Share issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, cease to
be outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
(c) Merger Sub. As of and following the Effective Time, each share of
Common Stock, par value $.01 per share, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall continue to
remain outstanding and shall constitute one share of common stock of the
Surviving Corporation.
4.2. Exchange of Certificates for Shares. (a) Exchange Agent. As of the
Effective Time, Parent shall deposit, or shall cause to be deposited, with an
exchange agent selected by Parent and reasonably acceptable to the Company (the
"Exchange Agent"), for the benefit of the holders of Shares, certificates
representing the shares of Parent Common Stock and, after the Effective Time, if
applicable, any cash, dividends or other distributions
A-3
<PAGE> 88
with respect to the Parent Common Stock to be issued or paid pursuant to Section
4.1(a)(ii) (including cash in lieu of fractional shares) to be exchanged for
Shares outstanding immediately prior to the Effective Time upon due surrender of
the Certificates (or affidavits of loss in lieu thereof) pursuant to the
provisions of this Article IV (such certificates for shares of Parent Common
Stock, together with the amount of any dividends or other distributions payable
with respect thereto and any cash in lieu of fractional shares, being
hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail to each holder of record of
Shares (other than holders of Excluded Shares) (i) a letter of transmittal
specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates (or affidavits
of loss in lieu thereof) to the Exchange Agent and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for (A) certificates
representing shares of Parent Common Stock and (B) any unpaid dividends and
other distributions and cash in lieu of fractional shares. Subject to Section
4.2(g), upon surrender of a Certificate for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor (x) a certificate
representing that number of whole shares of Parent Common Stock that such holder
is entitled to receive pursuant to this Article IV and (y) a check in the amount
(after giving effect to any required tax withholdings) of (A) any cash in lieu
of fractional shares as provided in Section 4.2(e) plus (B) any unpaid non-stock
dividends and any other dividends or other distributions that such holder has
the right to receive pursuant to the provisions of this Article IV, and the
Certificate so surrendered shall forthwith be canceled. No interest will be paid
or accrued on any amount payable upon due surrender of the Certificates. In the
event of a transfer of ownership of Shares that is not registered in the
transfer records of the Company, a certificate representing the proper number of
shares of Parent Common Stock, together with a check for any cash to be paid
upon due surrender of the Certificate and any other dividends or distributions
in respect thereof, may be issued and/or paid to such a transferee if the
Certificate formerly representing such Shares is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and to evidence that any applicable stock transfer taxes have been
paid. If any certificate for shares of Parent Common Stock is to be issued in a
name other than that in which the Certificate surrendered in exchange therefor
is registered, it shall be a condition of such exchange that the Person (as
defined below) requesting such exchange shall pay any transfer or other taxes
required by reason of the issuance of certificates of shares of Parent Common
Stock in a name other than that of the registered holder of the Certificate
surrendered, or shall establish to the satisfaction of Parent or the Exchange
Agent that such tax has been paid or is not applicable.
For the purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including not-for-profit), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, Governmental Entity (as defined in Section 5.1(d)) or
other entity of any kind or nature.
(c) Distributions with Respect to Unexchanged Shares; Voting. (i) All
shares of Parent Common Stock to be issued pursuant to the Merger shall be
deemed issued and outstanding as of the Effective Date and whenever a dividend
or other distribution is declared by Parent in respect of the Parent Common
Stock, the record date for which is at or after the Effective Time, that
declaration shall include dividends or other distributions in respect of all
shares issuable pursuant to this Agreement. No dividends or other
A-4
<PAGE> 89
distributions in respect of the Parent Common Stock shall be paid to any holder
of any unsurrendered Certificate until such Certificate is surrendered for
exchange in accordance with this Article IV. Subject to the effect of applicable
laws, reasonably promptly following surrender of any such Certificate, there
shall be issued and/or paid to the holder certificates representing whole shares
of Parent Common Stock issued in exchange therefor, without interest, (A) at the
time of such surrender, the dividends or other distributions with a record date
after the Effective Time theretofore payable with respect to such whole shares
of Parent Common Stock and not paid and (B) at the appropriate payment date, the
dividends or other distributions payable with respect to such whole shares of
Parent Common Stock with a record date after the Effective Time but with a
payment date subsequent to surrender.
(ii) Holders of unsurrendered Certificates shall be entitled to vote after
the Effective Time at any meeting of Parent stockholders the number of whole
shares of Parent Common Stock represented by such Certificates, regardless of
whether such holders have exchanged their Certificates.
(d) Transfers. After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the Shares that were outstanding
immediately prior to the Effective Time.
(e) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Parent Common Stock will be issued and any
holder of Shares entitled to receive a fractional share of Parent Common Stock
but for this Section 4.2(e) shall be entitled to receive, as of the date on
which those holders entitled to receive fractional shares are determined, a cash
payment in lieu of such fractional share, without interest, which payment shall
represent such holder's proportionate interest in the net proceeds from the sale
by the Exchange Agent on behalf of such holder of the aggregate fractional
shares of Parent Common Stock that such holder otherwise would be entitled to
receive. Any such sale shall be made by the Exchange Agent on the date on which
those holders entitled to receive fractional shares are determined.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any Parent Common Stock)
that remains unclaimed by the stockholders of the Company for 60 days after the
Effective Time shall be paid to Parent. Any stockholders of the Company who have
not theretofore complied with this Article IV shall thereafter look only to
Parent for payment of their shares of Parent Common Stock and any cash,
dividends and other distributions in respect of the Parent Common Stock payable
and/or issuable pursuant to Section 4.1 and Section 4.2(c) upon due surrender of
their Certificates (or affidavits of loss in lieu thereof), in each case,
without any interest thereon. Notwithstanding the foregoing, none of Parent, the
Surviving Corporation, the Exchange Agent or any other Person shall be liable to
any former holder of Shares for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(g) Lost, Stolen or Destroyed Certificates. In the event 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 Parent, the posting by such Person of a bond in an
amount determined by Parent 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 shares of Parent
Common Stock and any cash payable and any unpaid dividends or other
distributions in respect of Parent Common Stock pursuant to Section 4.2(c) upon
due
A-5
<PAGE> 90
surrender of and deliverable in respect of the Shares represented by such
Certificate pursuant to this Agreement.
4.3. Dissenters' Rights. In accordance with Section 262 of the DGCL, no
appraisal rights shall be available to holders of Shares in connection with the
Merger.
4.4. Adjustments to Prevent Dilution. In the event that (i) on or after
the date hereof and prior to the Effective Time the Company changes the number
of Shares or securities convertible or exchangeable into or exercisable for
Shares (except as specifically contemplated by or permitted by this Agreement or
the Schedules hereto), or (ii) Parent changes the number of shares of Parent
Common Stock or securities convertible or exchangeable into or exercisable for
shares of Parent Common Stock issued and outstanding prior to the Effective Time
as a result of a reclassification, stock split (including a reverse split) with
a record date prior to the Effective Time, stock dividend or distribution with a
record date prior to the Effective Time, recapitalization, merger, subdivision,
issuer tender or exchange offer, or other similar transaction, then, in either
such case, the Merger Consideration shall be equitably adjusted.
4.5. Treatment of Convertible Notes. The Convertible Notes and Warrants
(as each such term is defined in Section 5.1(b)) shall be treated as set forth
in Section 6.16.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent and Merger Sub as follows:
(a) Organization, Good Standing and Qualification. Each of the
Company and its Subsidiaries is a corporation duly organized, validly
existing and in good standing (where such concept is recognized) under the
laws of its respective jurisdiction of organization and has all requisite
corporate or similar power and authority to own and operate its properties
and assets and to carry on its business as presently conducted and is
qualified to do business and is in good standing as a foreign corporation
in each jurisdiction (where such concept is recognized) where the ownership
or operation of its properties or conduct of its business requires such
qualification, except where the failure of any of the Company's
Subsidiaries to be so qualified or in such good standing, when taken
together with all other such failures, is not reasonably likely to have a
Company Material Adverse Effect (as defined below) or materially impair the
ability of the Company, the Surviving Corporation, Parent or any of their
respective affiliates, following consummation of the Merger, to conduct any
material business or operations in any jurisdiction where they are now
being conducted. The Company has made available to Parent a complete and
correct copy of the Company's and its Subsidiaries' certificates of
incorporation and bylaws (or documents of a similar scope for corporations
organized in jurisdictions outside the United States), each as amended to
date. The Company's and its Subsidiaries' certificates of incorporation and
bylaws (or similar documents) so delivered are in full force and effect.
Schedule 5.1(a) contains a correct and complete list of each jurisdiction
under the laws of which the Company and each of its Subsidiaries is
organized.
As used in this Agreement, (i) "Subsidiary" means, with respect to the
Company, Parent or Merger Sub, as the case may be, any entity, whether
incorporated or unincorporated, of which at least a majority of the
securities or ownership interests having by their terms ordinary voting
power to elect a majority of
A-6
<PAGE> 91
the board of directors or other persons performing similar functions is
directly or indirectly owned or controlled by such party or by one or more
of its respective Subsidiaries or by such party and any one or more of its
respective Subsidiaries, (ii) "Company Material Adverse Effect" means any
change in or effect on the business of the Company and its Subsidiaries
that is, or is reasonably likely to be, materially adverse to the business,
assets (including intangible assets), liabilities (contingent or
otherwise), prospects, condition (financial or otherwise) of the Company
and its Subsidiaries, taken as a whole or the Projected Expenses; provided,
however, that changes in or effects on the financial condition of the
Company and its Subsidiaries, taken as a whole, that result solely from
expenditures by the Company and its Subsidiaries which do not exceed the
Projected Expenses and expenses incurred in connection with the
transactions contemplated by this Agreement shall not, in and of
themselves, constitute a Company Material Adverse Effect, and changes in or
effects on the financial condition or results of operation of the Company
and its Subsidiaries, taken as a whole, that result solely from decreases
in the revenues of the Company and its Subsidiaries shall not, in and of
themselves, constitute a Company Material Adverse Effect, (iii) "Projected
Expenses" means the aggregate projected expenses for the periods up to and
including the Closing Date set forth in the budget of the Company set forth
in Schedule 6.1(a) (the "Budget"), and (iv) "due investigation" means a
commercially reasonable investigation for a company engaged in a business
similar to that of the Company.
(b) Capital Structure. The authorized capital stock of the Company
consists of 30,000,000 Shares, of which only 16,951,307 Shares were
outstanding as of the close of business on June 14, 1999, and 20,000,000
shares of Preferred Stock, par value $0.01 per share (the "Preferred
Shares"), of which none are outstanding. All of the outstanding Shares have
been duly authorized and are validly issued, fully paid and nonassessable.
Other than Shares reserved for issuance pursuant to the Stock Option
Agreement, the Company has no Shares or Preferred Shares subject to
issuance, except (i) 300,000 Preferred Shares, designated Series A Junior
Participating Preferred Stock, subject to issuance upon exercise of the
Rights (the "Rights") issued pursuant to the Rights Agreement, dated as of
August 1, 1995 (the "Rights Agreement"), between the Company and The First
National Bank of Boston, as Rights Agent, (ii) 1,681,839 Shares subject to
issuance upon conversion of the Company's 12% Senior Convertible Notes due
2002 (the "12% Notes"), (iii) 1,261,385 Shares subject to issuance upon
conversion of 12% Senior Convertible Notes (the "Warrant Notes") issuable
upon exercise of outstanding warrants to purchase Warrant Notes (the
Warrants Notes, collectively with the 12% Notes, the "Convertible Notes"),
(iv) 1,806,776 Shares reserved for issuance in connection with the payment
of interest on the Convertible Notes (it being agreed that any such
issuance shall constitute a breach of this Agreement), (v) 675,798 Shares
reserved for issuance pursuant to the warrants summarized in Schedule
5.1(b) (the "Warrants"), (vi) 3,187,244 shares reserved for issuance under
the Company's 1992 Stock Option Plan, as amended, of which options to
acquire 2,601,393 shares are outstanding as of June 14, 1999, (vii) 298,000
shares reserved for issuance under the Company's 1994 Non-Employee
Directors' Stock Option Plan, of which options to acquire 165,000 shares
are outstanding as of June 14, 1999, (viii) 270,000 shares reserved for
issuance under the Company's Long-Term Objectives Stock Option Plan for
Senior Management, of which options to acquire 180,000 shares are
outstanding as of June 14, 1999, (xi) 206,422 shares reserved for issuance
under the Company's Employee Stock Purchase Plan as of June 14, 1999, and
(x) 50,000 Shares subject to
A-7
<PAGE> 92
issuance pursuant to the Letter Agreement, dated as of July 21, 1998, by
and between the Company and Stephen Evans-Freke (the "Letter Agreement").
Schedule 5.1(b) sets forth a correct and complete list of each outstanding
option to purchase Shares under the Stock Plans, as defined below (each a
"Company Option"), as of June 14, 1999, including the holder, date of
grant, exercise price and number of Shares subject thereto. All issued and
outstanding shares of capital stock or other securities of each of the
Company's Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and, except for directors' qualifying shares, owned by a
direct or indirect wholly owned Subsidiary of the Company, free and clear
of any lien, pledge, security interest, claim or other encumbrance, other
than immaterial liens which do not affect the Company's right, title and
interest in and to such shares or securities. Except as set forth above or
as disclosed in Schedule 5.1(b) or as specifically permitted by this
Agreement or the Schedules hereto, there are no shares of capital stock of
the Company authorized, issued or outstanding and except as set forth above
and as provided in the Stock Option Agreement, there are no preemptive
rights nor any outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of any character
to which the Company or any of its Subsidiaries is a party or may be bound
relating to the issued or unissued capital stock or other securiti es of
the Company or any of its Subsidiaries. Except for the Warrants and the
Convertible Notes as described above, the Company does not have outstanding
any bonds, debentures, notes or other obligations the holders of which have
the right to vote (or convertible into or exercisable for securities having
the right to vote) with the stockholders of the Company on any matter
("Voting Debt"). Except for the Company's 1992 Stock Option Plan, 1994
Non-Employee Directors' Stock Option Plan, Long-Term Objectives Stock
Option Plan for Senior Management, Employee Stock Purchase Plan and the
Letter Agreement (such plans and agreements collectively, the "Stock
Plans"), at or after the Effective Time, neither the Surviving Corporation
nor Parent nor their respective affiliates will have any obligation to
issue, transfer or sell any shares or securities of the Surviving
Corporation, Parent or any of their respective affiliates pursuant to any
Compensation and Benefit Plan (as defined in Section 5.1(h)(i)). No Shares,
Preferred Shares or other securities of the Company, the Surviving
Corporation, Parent or any of their respective affiliates will be subject
to issuance pursuant to the Rights Agreement as a result of the Merger or
the other transactions contemplated by this Agreement, the Stock Option
Agreement and the Voting Agreement and no Distribution Date or Shares
Acquisition Date (as such terms are defined in the Rights Agreement) shall
have occurred as a result of the Merger or the other transactions
contemplated by this Agreement, the Stock Option Agreement and the Voting
Agreement.
(c) Corporate Authority; Approval and Fairness. (i) The Company has
all requisite corporate power and authority and has taken all corporate
action necessary in order to execute, deliver and perform its obligations
under this Agreement and the Stock Option Agreement and to consummate,
subject only to obtaining the adoption of this Agreement by a majority of
the shares outstanding as of the record date of the Company's stockholders
meeting (the "Company Requisite Vote"), the Merger. This Agreement and the
Stock Option Agreement are valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms.
(ii) The board of directors of the Company (A) has unanimously
approved this Agreement and the Stock Option Agreement and the Merger and
the other transactions contemplated hereby and thereby and (B) has received
the oral opinion
A-8
<PAGE> 93
of its financial advisors, Lehman Brothers Inc., to the effect that the
consideration to be received by the holders of the Shares in the Merger is
fair to such holders from a financial point of view, which opinion will be
confirmed in writing promptly after the date hereof (and a copy of such
written opinion will be promptly delivered to Parent). It is agreed and
understood that such opinion is for the sole benefit of the Company's board
of directors and may not be relied on by Parent or Merger Sub.
(d) Governmental Filings; No Violations. (i) Other than any filings
and/or notices required (A) pursuant to Section 1.3, (B) under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Securities Act of 1933, as amended (the "Securities Act"),
(C) to comply with state securities or "blue sky" laws, and (D) such
filings or consents, registrations, approvals, permits or authorizations as
may be required under the competition or antitrust laws of jurisdictions
outside the United States, no notices or other filings are required to be
made with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by the Company from, any
governmental or regulatory authority, agency, commission, body or other
governmental entity ("Governmental Entity"), in connection with the
execution and delivery of this Agreement and the Stock Option Agreement by
the Company and the consummation by the Company of the Merger and the other
transactions contemplated hereby and thereby, except those that the failure
to make or obtain are not, individually or in the aggregate, reasonably
likely to have a Company Material Adverse Effect or prevent, materially
delay or materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement and the Stock Option Agreement
or materially impair the ability of the Company, the Surviving Corporation,
Parent or any of their respective affiliates, following consummation of the
Merger, to conduct any material business or operations in any jurisdiction
where they are now being conducted.
(ii) Except as set forth in Schedule 5.1(d)(ii), the execution,
delivery and performance of this Agreement and the Stock Option Agreement
by the Company do not and will not, and the consummation by the Company of
the Merger and the other transactions contemplated hereby and thereby will
not, constitute or result in (A) a breach or violation of, or a default
under, the certificate or bylaws of the Company or the comparable governing
instruments of any of its Subsidiaries, (B) a breach or violation of, or a
default under, the acceleration of any obligations or the creation of a
lien, pledge, security interest or other encumbrance on the assets of the
Company or any of its Subsidiaries (with or without notice, lapse of time
or both) pursuant to, any agreement, lease, contract, note, mortgage,
indenture or other obligation ("Contracts") binding upon the Company or any
of its Subsidiaries or any Law (as defined in Section 5.1(i)) or
governmental or non-governmental permit or license to which the Company or
any of its Subsidiaries is subject, or (C) any change in the rights or
obligations of any party under any of the Contracts, except, in the case of
clause (B) or (C) above, for any breach, violation, default, acceleration,
creation or change that, individually or in the aggregate, is not
reasonably likely to have a Company Material Adverse Effect, prevent,
materially delay or materially impair the ability of the Company to
consummate the transactions contemplated by this Agreement and the Stock
Option Agreement or materially impair the ability of the Company, the
Surviving Corporation, Parent or any of their respective affiliates,
following consummation of the Merger, to conduct any material business or
operations in any jurisdiction where they are now being conducted. Schedule
5.1(d)(ii) sets
A-9
<PAGE> 94
forth a correct and complete list of all consents and waivers which are or
may be required in connection with the consummation of the transactions
contemplated by this Agreement and the Stock Option Agreement (whether or
not subject to the exception set forth with respect to clause (B) or (C)
above) under Contracts to which the Company or any of its Subsidiaries is a
party, other than any consent or waiver (other than consents or waivers
pursuant to Contracts relating to indebtedness, securities or the guarantee
thereof) the failure to obtain which is not reasonably likely to materially
affect the business or operations of the Company and its Subsidiaries.
(e) Company Reports; Financial Statements. The Company and, to the
extent applicable, each of its then or current Subsidiaries has made all
filings required to be made by it with the SEC since October 4, 1994
(collectively, including any such reports filed subsequent to the date
hereof, the "Company Reports"). The Company has delivered or made available
to Parent each registration statement, report, proxy statement or
information statement filed with the Securities and Exchange Commission
(the "SEC") by it since December 31, 1998 (the "Audit Date"), including,
without limitation, (i) the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, (ii) the Company's Quarterly Report for the
quarter ended March 31, 1999, as amended, (iii) the Company's Proxy
Statement filed on April 20, 1999, (iv) the Company's Registration
Statement on Form S-3 filed on April 23, 1999, and (v) the Company's
Current Report on Form 8-K filed on March 29, 1999, all in the form
(including exhibits, annexes and any amendments thereto) filed with the
SEC. Except as set forth in Schedule 5.1(e), as of their respective dates,
the Company Reports did not, and any Company Reports filed with the SEC
subsequent to the date hereof will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading. Each of the
consolidated balance sheets included in or incorporated by reference into
the Company Reports (including the related notes and schedules) presents
fairly, or will present fairly, in all material respects, the consolidated
financial position of the Company and its Subsidiaries as of its date and
each of the consolidated statements of income and of changes in financial
position included in or incorporated by reference into the Company Reports
(including any related notes and schedules) presents fairly, or will
present fairly, in all material respects, the results of operations,
retained earnings and changes in financial position, as the case may be, of
the Company and its Subsidiaries for the periods set forth therein (except
as otherwise noted therein and subject, in the case of unaudited
statements, to notes and normal year-end audit adjustments that will not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles ("GAAP") consistently applied during the
periods involved, except, in the case of unaudited financial statements, as
permitted by SEC Form 10-Q, and except as may be noted therein. Other than
the Company Reports specifically recited in clauses (i) through (v) of the
first sentence of this Section 5.1(e), the Company has not, on or prior to
the date hereof, filed any other definitive reports or statements with the
SEC since the Audit Date.
(f) Absence of Certain Changes. Except as disclosed in the Company
Reports filed prior to the date hereof or in Schedule 5.1(f), since the
Audit Date the Company and its Subsidiaries have conducted their respective
businesses in all material respects only in, and have not engaged in any
material transaction other than according to, the ordinary and usual course
of such businesses and there has not been
A-10
<PAGE> 95
(i) any change in the financial condition, properties, business or results
of operations of the Company or any of its Subsidiaries or any occurrence
or combination of occurrences of which the Company has knowledge that,
individually or in the aggregate, has had or is reasonably likely to have a
Company Material Adverse Effect; (ii) any material damage, destruction or
other casualty loss with respect to any material asset or property owned,
leased or otherwise used by the Company or any of its Subsidiaries, whether
or not covered by insurance; (iii) any declaration, setting aside or
payment of any dividend or other distribution in respect of the capital
stock of the Company; or (iv) other than as set forth in Schedule 5.1(f),
any change by the Company in accounting principles, practices or methods.
Schedule 5.1(f) contains a document setting forth the name, title, salary
and other compensation of each employee of the Company as of June 14, 1999.
Since the date of such document, there has not been any increase in the
compensation payable or that could become payable by the Company or any of
its Subsidiaries to officers or key employees of the Company or its
Subsidiaries, or any amendment of any of the Stock Plans or Compensation
and Benefit Plans.
(g) Litigation and Liabilities. Except as disclosed in Schedule
5.1(g) or as disclosed in the Company Reports filed prior to the date
hereof, and except for matters which are not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect or
prevent or materially delay or materially impair the ability of the Company
to consummate the transactions contemplated by this Agreement and the Stock
Option Agreement, there are no (i) civil, criminal, administrative or
regulatory actions, suits, claims, hearings, investigations or proceedings
pending or, to the knowledge of the Company after due investigation,
overtly threatened against the Company or any of its Subsidiaries or (ii)
obligations or liabilities, whether or not accrued, contingent or otherwise
and whether or not required to be disclosed, including those relating to
matters involving any Environmental Law (as defined in Section 5.1(k)),
other than liabilities incurred in the ordinary course of business by the
Company and its Subsidiaries since the Audit Date.
(h) Employee Benefits.
(i) The Company Reports accurately describe in all material respects
all incentive, bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus,
stock purchase, restricted stock, stock option and other stock based plans,
all employment or severance agreements, plans, policies or arrangements,
other employee benefit plans and any applicable "change of control" or
similar provisions in any plan, agreement, policy or arrangement which
covers current or former employees of the Company and its subsidiaries (the
"Compensation and Benefit Plans"). The Compensation and Benefit Plans and
all other benefit plans, agreements, policies or arrangements covering
current or former employees or directors of the Company and its
Subsidiaries (the "Employees"), including, but not limited to, "employee
benefit plans" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), are listed in
Schedule 5.1(h)(i). True and complete copies of all Compensation and
Benefit Plans and such other benefit plans, agreements, policies or
arrangements, including, but to limited to, any trust instruments and/or
insurance contracts, if any, forming a part of any such plans and
agreements, and all amendments thereto have been provided or made available
to Parent.
A-11
<PAGE> 96
(ii) All employee benefit plans, other than "multiemployer plans"
within the meaning of Sections 3(37) of ERISA, covering Employees and
maintained in the United States (the "Plans"), to the extent subject to
ERISA, are in substantial compliance with ERISA. Each Plan which is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
("Pension Plan") and which is intended to be qualified under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), has received
a favorable determination letter from the Internal Revenue Service, and the
Company is not aware of any circumstances likely to result in revocation of
any such favorable determination letter. There is no material pending or,
to the knowledge of the Company after due investigation, threatened,
litigation relating to the Plans. Neither the Company nor any of its
Subsidiaries has engaged in a transaction with respect to any Plan that,
assuming the taxable period of such transaction expired as of the date
hereof, could subject the Company or any of its Subsidiaries to a tax or
penalty imposed by either Section 4975 of the Code or Section 502(i) of
ERISA in an amount which would be material.
(iii) No liability under Subtitle C or D of Title IV of ERISA has been
or is expected to be incurred by the Company or any of its Subsidiaries
with respect to any ongoing, frozen or terminated "single-employer plan,"
within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity which
is considered one employer with the Company under Section 4001 of ERISA or
Section 414 of the Code (an "ERISA Affiliate"). The Company and its
Subsidiaries have not incurred and do not expect to incur any withdrawal
liability with respect to a multiemployer plan under Subtitle E of Title IV
of ERISA (regardless of whether based on contributions of an ERISA
Affiliate). No notice of a "reportable event," within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not
been waived, has been required to be filed for any Pension Plan or by any
ERISA Affiliate within the 12-month period ending on the date hereof.
(iv) All contributions required to be made under the terms of any Plan
have been timely made or accrued on the Company's financial statements.
Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate
has an "accumulated funding deficiency" (whether or not waived) within the
meaning of Section 412 of the Code or Section 302 of ERISA and no ERISA
Affiliate has an outstanding funding waiver. Neither the Company nor any of
its Subsidiaries has provided, or is required to provide, security to any
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant
to Section 401(a)(29) of the Code.
(v) Under each Pension Plan which is a single-employer plan, as of the
last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities," within
the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of
the actuarial assumptions contained in the Pension Plan's most recent
actuarial valuation), did not exceed the then current value of the assets
of such Pension Plan, and there has been no material change in the
financial condition of such Pension Plan since the last day of the most
recent plan year. The withdrawal liability of the Company and its
Subsidiaries under each Compensation and Benefit Plan which is a
multiemployer plan within the meaning of Section 3(37) of ERISA to which
the Company, its Subsidiaries or an ERISA Affiliate has contributed during
the preceding 12 months, determined as if a
A-12
<PAGE> 97
"complete withdrawal," within the meaning of Section 4203 of ERISA, had
occurred as of the date hereof, does not exceed $100,000.
(vi) Neither the Company nor any of its Subsidiaries has any
obligations for retiree health and life benefits under any Plan, except as
set forth on Schedule 5.1(h)(vi). The Company or its Subsidiaries may amend
or terminate any such Plan at any time without incurring any liability
thereunder.
(vii) Except as set forth on Schedule 5.1(h)(vii), the consummation of
the transactions contemplated by this Agreement will not (x) entitle any
Employees to severance pay, (y) accelerate the time of payment or vesting
or trigger any payment or funding (through a grantor trust or otherwise) of
compensation or benefits under, increase the amount payable or trigger any
other material obligation pursuant to, any of the Compensation and Benefit
Plans or (z) result in payments under any of the Plans which would not be
deductible under Section 162(m) or Section 280G of the Code.
(viii) All Compensation and Benefit Plans maintained outside of the
United States comply in all material respects with applicable local law.
The Company and its Subsidiaries have no material unfunded liabilities with
respect to any such Compensation and Benefit Plan.
(i) Compliance. Except as set forth in Schedule 5.1(i), neither the
Company nor any of its Subsidiaries is in default or violation of, (i) any
law, ordinance, rule, regulation, order, judgment, decree, arbitration
award, license or permit of any Governmental Entity (collectively, "Laws")
applicable to the Company or any of its Subsidiaries or by which its or any
of their respective properties are bound, or (ii) any Contract to which the
Company or any of its Subsidiaries is a party or by which the Company or
any of its Subsidiaries or its or any of their respective properties are
bound or affected, except for any such defaults or violations that,
individually or in the aggregate, are not reasonably likely to have a
Company Material Adverse Effect, or prevent or materially delay the
transactions contemplated by this Agreement or materially impair the
ability of the Company, the Surviving Corporation, Parent or any of their
respective affiliates, following consummation of the Merger, to conduct any
material business or operations in any jurisdiction where they are now
being conducted. To the knowledge of the Company after due investigation,
no material change is required in the Company's or any of its Subsidiaries'
processes, properties or procedures in order to comply in all material
respects with any Laws, and the Company has not received any notice or
overt communication of any material noncompliance with any such Laws that
has not been cured.
(j) Antitakeover Statutes. The board of directors of the Company has
taken all necessary action to approve the transactions contemplated by this
Agreement, the Stock Option Agreement and the Voting Agreement such that
the restrictions under Section 203 of the DGCL shall not apply to such
transactions. No "fair price," "moratorium," "control share acquisition" or
other similar antitakeover statute or regulation (each, an "Antitakeover
Statute") is applicable to the Company, the Shares, the Merger, this
Agreement, the Stock Option Agreement, the Voting Agreement or the other
transactions contemplated by this Agreement, the Stock Option Agreement or
the Voting Agreement.
(k) Environmental Matters. Except as disclosed in the Company Reports
filed with the SEC prior to the date hereof or in Schedule 5.1(k), (i) the
Company and its
A-13
<PAGE> 98
Subsidiaries have complied in all material respects at all relevant times
with all applicable Environmental Laws; (ii) to the knowledge of the
Company, after due investigation, no property currently or formerly owned
or operated by the Company or any of its Subsidiaries (including soils,
groundwater, surface water, buildings or other structures) has been
contaminated with any Hazardous Substance; (iii) to the knowledge of the
Company, after due investigation, neither the Company nor any of its
Subsidiaries is subject to any liability for Hazardous Substance disposal
or contamination on any third party property; (iv) to the knowledge of the
Company, after due investigation, neither the Company nor any of its
Subsidiaries is subject to liability for any release or threat of release
of any Hazardous Substance; (v) neither the Company nor any of its
Subsidiaries has received any notice, demand, letter, claim or request for
information indicating that it may be in violation of or subject to
liability under any Environmental Law; (vi) neither the Company nor any of
its Subsidiaries is subject to any order, decree, injunction or other
arrangement with any Governmental Entity or any indemnity or other
agreement with any third party relating to liability under any
Environmental Law; (vii) to the knowledge of the Company, after due
investigation, none of the properties of the Company or any of its
Subsidiaries contain any underground storage tanks, asbestos-containing
material, lead products, or polychlorinated biphenyls; (viii) to the
knowledge of the Company, after due investigation, there are no other
circumstances or conditions involving the Company or any of its
Subsidiaries that could reasonably be expected to result in any claims,
liability, investigations, costs or restrictions on the ownership, use, or
transfer of any property in connection with any Environmental Law; and (ix)
the Company has delivered or made available to Parent copies of all
environmental reports, studies, assessments, sampling data and other
environmental information in its possession relating to the Company or any
of its Subsidiaries or any of their current or former properties or
operations.
"Environmental Law" means any federal, state or local law, regulation,
order, decree, permit, authorization, common law or agency requirement relating
to (A) the protection, investigation or restoration of the environment, health,
safety, or natural resources; (B) the handling, use, presence, disposal, release
or threatened release of any Hazardous Substance; or (C) noise, odor, indoor
air, employee exposure, wetlands, pollution, contamination or any injury or
threat of injury to persons or property relating to any Hazardous Substance.
"Hazardous Substance" means any substance that is (A) listed, classified
or regulated pursuant to any Environmental Law; (B) any petroleum product or
by-product, asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive materials or radon; or (C) any other
substance which may be the subject of regulatory action by any Governmental
Authority in connection with any Environmental Law.
(l) Accounting and Tax Matters. As of the date hereof, the Company
does not have any knowledge of any fact or circumstance that would prevent
the Company from being a "poolable entity" for purposes of Opinion 16 of
the Accounting Principles Board or prevent the Merger and the other
transactions contemplated by this Agreement from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code.
(m) Taxation. (a) The Company and each of its Subsidiaries, and any
consolidated, combined or unitary group for tax purposes of which the
Company or
A-14
<PAGE> 99
any of its Subsidiaries is or has been a member, has timely filed all Tax
Returns required to be filed by it in the manner provided by law. All such
Tax Returns are true, correct and complete in all material respects. The
Company and each of its Subsidiaries have timely paid all Taxes due or
required to be withheld from amounts owing to any employee, creditor or
third party or 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 Tax Returns. Except as has been disclosed to Parent in
Schedule 5.1(m): (i) no material claim for unpaid Taxes has become a lien
or encumbrance of any kind against the property of the Company or any of
its Subsidiaries or is being asserted against the Company or any of its
Subsidiaries; (ii) no audit, examination, investigation or other proceeding
in respect of Taxes is pending, threatened or being conducted by a Tax
authority; (iii) no material issues have been raised by the relevant taxing
authority in connection with any examination of the Tax Returns filed by
the Company and its Subsidiaries; (iv) no extension or waiver of the
statute of limitations on the assessment of any Taxes has been granted by
the Company or any of its Subsidiaries and is currently in effect; (v)
neither the Company nor any of its Subsidiaries is a party to, is bound by,
or has any obligation under, or potential liability with regards to, any
Tax sharing agreement, Tax indemnification agreement or similar contract or
arrangement; (vi) no power of attorney has been granted by or with respect
to the Company or any of its Subsidiaries with respect to any matter
relating to Taxes; (vii) neither the Company nor any of its Subsidiaries is
a party to any agreement, plan, contract or arrangement that would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code; (viii) neither
the Company nor any of its Subsidiaries has any deferred intercompany gain
or loss arising as a result of a deferred intercompany transaction within
the meaning of Treasury Regulation Section 1.1502-13 (or similar provision
under state, local or foreign law) or any excess loss accounts within the
meaning of Treasury Regulation Section 1.1502-19; (ix) the Company is not
and has not been a United States real property holding corporation (as
defined in Section 897(c)(2) of the Code) during the applicable period
specified in Section 897(c)(1)(ii) of the Code; (x) neither the Company nor
any of its Subsidiaries has been the subject of a Tax ruling that has
continuing effect; and (xi) neither the Company nor any of its Subsidiaries
has agreed to include, or is required to include, in income any adjustment
under either Section 481(a) or 482 of the Code (or an analogous provision
of state, local or foreign law) by reason of a change in accounting method
or otherwise.
(b) Except as disclosed in Schedule 5.1(m), as of the date of this
Agreement, to the knowledge of the Company after due investigation, there
are no facts or circumstances that have materially adversely affected or
are reasonably likely to materially adversely affect the ability of the
Company or its Subsidiaries to obtain the cantonal and Swiss federal tax
benefits described in the September 1998 ruling of the Canton of
Schaffhausen, the corresponding Business Development Agreement, and the
March 1999 ruling of the Swiss Federal Office for Economy and Labor,
respectively.
"Taxes" means any taxes of any kind, including but not limited to those on
or measured by or referred to as income, gross receipts, capital, sales, use, ad
valorem, franchise, profits, license, withholding, employment, payroll, premium,
value added, property or windfall profits taxes, environmental transfer taxes,
customs, duties or similar fees, assessments or charges of any kind whatsoever,
together with any interest and any
A-15
<PAGE> 100
penalties, additions to tax or additional amounts imposed by any governmental
authority, domestic or foreign.
"Tax Return" means any return, report or statement required to be filed
with any governmental authority with respect to Taxes.
(n) Certain Regulatory Matters. (i) Schedule 5.1(n) sets forth a
complete and accurate list for the last five years, of (A) all Warning
Letters (as defined below), Section 305 notices and similar letters or
notices issued by the Food and Drug Administration (the "FDA") or any other
governmental entity, domestic or foreign, that is concerned with the
quality, identity, strength, purity, safety, efficacy or manufacturing of
the pharmaceutical compounds or products tested or sold by the Company or
its Subsidiaries (any such governmental entity, a "Pharmaceutical
Regulatory Agency") to the Company or any of its Subsidiaries; (B) all
United States Pharmacopoeia product problem reporting program complaints or
reports, MedWatch form FDA-3500A, FDA-1639 or Form CIMOS I filed by the
Company or any of its Subsidiaries, which complaints or reports pertain to
any incident involving death or serious injury, and for which incident
there has been (I) a notice or follow-up inquiry to the Company or any of
its Subsidiaries by the FDA, (II) a litigation or arbitration claim or
cause of action commenced, or (III) a notice to any insurance carrier of
the Company or any of its Subsidiaries tendering the defense or giving any
notice of a possible or actual claim against the Company or such
subsidiary; (C) all product recalls conducted by or issued to the Company
or any of its Subsidiaries and any requests from the FDA or any other
Pharmaceutical Regulatory Agency requesting the Company or any of its
Subsidiaries to cease to investigate, test or market any compound or
product; (D) any civil penalty actions begun by the FDA or any other
Pharmaceutical Regulatory Agency against the Company or any of its
Subsidiaries and all consent decrees and all documents relating to the
negotiation of and compliance with such consent decree issued with respect
to the Company or any of its Subsidiaries; and (E) any other written
communications between the Company or any of its Subsidiaries, on the one
hand, and the FDA or any other Pharmaceutical Regulatory Agency on the
other hand that describe matters that could have a material adverse effect
on the projected sales or revenues attributable to any compound, product or
product line of the Company or its Subsidiaries or discuss material issues
concerning the quality, identity, strength, purity, safety or efficacy of
any such compound, product or product line. The Company has made available
to Parent copies of all documents referred to in Schedule 5.1(n), as well
as copies of all complaints and other information required to be maintained
by the Company pursuant to the United States Federal Food, Drug and
Cosmetic Act and Comprehensive Drug Abuse Prevention and Control Act of
1970 and the corresponding laws of jurisdictions other than the United
States. For purposes of this subparagraph (i), "Warning Letter" means a
letter characterized by the FDA or any other Pharmaceutical Regulatory
Agency as a warning letter, a notice of adverse finding or a similar letter
or report in which FDA or any other Pharmaceutical Regulatory Agency
expresses the opinion that violations of law have occurred.
(ii) With such exceptions as are not material with respect to (x) any
of compounds SU101, SU5271, SU5416 or SU6668 or (y) the other compounds and
products of the Company and its Subsidiaries, taken as a whole and except
as set forth in Schedule 5.1(n), (A) the Company (or, if applicable, one of
its Subsidiaries) has obtained all consents, approvals, certifications,
authorizations and permits of, and has made all filings with, or
notifications to, all Pharmaceutical Regulatory Agencies
A-16
<PAGE> 101
pursuant to applicable requirements of all FDA regulations and consent
decrees, and all applicable state and foreign laws, and regulations
applicable to the Company or any of its Subsidiaries; (B) all
representations made by the Company or any of its Subsidiaries in
connection with any such consents, approvals, certifications,
authorizations, permits, filings and notifications were true and correct in
all material respects at the time such representations and warranties were
made, and the Company's compounds and products, and the compounds and
products of its Subsidiaries, substantially comply with, and perform in
accordance with the specifications described in, such representations; (C)
the Company and its Subsidiaries and their respective products and all of
the facilities and entities which manufacture such compounds and products,
are in substantial compliance with all applicable FDA rules, regulations
and consent decrees, and all applicable state and foreign laws, rules and
regulations (including Good Manufacturing Practices) relating to
pharmaceutical manufacturers and distributors or otherwise applicable to
the Company's or its Subsidiaries' business; and (D) the Company has no
reason to believe that any of the consents, approvals, authorizations,
registrations, certifications, permits, filings or notifications that it or
any of its Subsidiaries has received or made to operate their respective
businesses have been or are being revoked or challenged.
(o) Intellectual Property.
(i) Set forth in Schedule 5.1(o)(i) is a complete list of each of the
following items (1) all patents and applications therefor, registrations of
trademarks (including service marks) and applications therefor, and
registrations of copyrights and applications therefor that are owned by the
Company or any of its Subsidiaries or licensed to the Company or any of its
Subsidiaries (collectively, the "Company Owned IP"), (2) all licenses,
agreements and contracts relating to the Company Intellectual Property (as
defined in Section 5.1(o)(ii) of this Agreement) pursuant to which the
Company or any of its Subsidiaries are entitled to use any Company
Intellectual Property owned by any third party (the "Third Party Licenses")
and (3) all agreements under which the Company or any of its Subsidiaries
has granted any third party the right to use any Company Intellectual
Property, including the unexpired material transfer agreements.
(ii) Except to the extent identified in Schedule 5.1(o)(ii) and except
for any failures of this representation and warranty to be true and
accurate that arise from instances involving the infringement by the
Company or its Subsidiaries on the intellectual property rights of others
or the infringement by others on intellectual property rights of the
Company or its Subsidiaries of which, in either such case, the Company does
not have any knowledge after due investigation, the Company, or its
Subsidiaries where expressly indicated, is the owner of, or is licensed to
use, or otherwise possesses legally enforceable rights in, all intellectual
property, including, without limitation, all patents and patent
applications, supplementary protection certificates and patent extensions,
trademarks and trademark applications, service mark and service mark
registrations, logos, commercial symbols, business name registrations,
trade names, copyrights and copyright registrations, computer software,
mask works and mask work registration applications, industrial designs and
applications for registration of such industrial designs, including,
without limitation, any and all applications for renewal, extensions,
reexaminations and reissues of any of the foregoing intellectual property
rights where applicable, inventions, biological materials, trade secrets,
formulae, know-how, technical information, research data, research raw
data, laboratory notebooks, procedures, designs, proprietary technology
A-17
<PAGE> 102
and information held or used in the business of the Company and its
Subsidiaries (hereinafter the "Company Intellectual Property").
(iii) Except to the extent identified in Schedule 5.1(o)(iii), the
Company and its Subsidiaries are the sole legal and beneficial owners of
all the Company Intellectual Property (except for the Company Intellectual
Property that is the subject of any Third Party Licenses) and all the
Company Intellectual Property is valid and subsisting.
(iv) The Company has not entered into any agreements, licenses or
created any mortgages, liens, security interests, leases, pledges,
encumbrances, equities, claims, charges, options, restrictions, rights of
first refusal, title retention agreements or other exceptions to title
which affect the Company Intellectual Property or restrict the use by the
Company or any of its Subsidiaries of the Company Intellectual Property in
any way, except as provided in agreements and instruments disclosed in
Schedule 5.1(o)(ii) and furnished to Parent prior to the date of this
Agreement.
(v) Except as listed in Schedule 5.1(o)(v), to the knowledge of the
Company after due investigation, the Company and its Subsidiaries are in
compliance in all material respects with the Third Party Licenses that are
material to the conduct of the business of the Company.
(vi) The Company and its Subsidiaries are not, and will not be as a
result of the execution, delivery or performance of this Agreement, the
Stock Option Agreement or the Voting Agreement or the consummation of the
Merger or the other transactions contemplated hereby or thereby in breach,
violation or default of any Third Party Licenses that are material to the
conduct of the business of the Company. Except as indicated in Schedule
5.1(o)(vi), the rights of the Company or any of its Subsidiaries to the
Company Intellectual Property will not be affected by the execution,
delivery or performance of this Agreement, the Stock Option Agreement or
the Voting Agreement or the consummation of the Merger or the other
transactions contemplated hereby or thereby.
(vii) The Company and its Subsidiaries have the right to license to
third parties the use of the Company Owned IP.
(viii) Except as listed in Schedule 5.1(o)(viii), all registrations
and filings relating to the Company Owned IP are in good standing. All
maintenance and renewal fees necessary to preserve the rights of the
Company in respect of the Company Owned IP have been made. Except as
indicated in Schedule 5.1(o)(viii), the registrations and filings relating
to the Company Owned IP are proceeding and there are no material facts of
which the Company has knowledge after due investigation which could
significantly undermine those registrations or filings or reduce to a
significant extent the scope of protection of any patents arising from such
applications.
(ix) The manufacturing, marketing, distribution, sale and use of
SU101, SU5271, SU5416 and SU6668 by the Company or its Subsidiaries,
licensees or sublicensees in the countries where the Company has conducted
or proposes to conduct such activities, to the knowledge of the Company
after due investigation, does not and would not infringe the patents,
patent applications, trademarks, trademark applications, service marks,
service mark applications, copyrights, copyright applications, and
proprietary trade names, publication rights, computer programs (including
source code and object code), inventions, know-how, trade secrets,
A-18
<PAGE> 103
technology, processes, confidential information and all other intellectual
property rights throughout the world (collectively, "Intellectual Property
Rights") of any third party.
(x) Except for the matters set forth in Schedule 5.1(o)(x), there are
no allegations, claims or proceedings instituted or pending which challenge
the rights possessed by the Company or its Subsidiaries to use the Company
Intellectual Property or the validity or effectiveness of the Company
Intellectual Property, including without limitation any interferences,
oppositions, cancellations or other contested proceedings.
(xi) There are no outstanding claims or proceedings instituted or
pending by any third party challenging the ownership, priority, scope or
validity or effectiveness of any Company Intellectual Property.
(xii) To the knowledge of the Company after due investigation, there
are no Intellectual Property Rights of any third party that have been or
would be infringed by the identification, manufacture, marketing,
distribution and sale and use of any products (except products SU101,
SU5271, SU5416 and SU6668, which are addressed by subparagraph (ix) above)
that have been identified for development by the Company.
(xiii) To the knowledge of the Company after due investigation, there
are no Intellectual Property Rights of any third party that would be
infringed by the continued practice of any technologies previously used or
presently in use by the Company.
(xiv) To the knowledge of the Company after due investigation, except
for the matters set forth in Schedule 5.1(o)(xiv), there is no unauthorized
use, infringement or misappropriation of the Company Intellectual Property
by any third party, including any employee or former employee of the
Company or any of its Subsidiaries.
(xv) Except for the matters set forth in Schedule 5.1(o)(xv), the
Company and its Subsidiaries have not granted any licenses, immunities,
options or other rights to the Company Intellectual Property which could
provide a third party with a defense to patent infringement proceedings,
whether domestic or foreign.
(xvi) Commercially reasonable measures have been taken to maintain the
confidentiality of the inventions, trade secrets, formulae, know-how,
technical information, research data, research raw data, laboratory
notebooks, procedures, designs, proprietary technology and information of
the Company and its Subsidiaries, and all other information the value of
which to the Company or any of its Subsidiaries is contingent upon
maintenance of the confidentiality thereof. Without limiting the generality
of the foregoing, (1) each employee of the Company and each consultant to
the Company who has had access to proprietary information with respect to
the Company has entered into an agreement suitable to vest ownership rights
to any inventions, creations, developments, and works in the Company and
has entered into an agreement for maintaining the confidential information
of the Company and (2) each officer and director of the Company has entered
into an agreement to maintain the confidential information of the Company,
except for those individuals listed in Schedule 5.1(o)(xvi) whose
involvement in the business of the Company is described with specificity
therein.
(p) Product Registration Files. The product registration files and
dossiers of the Company and its Subsidiaries have been maintained in
accordance with reasonable
A-19
<PAGE> 104
industry standards. The Company and each of its Subsidiaries has in its
possession copies of all the material documentation filed in connection
with filings made by the Company or any of its Subsidiaries for regulatory
approval or registration of the compounds and products of the Company or
any of its Subsidiaries, as the case may be. To the knowledge of the
Company after due investigation, the filings made by the Company and its
Subsidiaries for regulatory approval or registration of the products of the
Company or any of its Subsidiaries did not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not misleading.
(q) Year 2000 Compliance. Schedule 5.1(q) contains the Company's Year
2000 plan, which indicates the actions to be taken pursuant to such plan
that have been completed as of the date of this Agreement and the actions
to be taken pursuant to such plan that have not been completed as of the
date of this Agreement and the aggregate expense expected to be incurred by
the Company in connection with the actions to be taken pursuant to such
plan that have not been completed as of the date of this Agreement.
(r) Labor Matters. Neither the Company nor any of its Subsidiaries is
a party to or otherwise bound by any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization, nor is the Company or any of its Subsidiaries the subject of
any material proceeding asserting that the Company or any of its
Subsidiaries has committed an unfair labor practice or is seeking to compel
it to bargain with any labor union or labor organization nor is there
pending or, to the knowledge of the Company after due investigation,
threatened, any labor strike, dispute, walkout, work stoppage, slow-down or
lockout involving the Company or any of its Subsidiaries.
(s) Rights Agreement. The Company has amended the Rights Agreement to
provide that neither Parent nor Merger Sub nor any of their respective
affiliates shall be deemed to be an Acquiring Person (as such term is
defined in the Rights Agreement), that neither a Distribution Date nor a
Shares Acquisition Date (as each such term is defined in the Rights
Agreement) shall be deemed to occur, and the Rights will not separate from
the Shares, as a result of the execution, delivery or performance of this
Agreement, the Stock Option Agreement or the Voting Agreement or the
consummation of the Merger or the other transactions contemplated hereby or
thereby, and that none of the Company, Parent, Merger Sub, nor the
Surviving Corporation, nor any of their respective affiliates, shall have
any obligations under the Rights Agreement to any holder (or former holder)
of Rights as of and following the Effective Time.
(t) Brokers and Finders. Except as disclosed in Schedule 5.1(t),
neither the Company nor any of its Subsidiaries, officers, directors or
employees has employed any broker or finder or incurred any liability for
any brokerage fees, commissions or finders' fees in connection with the
Merger or the other transactions contemplated by this Agreement, the Stock
Option Agreement or the Voting Agreement, except that the Company has
employed Lehman Brothers Inc. as its financial advisor, the arrangements
with which have been disclosed to Parent prior to the date hereof.
(u) Supply Arrangements. As of the date of this Agreement, to the
Company's knowledge after due investigation, there are no facts or
circumstances that have materially adversely affected or are reasonably
likely to materially adversely affect the
A-20
<PAGE> 105
continued supply (either for clinical purposes or in bulk) of the active
ingredients of the compounds of the Company and its Subsidiaries currently
used in clinical trials.
(v) Investigational Compounds. As of the date of this Agreement, to
the Company's knowledge after due investigation, there are no facts or
circumstances that have materially adversely affected or that management of
the Company has determined are reasonably likely to materially adversely
affect the commercialization of compound SU5416 or compound SU6668, other
than factors that are generally applicable to the development and
commercialization of pharmaceutical compounds that are not specific to the
Company or such compounds.
5.2. Representations and Warranties of Parent and Merger Sub. Parent and
Merger Sub each hereby represent and warrant to the Company as follows:
(a) Capitalization of Merger Sub. The authorized capital stock of
Merger Sub consists of one thousand (1,000) shares of Common Stock, par
value $.01 per share, all of which are validly issued and outstanding. All
of the issued and outstanding capital stock of Merger Sub is, and at the
Effective Time will be, owned by Parent, and there are (i) no other shares
of capital stock or other voting securities of Merger Sub, (ii) no
securities of Merger Sub convertible into or exchangeable for shares of
capital stock or voting securities of Merger Sub and (iii) no options or
other rights to acquire from Merger Sub, and no obligations of Merger Sub
to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of Merger Sub.
Merger Sub has not conducted any business prior to the date hereof and has
no, and prior to the Effective Time will have no, assets, liabilities or
obligations of any nature other than those incident to its formation and
pursuant to this Agreement and the Merger and the other transactions
contemplated by this Agreement.
(b) Organization, Good Standing and Qualification. Each of Parent and
its Subsidiaries is a corporation duly organized, validly existing and in
good standing (where such concept is recognized) under the laws of its
respective jurisdiction of organization and has all requisite corporate or
similar power and authority to own and operate its properties and assets
and to carry on its business as presently conducted and is qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction (where such concept is recognized) where the ownership or
operation of its properties or conduct of its business requires such
qualification, except where the failure to be so qualified or in such good
standing, when taken together with all other such failures, is not
reasonably likely to have a Parent Material Adverse Effect (as defined
below). Parent has made available to the Company a complete and correct
copy of Parent's certificate of incorporation and bylaws, as amended to the
date hereof. Parent's certificate of incorporation and bylaws so delivered
are in full force and effect.
As used in this Agreement, (i) "Parent Material Adverse Effect" means any
change in or effect on the business of Parent and its Subsidiaries that is, or
is reasonably likely to be, materially adverse to the business, assets
(including intangible assets), liabilities (contingent or otherwise), prospects,
condition (financial or otherwise) or results of operations of Parent and its
Subsidiaries taken as a whole, and (ii) a "Significant Subsidiary" of the
Company means with respect to the Company or Parent, as the case may be, a
direct or indirect Subsidiary of such party which is a significant subsidiary
within the meaning of Rule 1.02(w) of Regulation S-X promulgated pursuant to the
Exchange Act.
A-21
<PAGE> 106
(c) Capital Structure. The authorized capital stock of Parent
consists of 1,500,000,000 shares of Parent Common Stock, of which only
508,718,107 shares were outstanding as of the close of business on June 14,
1999, and 100,000,000 shares of Preferred Stock, par value $.01 per share
(the "Parent Preferred Stock"), of which only 6,795 shares, designated the
Series A convertible Perpetual Preferred Stock (the "Series A Preferred
Stock"), were outstanding as of the close of business on June 14, 1999. All
of the outstanding shares of Parent Common Stock and Series A Preferred
Stock have been duly authorized and are validly issued, fully paid and
nonassessable. Parent has no Parent Common Stock or Parent Preferred Stock,
designated Participating Preferred Stock, subject to issuance or subject to
issuance, except that as of the close of business on June 14, 1999, there
were 24,818,686 shares of Parent Common Stock reserved for issuance
pursuant to Parent's Long Term Incentive Plan (the "Parent Stock Plan"),
5,087,181 shares of Parent Preferred Stock, designated Participating
Preferred Stock, subject to issuance pursuant to the Stockholder Protection
Rights Agreement, dated as of March 4, 1997, between the Parent and Harris
Trust & Savings Bank, as Rights Agent, and 9,852,750 shares of Parent
Common Stock subject to issuance upon conversion of shares of Series A
Preferred Stock. Each of the outstanding shares of capital stock of each of
Parent's Significant Subsidiaries is duly authorized, validly issued, fully
paid and nonassessable and, except for directors' qualifying shares, owned
by a direct or indirect wholly owned subsidiary of Parent, free and clear
of any lien, pledge, security interest, claim or other encumbrance. Except
as set forth above, there are no shares of capital stock of Parent
authorized, issued or outstanding and except as set forth above, there are
no preemptive rights nor any outstanding subscriptions, options, warrants,
rights, convertible securities or other agreements or commitments of any
character relating to the issued or unissued capital stock or other
securities of Parent. Parent does not have outstanding any bonds,
debentures, notes or other obligations the holders of which have the right
to vote (or convertible into or exercisable for securities having the right
to vote) with the stockholders of Parent on any matter.
(d) Corporate Authority. (i) No vote of holders of capital stock of
Parent is necessary to approve this Agreement and the Merger and the other
transactions contemplated hereby. Each of Parent and Merger Sub has all
requisite corporate power and authority and each has taken all corporate
action necessary in order to execute, deliver and perform its obligations
under this Agreement and to consummate the Merger. Parent has all requisite
power and authority and has taken all corporate action necessary in order
to execute, deliver and perform its obligations under the Stock Option
Agreement. This Agreement is a valid and binding agreement of Parent and
Merger Sub, enforceable against each of Parent and Merger Sub in accordance
with its terms. The Stock Option Agreement are valid and binding agreements
of Parent enforceable against Parent in accordance with their respective
terms.
(ii) Prior to the Effective Time, Parent will have taken all necessary
action to permit it to issue the number of shares of Parent Common Stock
required to be issued pursuant to Article IV. The Parent Common Stock, when
issued, will be validly issued, fully paid and nonassessable, and no
stockholder of Parent will have any preemptive right of subscription or
purchase in respect thereof. The Parent Common Stock, when issued, will be
registered under the Securities Act and Exchange Act and registered or
exempt from registration under any applicable state securities or "blue
sky" laws.
A-22
<PAGE> 107
(e) Governmental Filings; No Violations. (i) Other than any filings
and/or notices required (A) pursuant to Section 1.3, (B) under the HSR Act,
the Securities Act and the Exchange Act, (C) to comply with state
securities or "blue sky" laws, (D) required to be made with the NYSE and
the Stockholm Stock Exchange, and (E) such filings or consents,
registrations, approvals, permits or authorizations as may be required
under the laws of the competition or antitrust laws of jurisdictions
outside the United States, no notices or other filings are required to be
made by Parent or Merger Sub with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by Parent or
Merger Sub from, any Governmental Entity, in connection with the execution
and delivery of this Agreement by Parent and Merger Sub or the execution
and delivery of the Stock Option Agreement by Parent or the consummation by
Parent and Merger Sub of the Merger and the other transactions contemplated
hereby and by the Stock Option Agreement, except those that the failure to
make or obtain are not, individually or in the aggregate, reasonably likely
to have a Parent Material Adverse Effect or prevent, materially delay or
materially impair the ability of Parent or Merger Sub to consummate the
transactions contemplated by this Agreement and the Stock Option Agreement.
(ii) The execution, delivery and performance of this Agreement and the
Stock Option Agreement by Parent, by Parent and Merger Sub, as the case may
be, do not and will not, and the consummation by Parent and Merger Sub of
the Merger and the other transactions contemplated hereby and by the Stock
Option Agreement, will not, constitute or result in (A) a breach or
violation of, or a default under, the certificate or bylaws of Parent and
Merger Sub or the comparable governing instruments of any of its
Subsidiaries, (B) a breach or violation of, or a default under, the
acceleration of or the creation of a lien, pledge, security interest or
other encumbrance on the assets of Parent or any of its Subsidiaries (with
or without notice, lapse of time or both) pursuant to, any Contracts
binding upon Parent or any of its Subsidiaries or any Law or governmental
or non-governmental permit or license to which Parent or any of its
Subsidiaries is subject, or (C) any change in the rights or obligations of
any party under any of the Contracts, except, in the case of clause (B) or
(C) above, for breach, violation, default, acceleration, creation or change
that, individually or in the aggregate, is not reasonably likely to have a
Parent Material Adverse Effect or prevent, materially delay or materially
impair the ability of Parent or Merger Sub to consummate the transactions
contemplated by this Agreement.
(f) Parent Reports; Financial Statements. Parent and, to the extent
applicable, each of its then or current Subsidiaries, has made all filings
required to be made by it with the SEC since December 31, 1993
(collectively, including any such reports filed subsequent to the date
hereof, the "Parent Reports") and Parent has delivered or made available to
the Company each registration statement, report, proxy statement or
information statement filed with the SEC by it since December 31, 1998 (the
"Parent Audit Date") in the form (including exhibits and any amendments
thereto) filed with the SEC. As of their respective dates, the Parent
Reports did not, and any Parent Reports filed with the SEC subsequent to
the date hereof will not, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which
they were made, not misleading. Each of the consolidated balance sheets
included in or incorporated by reference into the Parent Reports (including
the related notes and schedules) presents fairly, or will present fairly,
in all
A-23
<PAGE> 108
material respects, the consolidated financial position of Parent and its
Subsidiaries as of its date and each of the consolidated statements of
income and of changes in financial position included in or incorporated by
reference into the Parent Reports (including any related notes and
schedules) presents fairly, or will present fairly, the results of
operations, retained earnings and changes in financial position, as the
case may be, of Parent and its Subsidiaries for the periods set forth
therein (except as noted therein and subject, in the case of unaudited
statements, to notes and normal year-end audit adjustments that will not be
material in amount or effect), in each case in accordance with GAAP
consistently applied during the periods involved, except, in the case of
unaudited statements, as permitted by SEC Form 10-Q and except as may be
noted therein.
(g) Absence of Certain Changes. Except as disclosed in the Parent
Reports filed prior to the date hereof, since the Parent Audit Date Parent
and its Subsidiaries have conducted their respective businesses in all
material respects only in, and have not engaged in any material transaction
other than according to, the ordinary and usual course of such businesses
and there has not been (i) any change in the financial condition,
properties, business or results of operations of Parent and its
Subsidiaries, or any occurrence or combination of occurrences of which
Parent has knowledge that, individually or in the aggregate, has had or is
reasonably likely to have a Parent Material Adverse Effect; (ii) any
material damage, destruction or other casualty loss with respect to any
material asset or property owned, leased or otherwise used by Parent or any
of its Subsidiaries, whether or not covered by insurance; (iii) any
declaration, setting aside or payment of any dividend or other distribution
in respect of the capital stock of Parent, except for regularly quarterly
dividends declared and paid on shares of Parent Common Stock and Series A
Preferred Stock; or (iv) any change by Parent in accounting principles,
practices or methods.
(h) Litigation and Liabilities. Except as disclosed in the Parent
Reports filed prior to the date hereof, and except for matters which are
not, individually or in the aggregate, reasonably likely to have a Parent
Material Adverse Effect or prevent or materially delay or materially impair
the ability of Parent or Merger Sub to consummate the transactions
contemplated by this Agreement and the Stock Option Agreement, there are no
(i) civil, criminal, administrative or regulatory actions, suits, claims,
hearings, investigations or proceedings pending or, to the knowledge of
Parent after due investigation, overtly threatened against Parent or any of
its Subsidiaries or (ii) obligations or liabilities, whether or not
accrued, contingent or otherwise and whether or not required to be
disclosed, including those relating to matters involving any Environmental
Law, other than liabilities incurred in the ordinary course of business by
Parent and its Subsidiaries since the Audit Date.
(i) Compliance. Neither Parent nor any of its Subsidiaries is in
default or violation of, (i) any Law applicable to Parent or any of its
Subsidiaries or by which its or any of their respective properties are
bound, or (ii) any Contract to which Parent or any of its Subsidiaries is a
party or by which Parent or any of its Subsidiaries or its or any of their
respective properties are bound or affected, except for any such defaults
or violations that, individually or in the aggregate, are not reasonably
likely to have a Parent Material Adverse Effect or prevent or materially
delay the transactions contemplated by this Agreement.
(j) Accounting and Tax Matters. As of the date hereof, Parent does
not have any knowledge of any fact or circumstance relating to the Company
or its affiliates
A-24
<PAGE> 109
that would prevent Parent from accounting for the business combination to
be effected by the Merger as a "pooling of interests" or prevent the Merger
and the other transactions contemplated by this Agreement from qualifying
as a "reorganization" within the meaning of Section 368(a) of the Code.
(k) Brokers and Finders. Neither Parent nor any of its Subsidiaries,
officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the Merger or the other transactions contemplated by
this Agreement, the Stock Option Agreement or the Voting Agreement, except
that Parent has employed Goldman, Sachs & Co. as its financial advisor.
ARTICLE VI
COVENANTS
6.1. Company Interim Operations. Except as set forth in the document
entitled "Schedule 6.1" furnished to the Company by Parent prior to the
execution and delivery of this Agreement, the Company covenants and agrees as to
itself and its Subsidiaries that, after the date hereof and prior to the
Effective Time (unless Parent shall otherwise consent in writing (such consent
not to be unreasonably withheld or delayed) and except as otherwise expressly
contemplated by this Agreement and the Stock Option Agreement):
(a) the business of it and its Subsidiaries shall be conducted, in all
material respects, in the ordinary and usual course and, to the extent
consistent therewith, it and its Subsidiaries shall use their respective
commercially reasonable best efforts to preserve its business organization
substantially intact and substantially maintain its existing relations and
goodwill with customers, suppliers, distributors, creditors, lessors,
employees and business associates;
(b) it shall not (i) issue, sell, pledge, dispose of or encumber any
capital stock owned by it in any of its Subsidiaries; (ii) amend its
certificate or bylaws or amend, modify or terminate the Rights Agreement,
except as set forth in Section 5.1(s) hereof; (iii) split, combine or
reclassify its outstanding shares of capital stock; (iv) declare, set aside
or pay any dividend payable in cash, stock or property in respect of any
capital stock, or (v) repurchase, redeem or otherwise acquire, except in
connection with the Stock Plans, or permit any of its Subsidiaries to
purchase or otherwise acquire, any shares of its capital stock or any
securities convertible into or exchangeable or exercisable for any shares
of its capital stock;
(c) neither it nor any of its Subsidiaries shall (i) issue, sell,
pledge, dispose of or encumber any shares of, or securities convertible
into or exchangeable or exercisable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of its capital
stock of any class or any Voting Debt or any other property or assets
(other than (A) the issuance of Shares pursuant to options outstanding on
the date of this Agreement under the Stock Plans, (B) the issuance of
Shares pursuant to the exercise of Warrants set forth on Schedule 5.1(b),
(C) the issuance of 12% Senior Convertible Notes upon exercise of Warrant
Notes outstanding on the date of this Agreement, (D) the issuance of
warrants for Shares upon redemption of Convertible Notes outstanding on the
date of this Agreement and (E) the issuance of Shares upon conversion of
Convertible Notes outstanding on the date of this Agreement; (ii) other
than in the ordinary and usual course of business, transfer, lease,
license, guarantee, sell, mortgage, pledge, dispose of or encumber any
other
A-25
<PAGE> 110
property or assets (including capital stock of any of its Subsidiaries) or
incur or modify any material indebtedness or other liability; or (iii) make
any commitments for, make or authorize any capital expenditures other than
in the amounts set forth with respect to particular items in the Budget or,
by any means, make any acquisition of, or investment in, assets or stock of
any other Person or entity;
(d) except as may be required by existing contractual commitments,
existing corporate policy with respect to severance or termination pay or
as required by applicable law, neither it nor any of its Subsidiaries shall
(i) enter into any new agreements or commitments for any severance or
termination pay to, or enter into employment or severance agreement with,
any of its directors, officers or employees, or (ii) terminate, establish,
adopt, enter into, make any new grants or awards under, amend or otherwise
modify, any Compensation and Benefit Plans or increase or accelerate the
salary, wage, bonus or other compensation of any employees, officers or
directors (except for increases in salaries, wages and cash bonuses of
nonexecutive employees made in the ordinary course of business consistent
with past practice) or pay or agree to pay any pension, retirement
allowance or other employee benefit not required by any existing
Compensation and Benefit Plan;
(e) neither it nor any of its Subsidiaries shall settle or compromise
any material claims or litigation or modify, amend or terminate any of its
material Contracts or waive, release or assign any material rights or
claims;
(f) neither it nor any of its Subsidiaries shall make any Tax election
or permit any insurance policy naming it as a beneficiary or loss-payable
payee to be canceled or terminated except in the ordinary and usual course
of business;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, neither it nor any of its
Subsidiaries shall change any of the accounting practices or principles
used by it;
(h) neither it nor any of its Subsidiaries shall adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization, or other reorganization of the Company or
any of its subsidiaries not constituting an inactive Subsidiary (other than
the Merger);
(i) neither it nor any of its Subsidiaries shall knowingly take any
action, or knowingly fail to take any action, that is reasonably likely to
jeopardize the treatment of the Merger as a "pooling of interests" for
accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Code or that would cause any of its representations and
warranties herein to be or become untrue in any material respect;
(j) it shall not suffer or permit expenditures made or incurred by the
Company and its Subsidiaries for any period to materially exceed the
Projected Expenses for such period except for expenses incurred in
connection with the transactions contemplated by this Agreement; and
(k) neither it nor any of its Subsidiaries will offer to, or enter
into an agreement to, do any of the foregoing.
6.2. Conduct of Business of Parent. Parent covenants and agrees as to
itself and its Subsidiaries that, after the date hereof and prior to the
Effective Time (unless the Company shall otherwise consent in writing (such
consent not to be unreasonably withheld
A-26
<PAGE> 111
or delayed) and except as otherwise expressly contemplated by this Agreement and
the Stock Option Agreement):
(a) it shall not amend the terms of the Parent Common Stock;
(b) it shall not acquire or agree to acquire, by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business of any corporation, partnership,
joint venture, association or other business organization or division
thereof, or otherwise acquire or agree to acquire, or dispose of or agree
to dispose of, any assets of any person, which, in each case, could
reasonably be expected to delay materially the consummation of, or increase
materially the risk of non-consummation of, the transaction contemplated by
this Agreement;
(c) except as may be required as a result of a change in law or in
generally accepted accounting principles, it shall not change, in any
material respect, any of the accounting practices or principles used by it;
(d) it shall not knowingly take any action that would result in a
failure of Parent Common Stock to be listed on the NYSE;
(e) neither it nor any of its Subsidiaries shall knowingly take any
action, or knowingly fail to take any action, that is reasonably likely to
jeopardize the treatment of the Merger as a "pooling of interests" for
accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Code or that would cause any of its representations and
warranties herein to be or become untrue in any material respect; and
(f) neither it nor any of its Subsidiaries will offer to, or enter
into any agreement to, do any of the foregoing.
6.3. Acquisition Proposals. The Company shall, and shall cause its
nonstockholder affiliates and the officers, directors and employees of the
Company and its subsidiaries to, and shall instruct its stockholder affiliates
and the representatives and agents of the Company and its subsidiaries
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its subsidiaries) to, immediately cease and
terminate any existing activities, discussions or negotiations, if any, with any
parties conducted heretofore with respect to any acquisition or exchange of all
or any material portion of the assets of, or more than 15% of the equity
interest in, the Company or any of its Subsidiaries (by direct purchase from the
Company, tender or exchange offer or otherwise) or any business combination,
merger or similar transaction (including an exchange of stock or assets) with or
involving the Company or any Subsidiary or division of the Company (an
"Acquisition Transaction"), other than the Merger. Except as set forth in this
Section 6.2, the Company shall not, and shall cause its nonstockholder
affiliates and the officers, directors and employees of the Company and its
subsidiaries not to, and shall instruct its stockholder affiliates and the
representatives and agents of the Company and its subsidiaries (including,
without limitation, any investment banker, attorney or accountant retained by
the Company or any of its subsidiaries) not to, directly or indirectly,
knowingly encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information or data (other than the Company's
standard public information package) to, any corporation, partnership, person or
other entity or group (other than Parent and Merger Sub, any affiliate or
associate of Parent and Merger Sub or any designees of Parent and Merger Sub)
with respect to any inquiries or the making of any offer or proposal (including,
without limitation, any offer or proposal to the stockholders of the Company)
concerning an Acquisition Transaction (an "Acquisition
A-27
<PAGE> 112
Proposal") or otherwise knowingly facilitate any effort or attempt to make or
implement an Acquisition Proposal; provided, however, that prior to the receipt
of the Company Requisite Vote the Company may furnish information and access,
but only in response to a request for information or access, to any person or
entity making a bona fide written Acquisition Proposal to the board of directors
of the Company after the date hereof which was not knowingly encouraged,
solicited or initiated by the Company or any of its affiliates or any director,
employee, representative or agent of the Company or any of its subsidiaries
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its subsidiaries) on or after the date hereof
and may participate in discussions and negotiate with such person or entity
concerning any such Acquisition Proposal and authorize the Company, subject to
compliance with Section 8.3(a), to enter into a binding written agreement
concerning a Superior Proposal (as defined below), if and only if, in any such
case, (i) the board of directors of the Company determines in good faith, (A)
taking into account the written, reasoned advice of outside counsel to the
Company to the effect that failing to provide such information or access or to
participate in such discussions or negotiations or so to authorize, as the case
may be, is reasonably likely to constitute a breach of such board's fiduciary
duties under applicable law, that failing to provide such information or access
or to participate in such discussions or negotiations or to so authorize, as the
case may be, would constitute a breach of such board's fiduciary duties under
applicable law, and (B) taking into account the written advice of financial
advisors to the Company to such effect, that such Acquisition Proposal, if
accepted, is reasonably likely to be consummated, taking into account all legal,
financial and regulatory aspects of the proposal and the person or entity making
the proposal and would, if consummated, result in a transaction more favorable
to the Company's stockholders from a financial point of view than the
transaction contemplated by this Agreement (any such more favorable Acquisition
Proposal as to which both of the determinations referred to in subclauses (A)
and (B) of this clause (i) have been made being referred to in this Agreement as
a "Superior Proposal"), and (ii) the board of directors of the Company receives
from the person or entity making such bona fide written Acquisition Proposal an
executed confidentiality agreement the terms of which are (without regard to the
terms of such Acquisition Proposal) (A) no less favorable to the Company, and
(B) no less restrictive to the person or entity making such bona fide written
Acquisition Proposal than those contained in the Confidentiality Agreement,
dated as of May 21, 1999, referring to Parent as the "Recipient" (the "Company
Confidentiality Agreement"), between the Company and Parent. Nothing in this
Agreement shall prohibit the Board of Directors of the Company from, to the
extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Acquisition Proposal. The Company will notify Parent within 36
hours if any such inquiries or proposals are received by, any such information
is requested from, or any such negotiations or discussions are sought to be
initiated or continued with the Company and shall in such notice indicate the
identity of the offeror and the terms and conditions of any such proposal and
thereafter shall keep Parent informed, on a current basis, of the status and
terms of such proposals and the status of such negotiations or discussions,
providing copies to Parent of any Acquisition Proposals made in writing. The
Company shall provide Parent with five days' advance notice of its intention to
enter into any agreement with or to provide any information to any person or
entity making any such inquiry or proposal. The Company agrees not to release
any third party from, or waive any provisions of, any confidentiality or
standstill agreement to which the Company is a party. The Company will inform
the individuals or entities referred to in the first sentence of this Section
6.3 of the obligations undertaken in this Section 6.3. The Company also will
promptly request each
A-28
<PAGE> 113
person or entity which has executed, within 36 months prior to the date of this
Agreement, a confidentiality agreement in connection with its consideration of
acquiring the Company to return or destroy all confidential information
heretofore furnished to such person or entity by or on behalf of the Company.
6.4. Information Supplied. Each of the Company and Parent agrees, as to
itself and its Subsidiaries, that none of the information supplied or to be
supplied by it or its Subsidiaries for inclusion or incorporation by reference
in (i) the Registration Statement on Form S-4 to be filed with the SEC by Parent
in connection with the issuance of shares of Parent Common Stock in the Merger
(including the proxy statement and prospectus (the "Prospectus/Proxy Statement")
constituting a part thereof) (the "Registration Statement") will, at the time
the Registration Statement becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (ii)
the Prospectus/Proxy Statement and any amendment or supplement thereto will, at
the date of mailing to stockholders and at the times of the meetings of
stockholders of the Company to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
6.5. Stockholders' Meeting. The Company will take, in accordance with
applicable law and its certificate of incorporation and bylaws, all action
necessary to convene a meeting of holders of Shares (the "Stockholders'
Meeting") as promptly as reasonably practicable after the Registration Statement
is declared effective to consider and vote upon the adoption of this Agreement.
Subject to fiduciary obligations under the DGCL, the board of directors of the
Company shall recommend such adoption and the Company shall use its reasonable
best efforts to solicit such adoption.
6.6. Filings; Other Actions; Notification. (a) Parent and the Company
shall promptly prepare and file with the SEC the Prospectus/Proxy Statement, and
Parent shall prepare and file with the SEC the Registration Statement, as
promptly as practicable. Parent and the Company shall use their commercially
reasonable best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as practicable after such filing,
and promptly thereafter mail the Prospectus/Proxy Statement to the stockholders
of the Company. Parent shall also use its commercially reasonable best efforts
to obtain prior to the effective date of the Registration Statement all
necessary state securities law or "blue sky" permits and approvals required in
connection with the Merger and the consummation of the other transactions
contemplated by this Agreement and the Stock Option Agreement and will pay all
expenses incident thereto.
(b) The Company shall use its commercially reasonable best efforts to cause
to be delivered to Parent and its directors a letter of its independent
auditors, dated (i) the date on which the Registration Statement shall become
effective and (ii) the third business day prior to the Effective Time, and
addressed to Parent and its directors, in form and substance customary for
"comfort" letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(c) The Company and Parent shall cooperate with each other and use (and
shall cause their respective Subsidiaries to use) their respective commercially
reasonable best efforts to take or cause to be taken all actions, and do or
cause to be done all things, necessary, proper or advisable under this
Agreement, the Stock Option Agreement, the
A-29
<PAGE> 114
Voting Agreement and applicable Laws to consummate and make effective the Merger
and the other transactions contemplated by this Agreement, the Stock Option
Agreement and the Voting Agreement as soon as practicable, including preparing
and filing as promptly as practicable all documentation to effect all necessary
applications, notices, petitions, filings and other documents and to obtain as
promptly as practicable all permits, consents, approvals and authorizations
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement, the Stock Option Agreement and the
Voting Agreement. In particular, the Company and Parent each agree to use
commercially reasonable efforts to take, or cause to be taken, all appropriate
action, and do, or cause to be done, such things as may be necessary under
federal or state securities laws or the HSR Act or Foreign Merger Laws (as
hereinafter defined) applicable to or necessary for, and will file as soon as
reasonably practicable and, if appropriate, use commercially reasonable efforts
to have declared effective or approved, all documents and notifications with the
SEC and other governmental or regulatory bodies (including, without limitation,
the FDA and equivalent foreign regulatory bodies, and other foreign regulatory
bodies that administer Foreign Merger Laws, and any foreign labor councils or
bodies as may be required) that they deem necessary or appropriate for, the
consummation of the Merger or any of the other transactions contemplated hereby,
and each party shall give the other information reasonably requested by such
other party pertaining to it and its subsidiaries and affiliates to enable such
other party to take such actions. Although the parties do not anticipate any
legislative, administrative or judicial objection to the consummation of the
Merger or any of the transactions contemplated by this Agreement, each of the
Company, Parent and Merger Sub agrees to use commercially reasonable efforts to
contest and resist any action, including legislative, administrative or judicial
action, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) that is in effect and that restricts, prevents or prohibits the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, including, without limitation, by pursuing available avenues of
administrative and judicial appeal. Each of the Company, Parent and Merger Sub
also agrees to use commercially reasonable efforts to take any and all actions
necessary to avoid or eliminate each and every impediment under any antitrust
law that may be asserted by any governmental antitrust authority or any other
party so as to enable the parties to close by the date specified in Section
8.2(i) the transactions contemplated hereby; provided, however, that nothing in
this Section 6.6 shall require, or be construed to require, Parent to proffer
to, or agree to, sell or hold separate and agree to sell, before or after the
Effective Time, any assets, businesses, or interest in any assets or businesses
of Parent, the Company or any of their respective affiliates (or to consent to
any sale, or agreement to sell, by the Company of any of its assets or
businesses) or to agree to any material changes or restriction in the operations
of any such assets or businesses; and provided, further, that nothing in this
Section 6.6 shall require, or be construed to require, a proffer or agreement
that would, in the good faith judgment of Parent, be reasonably likely to have a
significant adverse effect on the benefits to Parent of the transactions
contemplated by this Agreement. Subject to applicable Laws relating to the
exchange of information, Parent and the Company shall have the right to review
in advance, and to the extent practicable each will consult the other on, all
the information relating to Parent or the Company, as the case may be, and any
of their respective Subsidiaries, that appear in any filing made with, or
written materials submitted to, any third party and/or any Governmental Entity
in connection with the Merger and the other transactions contemplated by this
Agreement,
A-30
<PAGE> 115
the Stock Option Agreement and the Voting Agreement. In exercising the foregoing
right, each of the Company and Parent shall act reasonably and as promptly as
practicable.
(d) The Company and Parent each shall, upon request by the other, furnish
the other with all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Prospectus/Proxy Statement, the Registration
Statement or any other statement, filing, notice or application made by or on
behalf of Parent, the Company or any of their respective Subsidiaries to any
third party and/or any Governmental Entity in connection with the Merger and the
transactions contemplated by this Agreement, the Stock Option Agreement and the
Voting Agreement.
(e) The Company and Parent each shall keep the other apprised of the status
of matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notice or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Merger and the other transactions contemplated by this Agreement,
the Stock Option Agreement and the Voting Agreement. The Company and Parent each
shall give prompt notice to the other of any change that has resulted in or is
reasonably likely to result in a Company Material Adverse Effect or Parent
Material Adverse Effect, respectively.
(f) Parent shall notify the Company promptly (i) of the receipt of the
comments of the SEC, (ii) of any request by the SEC for amendments or
supplements to the Registration Statement, (iii) of the time when the
Registration Statement has become effective or any supplement or amendment has
been filed, or the issuance of any stop order and (iv) of the suspension of the
qualification of the Parent Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, and shall supply the Company with
copies of all correspondence with the SEC with respect to the Registration
Statement.
(g) If at any time prior to the Effective Time, any event or circumstance
relating to the Company, any Subsidiary, or the Company's or any Subsidiary's
officers or directors should occur and be discovered by the Company that is
required to be described in an amendment or supplement to the definitive Proxy
Statement/Prospectus or the Registration Statement, the Company shall promptly
inform Parent. If at any time prior to the Effective Time, any event or
circumstance relating to Parent or any of its subsidiaries or their respective
officers or directors should occur and be discovered by Parent that is required
to be described in an amendment or supplement to the definitive Proxy
Statement/Prospectus or the Registration Statement, Parent shall promptly inform
the Company. Whenever any event occurs that should be described in an amendment
of, or supplement to, the definitive Proxy Statement/Prospectus or the
Registration Statement, the Company or Parent, as the case may be, shall, upon
learning of such event, promptly notify the other and consult and cooperate with
the other in connection with the preparation of a mutually acceptable amendment
or supplement. The parties shall promptly file such amendment or supplement with
the SEC and mail such amendment or supplement as soon as practicable after it is
cleared by the SEC. No amendment or supplement to the Proxy Statement/Prospectus
or the Registration Statement will be made by Parent or the Company without the
approval of the other party (such approval not to be unreasonably withheld or
delayed).
(h) The Company will use its commercially reasonable best efforts to
obtain, as soon as practicable prior to the Effective Time, the consents and
waivers required under the
A-31
<PAGE> 116
Contracts listed in Schedule 5.1(d)(ii) in connection with the consummation of
the transactions contemplated by this Agreement and the Stock Option Agreement.
(i) The Company will periodically provide Parent with current draft
versions of any filings to be made by the Company subsequent to the date hereof
pursuant to the Securities Act or the Exchange Act, including any documents
incorporated therein by reference, promptly after preparation of such draft.
6.7. Taxation and Accounting. (a) At or prior to the filing of the
Registration Statement and at or prior to the Closing, the Company and Parent
shall execute and deliver to Cooley Godward LLP and to Sullivan & Cromwell tax
representation letters reasonably satisfactory to such counsel setting forth
customary representations which may be relied upon by such counsel in rendering
any opinions contemplated by this Agreement. Parent shall use commercially
reasonable efforts to cause Sullivan & Cromwell to deliver to Parent a legal
opinion, satisfying the requirements of Item 601 of Regulation S-K promulgated
under the Securities Act and dated as of a date that is no more than two
business days prior to the date of filing of the Registration Statement, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, based in part on the tax representation letters
described in this Section 6.7(a). The Company shall use commercially reasonable
efforts to cause Cooley Godward LLP to deliver to the Company a legal opinion,
satisfying the requirements of Item 601 of Regulation S-K promulgated under the
Securities Act and dated as of a date that is no more than two business days
prior to the date of filing of the Registration Statement, to the effect that
the Merger will constitute a reorganization within the meaning of Section 368(a)
of the Code, based in part on the tax representation letters described in this
Section 6.7(a).
(b) Parent shall cooperate with the Company and the Company shall use
reasonable best efforts to cause to be delivered to Parent and the Company, a
letter from Ernst & Young LLP addressed to the Company, as of the Closing Date,
stating that based upon discussions with officials of the Company responsible
for financial and accounting matters, and information furnished to Ernst & Young
LLP to the date of its letter, Ernst & Young LLP concurs with the Company's
management's conclusion that, as of the date of its letter, no conditions exist
related to the Company that would preclude Parent's accounting for the Merger as
a pooling of interests.
(c) The Company shall cooperate with Parent and Parent shall use reasonable
best efforts to cause to be delivered to Parent, a letter from
PricewaterhouseCoopers LLP addressed to Parent, dated as of the Closing Date,
confirming as of the Closing Date that, based upon discussions with officials of
Parent responsible for financial and accounting matters and the letter provided
by Ernst & Young LLP to the Company, PricewaterhouseCoopers LLP concurs with
Parent management's conclusions that the Merger will qualify as a pooling of
interests transaction under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations.
6.8. Access. Upon reasonable notice, and except as may otherwise be
required by applicable law, each of the Company and Parent shall (and shall
cause its Subsidiaries to) afford the other's officers, employees, counsel,
accountants and other authorized representatives ("Representatives") access,
during normal business hours throughout the period prior to the Effective Time,
to its properties, books, contracts, records, personnel and advisors and, during
such period, each shall (and shall cause its Subsidiaries to) furnish promptly
to the other all documents, data and information concerning its business,
properties (tangible and intangible) and personnel as may reasonably be
requested. The
A-32
<PAGE> 117
Company and Parent shall provide access to the information described above
regardless of whether or not such documents, data and information are or may be
covered by the attorney-client privilege, lawyer's work product privilege or
other privileges against disclosure, as the parties have concluded that such
disclosure shall not constitute a waiver of the attorney-client or any other
privilege due to the substantially identical interest of the Company and Parent
with respect to such information. No investigation pursuant to this Section
shall affect or be deemed to modify any representation or warranty made by the
Company, Parent or Merger Sub. No provision of this Agreement shall require the
Company or Parent to permit any inspection, or to disclose any information, that
in the reasonable judgment of the Company or the Parent, as the case may be,
would result in the disclosure of any trade secrets of third parties or violate
any of its obligations to third parties with respect to confidentiality if the
Company or Parent, as the case may be, shall have used reasonable efforts to
obtain the consent of such third party to such inspection or disclosure. All
requests for information made pursuant to this Section shall be directed to an
executive officer of the Company or Parent, as the case may be, or such Person
as may be designated by either of its officers. All such information shall be
subject to the Company Confidentiality Agreement and the Confidentiality
Agreement, dated as of May 21, 1999, referring to the Company as the Recipient
(the "Parent Confidentiality Agreement"), between the Company and Parent, as the
case may be.
6.9. Affiliates. (i) Prior to the Effective Time, Parent shall deliver to
the Company a list of names and addresses of those Persons who are, in the
opinion of Parent, as of the time of the Stockholders Meeting referred to in
Section 6.5, "affiliates" of the Company within the meaning of Rule 145 under
the Securities Act and for the purposes of applicable interpretations regarding
the pooling of interests method of accounting. The Company shall provide to
Parent such information and documents as Parent shall reasonably request for
purposes of such list. There shall be added to such list the names and addresses
of any other Person the Company later identifies as an affiliate of the Company
or Parent reasonably identifies (by written notice to the Company within ten
business days after the Company's receipt of such list) as being a Person who
may be deemed to be such an affiliate of the Company; provided, however, that no
such Person identified by Parent shall be added to the list of affiliates of the
Company if Parent shall receive from the Company, on or before the date of the
Stockholders Meeting, an opinion of counsel reasonably satisfactory to Parent to
the effect that such Person is not an affiliate. The Company shall use
reasonable efforts to deliver or cause to be delivered to Parent, prior to the
date of the Stockholders Meeting, (i) from each of such affiliates of the
Company identified in the foregoing list (as the same may be supplemented as
aforesaid), other than AstraZeneca plc, a letter dated as of the Closing Date
substantially in the form attached as Exhibit A-1 (the "Company Affiliates
Letter"), and (ii) from AstraZeneca plc a letter dated as of the Closing Date
substantially in the form attached as Exhibit AZ-1 (the "AstraZeneca Affiliate
Letter").
(ii) Parent shall use reasonable efforts to obtain from each of those
Persons who are, in the opinion of Parent, "affiliates" of Parent within the
meaning of Rule 145 under the Securities Act and for the purposes of applicable
interpretations regarding the pooling of interests method of accounting a letter
dated as of the Closing Date substantially in the form attached as Exhibit A-2
(the "Pooling Affiliates Letter").
(iii) If the Merger would otherwise qualify for pooling of interests
accounting treatment, shares of Parent Common Stock issued to such affiliates of
the Company in exchange for Shares shall not be transferable until such time as
financial results covering at least 30 days of combined operations of Parent and
the Company have been published
A-33
<PAGE> 118
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies, regardless of whether each such affiliate has provided the
written agreement referred to in this Section, except to the extent permitted
by, and in accordance with, Accounting Series Release 135 and Staff Accounting
Bulletins 65 and 76. Any Shares held by such affiliates shall not be
transferable, regardless of whether each such affiliate has provided the written
agreement referred to in this Section, if such transfer, either alone or in the
aggregate with other transfers by affiliates, would preclude Parent's ability to
account for the business combination to be effected by the Merger as a pooling
of interests. The Company shall not register the transfer of any Certificate,
unless such transfer is made in compliance with the foregoing.
6.10. Listing; De-registration. Parent shall use its best efforts to
cause the shares of Parent Common Stock to be issued in the Merger to be
approved for listing on the NYSE subject to official notice of issuance, prior
to the Closing Date. The Company shall use its best efforts to cause the Shares
to be de-registered from the Nasdaq National Market and de-registered under the
Exchange Act as soon as practicable following the Effective Time.
6.11. Publicity. Parent shall control and coordinate the press relations
and publicity activities of the parties in connection with the Merger. The
Company shall consult with Parent with respect to issuing any press releases or
otherwise making public announcements with respect to the Merger and the other
transactions contemplated by this Agreement, the Voting Agreement and the Stock
Option Agreement and will not issue any press releases or otherwise make any
public announcements with respect thereto without Parent's prior consent (which
consent shall not be unreasonably withheld), except as may be required by law or
pursuant to the Company's listing agreement with or rules of the Nasdaq National
Market.
6.12. Benefits. (a) Stock Options. (i) At the Effective Time, each
outstanding Company Option under the Stock Plans, whether vested or unvested,
shall be deemed to constitute an option to acquire (a "New Parent Option"), on
the same terms and conditions as were applicable under such Company Option, the
same number of shares of Parent Common Stock (rounded to the nearest whole
number) as the holder of such Company Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full immediately
prior to the Effective Time, at an exercise price per share (rounded to the
nearest whole cent) equal to (y) the aggregate exercise price for the Shares
otherwise purchasable pursuant to such Company Option divided by (z) the number
of full shares of Parent Common Stock deemed purchasable pursuant to such
Company Option in accordance with the foregoing; provided, however, that in the
case of any Company Option to which Section 422 of the Code applies, the option
price, the number of shares purchasable pursuant to such option and the terms
and conditions of exercise of such option shall be determined in accordance with
the foregoing, subject to such adjustments as are necessary in order to satisfy
the requirements of Section 424(a) of the Code. At or prior to the Effective
Time, the Company shall take all necessary actions to permit the assumption of
the unexercised Company Options by Parent pursuant to this Section.
(ii) Effective at the Effective Time, Parent shall assume, as a New Parent
Option, each outstanding Company Option in accordance with this Section and with
the terms of the Stock Plan under which it was issued and the stock option
agreement by which it is evidenced. Not later than ten calendar days after the
Closing Date, Parent shall file a registration statement under the Securities
Act of 1933 on Form S-8, or other appropriate form, covering shares of Parent
Common Stock subject to such New Parent Options.
A-34
<PAGE> 119
(b) Employee Benefits. Parent agrees that during the period commencing at
the Effective Time and ending on the first anniversary thereof, the Employees
will continue to be provided with benefits under employee benefit plans (other
than stock options or other plans involving the issuance of securities of the
Company or Parent) which in the aggregate are substantially comparable to those
currently provided by the Company to such Employees; provided, however, that
Employees covered by collective bargaining agreements need not be provided with
such benefits. Parent will cause each employee benefit plan of Parent in which
Employees are eligible to participate to take into account for purposes of
eligibility and vesting thereunder the service of such Employees with the
Company as if such service were with Parent, to the same extent that such
service was credited under a comparable plan of the Company. Parent will, and
will cause the Surviving Corporation to, honor in accordance with their terms
(i) all employee benefit obligations to current and former Employees accrued as
of the Effective Time and (ii) to the extent set forth on Schedule 5.1(h)(i),
all employee severance plans in existence on the date hereof and all employment
or severance agreements entered into prior to the date hereof.
6.13. Expenses. The Surviving Corporation shall pay all charges and
expenses, including those of the Exchange Agent, in connection with the
transactions contemplated in Article IV, and Parent shall reimburse the
Surviving Corporation for such charges and expenses. Except as otherwise
provided in Section 8.5(b), whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement, the Stock Option
Agreement, the Voting Agreement and the Merger and the other transactions
contemplated by this Agreement, the Stock Option Agreement and the Voting
Agreement shall be paid by the party incurring such expense.
6.14. Indemnification; Directors' and Officers' Insurance. (a) From and
after the Effective Time, Parent agrees that it will indemnify, defend and hold
harmless each individual entitled to indemnification as of the Effective Time
under the Company's certificate of incorporation and bylaws as in effect on the
date of this Agreement (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 matters existing or
occurring at or prior to the Effective Time (including transactions contemplated
by this Agreement), whether asserted or claimed prior to, at or after the
Effective Time, to the fullest extent that the Company would have been permitted
under the DGCL and its certificate of incorporation, bylaws and other agreements
(including the Indemnification Agreements referred to below) in effect on the
date hereof to indemnify such Person (and Parent shall also advance expenses as
incurred to the fullest extent permitted under applicable law, provided the
Person to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such Person is not entitled to
indemnification).
(b) From and after the Effective Time, Parent will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of the Company
pursuant to each indemnification agreement listed in Schedule 6.14(b).
(c) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 6.14, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Parent thereof. In the event
of any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) Parent or the Surviving Corporation
shall have the right to assume the defense thereof and Parent shall not be
liable to such Indemnified Parties for any legal expenses of other counsel or
A-35
<PAGE> 120
any other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof unless there is a conflict of interest
between the Indemnified Parties and Parent, in which event Parent shall be
liable to the Indemnified Parties for the fees and expenses of not more than one
firm of counsel, (ii) the Indemnified Parties will cooperate in the defense of
any such matter and (iii) Parent shall not be liable for any settlement effected
without its prior written consent and no Indemnified Party shall be liable for
any settlement effected without its prior written consent unless such settlement
includes a complete release of claims against such Indemnified Party; and
provided, further, that Parent shall not have any obligation hereunder to any
Indemnified Party if and when 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.
(d) Notwithstanding any contrary provision of this Agreement, prior to the
Effective Time, the Company may purchase insurance coverage extending for a
period of six years the Company's directors' and officers' liability insurance
coverage in effect as of the date hereof (covering past or future claims with
respect to periods prior to and including the Effective Time); provided that the
aggregate premium payable for such insurance shall not exceed 175% of the last
annual premium paid for such coverage prior to the date hereof.
(e) If the Surviving Corporation 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 of 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 the
Surviving Corporation shall assume all of the obligations set forth in this
Section.
(f) The provisions of this Section shall survive the consummation of the
Merger at the Effective Time, are intended to be for the benefit of, and shall
be enforceable by, each of the Indemnified Parties as intended third party
beneficiaries and their heirs and estates and shall be binding on all successors
and assigns of Parent and the Surviving Corporation.
6.15. Other Actions by the Company and Parent.
(a) Rights. Prior to the Effective Time, the board of directors of the
Company shall take all necessary action to ensure that the representation and
warranty in Section 5.1(s) is accurate.
(b) Antitakeover Statutes. If any Antitakeover Statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement, the Stock Option Agreement, or the Voting Agreement, each of Parent
and the Company and its board of directors shall grant such approvals and take
such lawful actions as are necessary so that such transactions may be
consummated as promptly as practicable on the terms contemplated by this
Agreement, the Stock Option Agreement or the Voting Agreement or by the Merger
and otherwise act to eliminate or minimize the effects of such statute or
regulation on such transactions.
6.16. Convertible Notes and Warrants. Prior to the Effective Time, the
Company and Parent shall take all action necessary to provide that on and after
the Effective Time the Convertible Notes and Warrants (including the Note
Warrants) will be convertible only into the Merger Consideration, subject to any
holder's right to hold securities through maturity.
A-36
<PAGE> 121
6.17. Funding Mechanism. Parent and the Company agree as follows.
(a) Parent agrees to cause one of its wholly owned subsidiaries (the
"Lender") to make available as a loan to the Company, subject to the
provisions of Sections 6.17(b) through (e), (i) $15,000,000 (or such lesser
amount as the Company elects to borrow) on September 1, 1999 (the "First
Loan"), (ii) an additional $10,000,000 (or such lesser amount as the
Company elects to borrow) on November 1, 1999 (the "Second Loan"), and
(iii) an additional $10,000,000 (or such lesser amount as the Company
elects to borrow) on December 31, 1999 (the "Third Loan" and, collectively
with the First Loan and the Second Loan, the "Loans" and each such date,
with respect to the Loan to be made on such date, the "Funding Date" for
such Loan).
(b) The Lender shall not be obligated to make any Loan if, on or prior
to the Funding Date for such Loan, there has been a material breach by the
Company of any covenant or agreement of the Company contained in this
Agreement (a "Breach").
(c) The Lender shall not be obligated to make the Second Loan or the
Third Loan if, on or prior to the Funding Date for any such Loan:
(i) The Stockholders Meeting (as defined in the Merger Agreement)
shall have been convened and the adoption referred to in Section 7.1(a)
shall not have been obtained thereat or at any adjournment or
postponement thereof (a "Vote Failure"), or
(ii) The Company shall have terminated this Agreement, other than
pursuant to Section 8.2(i), 8.2(iii) or 8.3(b) thereof (a "Company
Termination").
(d) Unless the Lender and the Company agree otherwise, each Loan will
mature on a date (which date shall not be later than the fifth anniversary
of the Funding Date for such Loan) determined in accordance with Section
6.17(e). The maturity date of each Loan will accelerate to the first
anniversary of the Funding Date for such Loan in the event of a Breach, a
Vote Failure or a Company Termination.
(e) The parties agree that the terms and conditions of, and the
definitive documentation concerning the Loans (the "Terms") shall be
reasonable and customary in light of the Company's creditworthiness,
business prospects and industry. Parent and the Company agree to negotiate
in good faith concerning the Terms and the consents, waivers and approvals
necessary or appropriate in connection with the funding of the Loans on and
subject to the Terms (such consents, waivers and approvals, the "Waivers").
(f) The Terms and Waivers will be determined, if possible, by the
mutual agreement of Parent and the Company. If Parent and the Company are
unable to reach such an agreement by July 15, 1999, Parent and the Company
shall jointly designate an individual or entity to determine no later than
August 15, 1999 the Terms and Waivers after due consideration of this
Section 6.17 and any submissions the Company and Parent choose to make to
such individual or entity, and the decision of such person or entity shall
be final and binding upon the parties. If Parent and the Company are unable
to mutually agree on an individual or entity by July 15, 1999, each shall
choose an investment banking firm (other than Goldman, Sachs & Co. and
Lehman Brothers Inc.) and the two firms so chosen shall select an
individual or entity
A-37
<PAGE> 122
which shall determine the Terms and Waivers, which determination shall be
final and binding on the parties. If either Parent or the Company fails to
select an investment banking firm within five calendar days of receipt of a
notice specifying such failure from such other party, such other party may
select an individual or entity which shall determine the Terms and Waivers,
which determination shall be final and binding on the parties.
ARTICLE VII
CONDITIONS
7.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Closing of each of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been duly adopted
by holders of Shares constituting the Company Requisite Vote.
(b) Regulatory Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(c) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) that is in effect and restrains,
enjoins or otherwise prohibits consummation of the transactions
contemplated by this Agreement (collectively, an "Order"), and no
Governmental Entity shall have instituted any proceeding seeking any such
Order.
(d) Registration Statement. Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or be threatened
overtly by the SEC.
7.2. Conditions to Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to effect the Merger are also subject to the
satisfaction or waiver by Parent prior to the Effective Time of the following
conditions:
(a) Representations and Warranties. (i) The representations and
warranties of the Company set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement, and (ii)
the representations and warranties of the Company set forth in Sections
5.1(b), (c) and (j) shall be true and correct in all material respects as
of the Closing Date as though made on and as of the Closing Date, and (iii)
the representations and warranties of the Company set forth in this
Agreement (other than the representations and warranties of the Company set
forth in Sections 5.1(b), (c) and (j)), considered without regard to any
qualification by, or references to, "material," "in all material respects"
or "Company Material Adverse Effect," shall be true and correct as of the
Closing Date as though made on the Closing Date, except for such failures
of such representations and warranties to be true and correct as do not
arise from events, occurrences or matters that, individually and in the
aggregate, have not had and are not reasonably likely to have a Company
Material Adverse Effect, and (iv) Parent shall have received a certificate
signed on behalf of the Company by the chief executive officer and chief
financial officer of the Company to the effect of the foregoing.
A-38
<PAGE> 123
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement and the Stock Option Agreement at or prior to
the Closing Date, and Parent shall have received a certificate signed on
behalf of the Company by the chief executive officer and chief financial
officer of the Company to such effect.
(c) Regulatory Consents. Other than the filing provided for in
Section 1.3, all filings required to be made prior to the Effective Time by
the Company or any of its Subsidiaries, with, and all consents, approvals
and authorizations required to be obtained prior to the Effective Time by,
the Company or any of its Subsidiaries from, any Governmental Entity in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by the Company shall
have been made or obtained (as the case may be), except where the failure
to so make or obtain will not result in either a Company Material Adverse
Effect or a Parent Material Adverse Effect or have a significant adverse
effect on the benefits to Parent of the transactions contemplated by this
Agreement.
(d) Consents Under Agreements. The Company shall have obtained the
consent or approval of each Person whose consent or approval shall be
required under each Contract to which the Company or any of its
Subsidiaries is a party, except those for which the failure to obtain such
consent or approval, individually or in the aggregate, is not reasonably
likely to have a Company Material Adverse Effect, is not reasonably likely
to materially adversely affect the ability of the Company to consummate the
transactions contemplated by this Agreement and is not reasonably likely to
impair the ability of the Parent or any of their respective affiliates,
following consummation of the Merger, to conduct any material business or
operations in any jurisdiction where they are now being conducted.
(e) Tax Opinion. Parent shall have received the opinion of Sullivan &
Cromwell, counsel to Parent, dated the Closing Date, to the effect that the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that each of Parent,
Merger Sub and the Company will be a party to that reorganization within
the meaning of Section 368(b) of the Code. In rendering such opinion, such
counsel may rely on customary factual representations furnished by the
Company, Parent and Merger Sub.
(f) Rights Agreement. All necessary action shall have been taken to
ensure that neither the entering into of this Agreement nor the
consummation of the Merger will cause the preferred stock purchase rights
issued pursuant to the Rights Agreement to become exercisable, cause Parent
to become an Acquiring Person (as such term is defined in the Rights
Agreement), or give rise to a Distribution Date or a Shares Acquisition
Date (as such terms are defined in the Rights Agreement).
(g) Affiliates Letters. Parent shall have received a Company
Affiliates Letter from each Person identified as an affiliate of the
Company pursuant to Section 6.9(i) (other than AstraZeneca plc) and shall
have received the AstraZeneca Affiliates Letter from AstraZeneca plc.
(h) Accountants' Letters. Parent shall have received the letters
described in Sections 6.7(b) and 6.7(c), unless the failure of Parent to
receive the letter described in Section 6.7(c) has been proximately caused
by Parent's failure to issue or sell shares of Parent Common Stock.
A-39
<PAGE> 124
7.3. Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (i) The representations and
warranties of Parent and Merger Sub set forth in this Agreement shall be
true and correct in all material respects as of the date of this Agreement,
and (ii) the representations and warranties of Parent and Merger Sub set
forth in Sections 5.2(c) and (d) shall be true and correct in all material
respects as of the Closing Date as though made on and as of the Closing
Date, and (iii) the representations and warranties of Parent and Merger Sub
set forth in this Agreement (other than the representations and warranties
of the Company set forth in Sections 5.2(c) and (d)), considered without
regard to any qualification by, or reference to, "material," "in all
material respects" or "Parent Material Adverse Effect," shall be true and
correct as of the Closing Date as though made on the Closing Date, except
for such failures of such representations and warranties to be true and
correct as do not arise from events, occurrences or matters that,
individually and in the aggregate, have not had and are not reasonably
likely to have a Parent Material Adverse Effect, and (iv) the Company shall
have received a certificate signed on behalf of Parent by the chief
executive officer and chief financial officer of Parent to the effect of
the foregoing.
(b) Performance of Obligations of Parent and Merger Sub. Each of
Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement and the
Stock Option Agreement at or prior to the Closing Date, and the Company
shall have received a certificate signed on behalf of Parent by the chief
executive officer and chief financial officer of Parent to such effect.
(c) Regulatory Consents. All filings required to be made prior to the
Effective Time by Parent or any of its Subsidiaries, with, and all
consents, approvals and authorizations required to be obtained prior to the
Effective Time by, Parent or any of its Subsidiaries from, any Governmental
Entity in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby by Parent and
Merger Sub shall have been made or obtained (as the case may be), except
where the failure to so make or obtain will not result in either a Company
Material Adverse Effect or a Parent Material Adverse Effect.
(d) Tax Opinion. The Company shall have received the opinion of
Cooley Godward LLP, counsel to the Company, dated the Closing Date, to the
effect that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that
each of Parent, Merger Sub and the Company will be a party to that
reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, such counsel may rely on customary factual
representations furnished by the Company, Parent and Merger Sub.
(e) NYSE Listing. The shares of Parent Common Stock to be delivered
pursuant to the Merger shall have been duly authorized for listing on the
NYSE, subject to official notice of issuance.
(f) Accountants' Letters. The Company shall have received the letter
described in Section 6.7(b).
A-40
<PAGE> 125
ARTICLE VIII
TERMINATION
8.1. Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by stockholders of the Company referred to in
Section 7.1(a), by mutual written consent of the Company, Parent and Merger Sub,
by action of their respective boards of directors.
8.2. Termination by Either Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the board of directors of either Parent or the Company if (i)
the Merger shall not have been consummated by November 30, 1999, whether such
date is before or after the date of approval by the stockholders of the Company
referred to in Section 7.1(a); provided, however, that if a request for
additional information is received from the United States Federal Trade
Commission or the Antitrust Division of the United States Department of Justice
pursuant to the HSR Act or additional information is requested by a governmental
authority (a "Foreign Authority") pursuant to the antitrust, competition,
foreign investment, or similar laws or any foreign countries or supranational
commissions or boards that require pre-merger notifications or filings with
respect to the Merger (collectively, "Foreign Merger Laws"), then such date
shall be extended to the 30th day following certification by Parent and/or the
Company, as applicable, that Parent and/or the Company, as applicable, have
substantially complied with such request, but in any event not later than
January 31, 2000, (ii) the Stockholders Meeting shall have been convened and the
adoption referred to in Section 7.1(a) shall not have been obtained thereat or
at any adjournment or postponement thereof, or (iii) any Order permanently
restraining, enjoining or otherwise prohibiting the Merger shall become final
and non-appealable (whether before or after the adoption referred to in Section
7.1(a)); provided that the right to terminate this Agreement pursuant to clause
(i) above shall not be available to any party that has breached in any material
respect its obligations under this Agreement in any manner that shall have been
the proximate cause of, or resulted in, the failure to consummate the Merger by
the date referred to in clause (i) of this Section 8.2 and, provided, further,
that the right to terminate this Agreement pursuant to clause (iii) above shall
not be available to any party that has breached its covenant to use commercially
reasonable best efforts to prevent such Order from being issued and to use
commercially reasonable best efforts to cause such Order to be lifted.
8.3. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval by stockholders of the Company referred to in Section
7.1(a), by action of the board of directors of the Company:
(a) If (i) the Company is not in material breach of any of the terms
of this Agreement, (ii) the board of directors of the Company authorizes
the Company, subject to complying with the terms of this Agreement, to
enter into a binding written agreement concerning a Superior Proposal and
the Company notifies Parent in writing, that it intends to enter into such
an agreement, attaching the most current version of such agreement to such
notice, and (iii) Parent does not make, within five calendar days of
receipt of the Company's written notification of its intention to enter
into such an agreement, an offer that is at least as favorable, from a
financial point of view, to the stockholders of the Company as the Superior
Proposal. The Company agrees (x) that it will not enter into a binding
agreement referred to in clause (ii) of the
A-41
<PAGE> 126
previous sentence until at least the sixth calendar day after it has
provided the written notice to Parent required thereby and (y) to notify
Parent promptly if its intention to enter into a written agreement referred
to in such notice shall change at any time after giving such notification.
(b) If there has been a material breach by Parent or Merger Sub of any
representation, warranty, covenant or agreement of Parent or Merger Sub
contained in this Agreement such that the conditions in Section 7.3(a) or
(b) will not be satisfied (a "Terminating Parent Breach"); provided,
however, that, if such Terminating Parent Breach is curable by Parent
through the exercise of reasonable best efforts and such cure is reasonably
likely to be completed prior to the applicable date specified in Section
8.2(i), then for so long as Parent continues to exercise reasonable best
efforts to cure such Terminating Parent Breach, the Company may not
terminate this Agreement under this Section 8.3(b).
8.4. Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of the
board of directors of Parent:
(a) If the board of directors of the Company shall have withdrawn or
adversely modified its approval or recommendation of this Agreement or
failed to reconfirm its recommendation of this Agreement within five
calendar days after a written request by Parent to do so.
(b) There has been a material breach by the Company of any
representation, warranty, covenant or agreement of the Company contained in
this Agreement such that the conditions in Section 7.2(a) or (b) will not
be satisfied (a "Terminating Company Breach"); provided, however, that, if
such Terminating Company Breach is curable by the Company through the
exercise of reasonable best efforts and such cure is reasonably likely to
be completed prior to the applicable date specified in Section 8.2(i), then
for so long as the Company continues to exercise reasonable best efforts,
Parent may not terminate this Agreement under this Section 8.4(b).
8.5. Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, this Agreement (other than as set forth in Section 9.1) shall
become void and of no effect with no liability of any party hereto (or any of
its directors, officers, employees, agents, legal and financial advisors or
other representatives) except pursuant to Section 6.13, Section 6.17, Section
8.5 and Article IX; provided, however, that except as otherwise provided herein,
no such termination shall relieve any party hereto of any liability or damages
resulting from any willful breach of this Agreement.
(b) In the event that (i) (A) a bona fide Acquisition Proposal shall have
been made to the Company or any of its Subsidiaries or any of its stockholders
or any Person shall have announced an intention (whether or not conditional) to
make an Acquisition Proposal with respect to the Company or any of its
Subsidiaries, and on or following the date of this Agreement but prior to the
date of the Stockholders Meeting such Acquisition Proposal, announcement or
intention is or becomes publicly known, and (B) on or following the date of this
Agreement and prior to the time such Acquisition Proposal, announcement or
intention is or becomes publicly known, the occurrence of a Parent Material
Adverse Effect shall not have become publicly known, and (C) on or following the
date on which such Acquisition Proposal, announcement or intention is or becomes
publicly known, this Agreement is terminated by either Parent or the Company
pursuant to Section 8.2(ii), or
A-42
<PAGE> 127
(ii) this Agreement is terminated (x) by the Company pursuant to Section 8.3(a)
or (y) by Parent pursuant to Section 8.4(a), then, subject to Section 8.5(c),
the Company (p) shall promptly, but in no event later than two days after the
date of such termination (except as otherwise provided in the proviso to this
sentence), pay Parent a termination fee of $16,900,000 payable by wire transfer
of same day funds, and (q) shall promptly, but in no event later than two
calendar days after being notified of such by Parent, pay all of the charges and
expenses incurred by Parent or Merger Sub in connection with this Agreement, the
Stock Option Agreement and the Voting Agreement and the transactions
contemplated by this Agreement, the Stock Option Agreement and the Voting
Agreement, up to a maximum of $5,000,000; provided, however, that no termination
fee shall be payable to Parent by reason of Section 8.5(b)(i) or a termination
of this Agreement pursuant to Section 8.3(a) unless and until (I) any person or
entity (other than Parent) (an "Acquiring Party") has acquired, by purchase,
merger, consolidation, sale, assignment, lease, transfer or otherwise, in one
transaction or any related series of transactions within 18 months of such
termination, a majority of the voting power of the outstanding securities of the
Company or (II) there has been consummated a merger, consolidation or similar
business combination between the Company and an Acquiring Party or an affiliate
thereof as a result of which the stockholders of the Company immediately prior
to the transaction do not own at least 75% of the surviving entity. The Company
acknowledges that the agreements contained in this Section 8.5(b) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Parent and Merger Sub would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to this Section 8.5(b), and, in order to obtain such payment, Parent or
Merger Sub commences a suit which results in a judgment against the Company for
the fee set forth in this paragraph (b), the Company shall pay to Parent or
Merger Sub its costs and expenses (including attorneys' fees) in connection with
such suit, together with interest on the amount of the fee at the prime rate of
Citibank, N.A. in effect on the date such payment was required to be made.
(c) Parent agrees that the payment provided for in Section 8.5(b) shall be
the sole and exclusive remedy of Parent upon termination of this Agreement
pursuant to Section 8.3(a) or 8.4(a) or (c), as the case may be, and such remedy
shall be limited to the aggregate of the sums stipulated in such Section 8.5(b);
provided, however, that nothing herein shall relieve any party from liability
for the willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement. In no event shall the Company be
required to pay to Parent more than one termination fee pursuant to Section
8.5(b)(p). Notwithstanding any other provision of this Agreement or the Stock
Option Agreement, any termination fee required to be paid to Parent pursuant to
Section 8.5(b)(p) shall be reduced (but not below zero) to the extent necessary
so that the sum of the portion of any termination fee actually paid to Parent,
the aggregate of all Cancellation Amounts (as defined in the Stock Option
Agreement) paid to Parent pursuant to the Stock Option Agreement and the
proceeds actually received by Parent as the result of selling Shares to a third
party which acquires more than 50% of the Company's outstanding voting
securities (other than the Company or any of its affiliates) shall not exceed
$21,900,000. In no event shall (i) the sum of the portion of any termination fee
actually paid to Parent and the cash proceeds actually received by Parent as the
result of selling Shares to a third party which acquires more than 50% of the
Company's outstanding voting securities (other than the Company or any of its
affiliates) exceed $21,900,000, or (ii) the sum of the portion of any
termination fee actually paid to Parent, the aggregate Cancellation Amounts paid
to parent pursuant to the Stock Option Agreement and the cash proceeds actually
received by parent as the result of selling
A-43
<PAGE> 128
Shares to a third party which acquires more than 50% of the Company's
outstanding voting securities(other than the Company or any of its affiliates)
exceed $21,900,000.
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. Survival. This Article IX and the agreements of the Company, Parent
and Merger Sub contained in Articles I, II, III and IV and Sections 6.7
(Taxation and Accounting), 6.12 (Benefits), 6.13 (Expenses), 6.14 and
(Indemnification; Directors' and Officers' Insurance) shall survive the
consummation of the Merger. This Article IX and the agreements of the Company,
Parent and Merger Sub contained in Section 6.13 (Expenses), Section 6.17
(Funding Mechanism) and Section 8.5 (Effect of Termination and Abandonment)
shall survive the termination of this Agreement. All other representations,
warranties, agreements and covenants in this Agreement shall not survive the
consummation of the Merger or the termination of this Agreement.
9.2. Modification or Amendment. Subject to the provisions of applicable
law, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.
9.3. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (A) THIS AGREEMENT
SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties
hereby irrevocably submit to the jurisdiction of the courts of the State of New
York and the Federal courts of the United States of America located in the
Borough of Manhattan, The City of New York solely in respect of the
interpretation and enforcement of the provisions of this Agreement, the Stock
Option Agreement and the Voting Agreement and of the documents referred to in
this Agreement, the Stock Option Agreement and the Voting Agreement, and in
respect of the transactions contemplated hereby and thereby, and hereby waive,
and agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement, the Stock Option Agreement or the Voting Agreement or
any such document may not be enforced in or by such courts, and the parties
hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a New York State or Federal
court. The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 9.6 or in such other manner as may
be permitted by law, shall be valid and sufficient service thereof.
A-44
<PAGE> 129
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT, THE STOCK OPTION AGREEMENT OR THE VOTING AGREEMENT IS
LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH
PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE STOCK OPTION AGREEMENT OR THE
VOTING AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH
SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III)
EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT OR THE STOCK OPTION AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.5.
9.6. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to Parent or Merger Sub:
Richard T. Collier
Pharmacia & Upjohn, Inc.
95 Corporate Drive
Bridgewater, New Jersey 08807
fax: (908) 306-4489
with copies to:
Neil T. Anderson
Matthew G. Hurd
Morgan N. Neuwirth
Martin J. Travers
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
fax: (212) 558-3588
if to the Company:
Bruce E. MacMillan
SUGEN, Inc.
230 East Grand Avenue
South San Francisco, California 94080
fax: (650) 553-8342
A-45
<PAGE> 130
with copies to:
Alan C. Mendelson
Suzanne Sawochka Hooper
Gianna M. Bosko
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
fax: (650) 857-0663
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. Entire Agreement. This Agreement (including any exhibits and
schedules hereto), the Stock Option Agreement, the Company Confidentiality
Agreement and the Parent Confidentiality Agreement constitute the entire
agreement, and supersede all other prior agreements, understandings,
representations and warranties both written and oral, among the parties, with
respect to the subject matter hereof.
9.8. No Third Party Beneficiaries. Except as provided in Section 6.14
(Indemnification; Directors' and Officers' Insurance), this Agreement is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
9.9. Obligations of Parent and of the Company. Whenever this Agreement
requires a Subsidiary of Parent to take any action, such requirement shall be
deemed to include an undertaking on the part of Parent to cause such Subsidiary
to take such action. Whenever this Agreement requires a Subsidiary of the
Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary to take such
action and, after the Effective Time, on the part of the Surviving Corporation
to cause such Subsidiary to take such action.
9.10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
9.11. Specific Performance. The parties hereto each acknowledge that, in
view of the uniqueness of the subject matter hereof, the parties hereto would
not have an adequate remedy at law for money damages if this Agreement were not
performed in accordance with its terms, and therefore agree that the parties
hereto shall be entitled to specific enforcement of the terms hereof in addition
to any other remedy to which the parties hereto may be entitled at law or in
equity.
9.12. Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section, Schedule or Exhibit,
such reference shall be to a Section of or
A-46
<PAGE> 131
Schedule or Exhibit to this Agreement unless otherwise indicated. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation."
9.13. Assignment. This Agreement shall not be assignable by operation of
law or otherwise; provided, however, that Parent may designate, by written
notice to the Company, another wholly owned direct subsidiary to be a
Constituent Corporation in lieu of Merger Sub, in the event of which, all
references herein to Merger Sub shall be deemed references to such other
subsidiary except that all representations and warranties made herein with
respect to Merger Sub as of the date of this Agreement shall be deemed
representations and warranties made with respect to such other subsidiary as of
the date of such designation. Any purported assignment made in contravention of
this Agreement shall be null and void.
9.14. Captions. The Article, Section and paragraph captions herein are
for convenience of reference only and do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
A-47
<PAGE> 132
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
duly authorized officers of the parties hereto as of the date hereof.
SUGEN, INC.
By: /s/ STEPHEN EVANS-FREKE
-----------------------------------
Name: Stephen Evans-Freke
Title: Chairman of the Board and
Chief Executive Officer
PHARMACIA & UPJOHN, INC.
By: /s/ CHRISTOPHER J. COUGHLIN
-----------------------------------
Name: Christopher J. Coughlin
Title: Executive Vice President
UNIVERSITY ACQUISITION CORP.
By: /s/ MATS PETTERSSON
-----------------------------------
Name: Mats Pettersson
Title: Senior Vice President
A-48
<PAGE> 133
ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of June 15, 1999 (the "Agreement"),
between Pharmacia & Upjohn, Inc., a Delaware corporation (the "Grantee"), and
SUGEN, Inc., a Delaware corporation (the "Grantor").
WHEREAS, the Grantee, University Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of the Grantee ("Merger Sub"), and the Grantor are
entering into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), which provides, among other things, for the merger of
Merger Sub with and into Grantor (the "Merger");
WHEREAS, the Grantee and Merger Sub have requested that the Grantor grant
to the Grantee an option to purchase up to 3,372,255 shares of Common Stock, par
value $0.01 per share, of the Grantor (the "Common Stock"), on the terms and
subject to the conditions hereof; and
WHEREAS, the Grantor is willing to grant the Grantee the requested option.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Exercise; Adjustments; Payment of Spread; Repurchase Right.
(a) Contemporaneously herewith the Grantee, Merger Sub and the Grantor are
entering into the Merger Agreement. Subject to the other terms and conditions
set forth herein, the Grantor hereby grants to the Grantee an irrevocable option
(the "Option") to purchase up to 3,372,255 shares of Common Stock (the "Shares")
at a cash purchase price equal to $31.00 per share (the "Purchase Price"). The
Option may be exercised by the Grantee, in whole or in part, at any time, or
from time to time, following (but not prior to) the occurrence of the events set
forth in any of clauses (i), (ii), (iii) or (iv) of Section 2(d) hereof, and
prior to the Termination Date (as defined herein).
(b) In the event the Grantee wishes to exercise the Option, the Grantee
shall send a written notice to the Grantor (the "Stock Exercise Notice")
specifying the total number of Shares it wishes to purchase and a date (subject
to the expiration or termination of any applicable waiting period under the HSR
Act (as defined below)) not later than 10 business days and not earlier than
three business days following the date such notice is given for the closing of
such purchase. In the event of any change in the number of issued and
outstanding shares of capital stock of the Company (by reason of any stock
dividend, stock split, split-up, recapitalization, merger, issuance of capital
stock upon exercise of warrants or options or any other event), the number of
Shares subject to this Option and the purchase price per Share shall be
appropriately adjusted to restore the Grantee to its rights hereunder, including
its right to purchase Shares representing 19.9% of the capital stock of the
Grantor entitled to vote generally for the election of the directors of the
Grantor which is issued and outstanding immediately prior to the exercise of the
Option.
(c) If at any time the Option is then exercisable pursuant to the terms of
Section 1(a) hereof and at or prior to such time the termination fee referred to
in Section 8.5(b) of the Merger Agreement shall have become payable, the Grantee
may from time to time elect, in lieu of exercising the Option to purchase Shares
provided in Section 1(a) hereof, to send a written notice to the Grantor (a
"Cash Exercise Notice") specifying a date not later than 20 business days and
not earlier than 10 business days
B-1
<PAGE> 134
following the date such notice is given on which date the Grantor shall pay to
the Grantee an amount in cash (the "Cancellation Amount") equal to the Spread
(as hereinafter defined) multiplied by all or such portion of the Shares subject
to the Option as Grantee shall specify. As used herein "Spread" shall mean the
excess, if any, over the Purchase Price of the higher of (x) if applicable, the
highest price per share of Common Stock (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid or proposed to be paid by any
person pursuant to any Acquisition Proposal (as defined in the Merger Agreement)
occurring after the date of this Agreement and prior to the Termination Date
(the "Alternative Purchase Price") or (y) the average of the closing bid and
asked prices of the Common Stock on the Nasdaq National Market ("Nasdaq") or on
such other national securities on which the shares of the Grantor's common stock
are then listed on the last trading day immediately prior to the date of the
Cash Exercise Notice (the "Closing Price"). If the Alternative Purchase Price
includes any property other than cash, the Alternative Purchase Price shall be
the sum of (i) the fixed cash amount, if any, included in the Alternative
Purchase Price plus (ii) the fair market value of such other property. If such
other property consists of securities with an existing public trading market,
the average of the closing prices (or the average of the closing bid and asked
prices if closing prices are unavailable) for such securities in their principal
public trading market on the five trading days ending five days prior to the
date of the Cash Exercise Notice shall be deemed to equal the fair market value
of such property. If such other property consists of something other than cash
or securities with an existing public trading market and, as of the payment date
for the Spread, agreement on the value of such other property has not been
reached, the Alternative Purchase Price shall be deemed to equal the Closing
Price. Upon exercise of its right to receive cash pursuant to this Section 1(c),
the obligations of the Grantor to deliver Shares pursuant to Section 3 shall be
terminated with respect to such number of Shares for which the Grantee shall
have elected to be paid the Spread.
(d) At the request of the Grantor at any time during the 180-day period
commencing on each date on which the Option is exercised (the "Call Period"),
the Grantor may repurchase from the Grantee, and the Grantee shall sell to the
Grantor, any or all of the Shares acquired by the Grantee pursuant hereto as a
result of such exercise and with respect to which the Grantee has beneficial
ownership at the time of such repurchase at a price per share equal to the
Repurchase Price (defined below) per share in respect of the Shares so acquired
(such price per share multiplied by the number of Shares to be repurchased
pursuant to this Section 1(d) being herein called the "Repurchase
Consideration"). Each date on which the Grantor exercises its rights under this
Section 1(d) by delivering its request to the Grantee is referred to as a
"Grantor Request Date." "Repurchase Price" per share shall be the greater of (i)
the Purchase Price, and (ii) the average (rounded to the nearest cent, or if
there shall not be a nearest cent, to the next highest cent) of the volume
weighted averages (rounded to the nearest cent, or if there shall not be a
nearest cent, to the next highest cent) of the closing ask prices of one share
of Common Stock on Nasdaq as reported by Bloomberg Financial Markets (or such
other source as the parties shall agree in writing) for each of the Trading
Days. "Trading Days" means the Nasdaq trading days during the Call Period and
prior to the applicable Grantor Request Date. If the Grantor exercises its
rights under this Section 1(d), the Grantor shall, within five business days
after the applicable Grantor Request Date, pay the applicable Repurchase
Consideration in immediately available funds, and the Grantee shall surrender to
the Grantor certificates evidencing the Shares purchased hereunder, and the
Grantee shall warrant to the Grantor that, immediately prior to the repurchase
thereof
B-2
<PAGE> 135
pursuant to this Section 1(d), the Grantee had sole record and beneficial
ownership of such Shares and that such Shares were then held free and clear of
all encumbrances.
2. Conditions to Delivery of Shares. The Grantor's obligation to deliver
Shares upon exercise of the Option is subject only to the conditions that:
(a) no preliminary or permanent injunction or other order issued by
any federal or state court of competent jurisdiction prohibiting the
delivery of the Shares shall be in effect;
(b) any applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") shall have expired or
been terminated;
(c) the representations and warranties of the Grantee made in Section
5 of this Agreement shall be true and correct in all material respects as
of the date of the closing of the issuance of the Shares; and
(d) (i) in the event that (A) a bona fide Acquisition Proposal (as
defined in the Merger Agreement) shall have been made to the Company or any
of its subsidiaries or any of its stockholders or any person or entity
shall have announced an intention (whether or not conditional) to make an
Acquisition Proposal with respect to the Company or any of its
subsidiaries, and on or following the date of the Merger Agreement but
prior to the date of the Stockholders Meeting (as defined in the Merger
Agreement) such Acquisition Proposal, announcement or intention is or
becomes publicly known, and (B) on or following the date of the Merger
Agreement but prior to the time such Acquisition Proposal, announcement or
intention is or becomes publicly known, the occurrence of a Parent Material
Adverse Effect (as defined in the Merger Agreement) shall not have become
publicly known, and (C) on or following the date on which such Acquisition
Proposal, announcement or intention is or becomes publicly known, the
Merger Agreement is terminated by either the Grantee or the Grantor
pursuant to Section 8.2(ii) of the Merger Agreement, (ii) the Merger
Agreement is terminated by the Grantor pursuant to Section 8.3(a) of the
Merger Agreement; (iii) the Merger Agreement is terminated by the Grantee
pursuant to Section 8.4(a) of the Merger Agreement; or (iv) the Grantor
shall have delivered to Grantee the written notification pursuant to
Section 8.3(a)(ii) of the Merger Agreement and the Grantee shall have
notified the Grantor in writing that the Grantee does not intend to match
the Superior Proposal (as defined in the Merger Agreement) referred to in
such notification. As used in this Agreement, "person" shall have the
meaning specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
3. The Closing. (a) Any closing hereunder shall take place on the date
specified by the Grantee in its Stock Exercise Notice or Cash Exercise Notice or
as specified in Section 1(d), as the case may be, at 10:00 A.M., local time, at
the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York, or, if
the conditions set forth in Section 2(a), (b) or (c) have not then been
satisfied, on the second business day following the satisfaction of such
conditions, or at such other time and place as the parties hereto may agree (the
"Closing Date"). On the Closing Date, (i) in the event of a closing pursuant to
Section 1(b) hereof, the Grantor will deliver to the Grantee a certificate or
certificates, representing the Shares in the denominations designated by the
Grantee in its Stock Exercise Notice and the Grantee will purchase such Shares
from the Grantor at the price per Share equal to the Purchase Price; (ii) in the
event of a closing pursuant to Section 1(c) hereof, the Grantor will deliver to
the Grantee cash in an amount determined
B-3
<PAGE> 136
pursuant to Section 1(c) hereof; or (iii) in the event of a closing pursuant to
Section 1(d) hereof, the Grantor will deliver to the Grantee cash in an amount
determined pursuant to Section 1(d) hereof. Any payment made by the Grantee to
the Grantor, or by the Grantor to the Grantee, pursuant to this Agreement shall
be made by certified or official bank check or by wire transfer of federal funds
to a bank designated by the party receiving such funds.
(b) The Grantee agrees not to transfer or otherwise dispose of the Option
or the Shares, or any interest therein, except in compliance with the Securities
Act of 1933, as amended (the "Securities Act") and any applicable state
securities law. The Grantee further agrees that the certificates representing
the Shares shall bear an appropriate legend relating to the fact that such
Shares have not been registered under the Securities Act.
4. Representations and Warranties of the Grantor. The Grantor represents
and warrants to the Grantee that (a) the Grantor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to enter into and
perform this Agreement; (b) the execution and delivery of this Agreement by the
Grantor and the consummation by it of the transactions contemplated hereby have
been duly authorized by the Board of Directors of the Grantor and this Agreement
has been duly executed and delivered by a duly authorized officer of the Grantor
and constitutes a valid and binding obligation of the Grantor, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles; (c)
the Grantor has taken all necessary corporate action to authorize and reserve
the Shares issuable upon exercise of the Option and the Shares, when issued and
delivered by the Grantor upon exercise of the Option and paid for by the Grantee
as contemplated hereby, will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights; (d) except as otherwise required
by the HSR Act or the rules and regulations of Nasdaq, the execution and
delivery of this Agreement by the Grantor and the consummation by it of the
transactions contemplated hereby do not require the consent, waiver, approval or
authorization of or any filing with any person or public authority and will not
violate, result in a breach of or the acceleration of any obligation under, or
constitute a default under, any provision of the Grantor's certificate of
incorporation or bylaws, or any indenture, mortgage, lien, lease, agreement,
contract, instrument, order, rule, regulation, judgment, ordinance, or decree,
or restriction by which the Grantor or any of its subsidiaries or any of their
respective properties or assets is bound; (e) no "fair price", "moratorium",
"control share acquisition," "interested stockholder" or other form of
antitakeover statute or regulation (including but not limited to Section 203 of
the Delaware General Corporation Law) is or shall be applicable to the
acquisition of Shares pursuant to this Agreement; and (f) the Grantor has taken
all corporate action necessary so that any Shares acquired pursuant to this
Agreement shall not be counted for purposes of determining the number of shares
of Common Stock beneficially owned by the Grantee or any of its Affiliates or
Associates pursuant to the Rights Agreement (as defined in the Merger Agreement,
the terms "Affiliate" and "Associate" having the respective meanings ascribed to
them in the Rights Agreement).
5. Representations and Warranties of the Grantee. The Grantee represents
and warrants to the Grantor that (a) the Grantee is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to enter into and
perform this Agreement; (b) the execution and delivery of this Agreement by the
Grantee and the consummation by it of the
B-4
<PAGE> 137
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Grantee and this Agreement has been duly
executed and delivered by a duly authorized officer of the Grantee and
constitutes a valid and binding obligation of the Grantee, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles; and
(c) the Grantee is acquiring the Option and, if and when it exercises the
Option, will be acquiring the Shares issuable upon the exercise thereof for its
own account and not with a view to distribution or resale in any manner which
would be in violation of the Securities Act.
6. Listing of Shares; Filings; Governmental Consents. Subject to
applicable law and the rules and regulations of Nasdaq or such other national
securities exchange on which the shares of the Grantor's common stock are then
listed, after the Option becomes exercisable hereunder, the Grantor will
promptly file an application to list the Shares on Nasdaq or on such other
national securities exchange on which the shares of the Grantor's common stock
are then listed and will use its reasonable best efforts to obtain approval of
such listing and to effect all necessary filings by the Grantor under the HSR
Act; provided, however, that if the Grantor is unable to effect such listing on
Nasdaq by the Closing Date, the Grantor will nevertheless be obligated to
deliver the Shares upon the Closing Date. Each of the parties hereto will use
its reasonable best efforts to obtain consents of all third parties and
governmental authorities, if any, necessary to the consummation of the
transactions contemplated by this Agreement.
7. Registration Rights. (a) In the event that the Grantee shall desire to
sell any of the Shares within two years after the purchase of such Shares
pursuant to this Agreement, and such sale requires, in the opinion of counsel to
the Grantee, which opinion shall be reasonably satisfactory to the Grantor and
its counsel, registration of such Shares under the Securities Act, the Grantor
will cooperate with the Grantee and any underwriters (which underwriters must be
reasonably satisfactory to the Grantor) in registering such Shares for resale,
including, without limitation, promptly filing a registration statement which
complies with the requirements of applicable federal and state securities laws,
and entering into an underwriting agreement with such underwriters upon such
terms and conditions as are customarily contained in underwriting agreements
with respect to secondary distributions; provided that the Grantor shall not be
required to have declared effective more than two registration statements
hereunder and shall be entitled to delay the filing or effectiveness of any
registration statement and may suspend the use of any registration statement
(and related prospectus) for one or more periods of time not exceeding an
aggregate of 60 days in any one year period if the offering would, in the
judgment of the board of directors of the Grantor, require premature disclosure
of any material corporate development or material transaction involving the
Grantor or interfere with any previously planned securities offering by the
Grantor. In addition, upon receipt of notice of the happening of any event as a
result of which any registration statement, prospectus or prospectus supplement,
contains any untrue statements of material fact or fails or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not misleading
the Grantee shall forthwith discontinue the disposition of any Shares under such
registration statement, prospectus or prospectus supplement until the Grantee
receives from the Grantor copies (which subject to the limitations on suspension
set forth above shall promptly be made available by the Grantor) of an amended
or supplemented registration statement, prospectus or supplement so that, as
thereafter delivered to purchasers of such
B-5
<PAGE> 138
Shares, such registration statement, prospectus or prospectus supplement shall
not contain any untrue statement of material fact or fail or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(b) If the Common Stock is registered pursuant to the provisions of this
Section 7, the Grantor agrees (i) to furnish copies of the registration
statement and the prospectus relating to the Shares covered thereby in such
numbers as the Grantee may from time to time reasonably request and (ii) if any
event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep available for at least 45 days a prospectus covering the
Shares meeting the requirements of such securities laws, and to furnish the
Grantee such numbers of copies of the registration statement and prospectus as
amended or supplemented as may reasonably be requested. The Grantor shall bear
the cost of the registration, including, but not limited to, all registration
and filing fees, printing expenses, and fees and disbursements of counsel and
accountants for the Grantor, except that the Grantee shall pay the fees and
disbursements of its counsel, and the underwriting fees and selling commissions
applicable to the shares of Common Stock sold by the Grantee. The Grantor shall
indemnify and hold harmless (i) the Grantee, its affiliates and its officers and
directors and (ii) each underwriter and each person who controls any underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended (collectively, the "Underwriters") ((i) and (ii) being referred to as
"Indemnified Parties") against any losses, claims, damages, liabilities or
expenses, to which the Indemnified Parties may become subject, insofar as such
losses, claims, damages, liabilities (or actions in respect thereof) and
expenses arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained or incorporated by reference in any
registration statement filed pursuant to this paragraph, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Grantor will not be liable in any such
case to the extent that any such loss, liability, claim, damage or expense
arises out of or is based upon (A) an untrue statement or alleged untrue
statement in or omission or alleged omission from any such documents in reliance
upon and in conformity with written information furnished to the Grantor by the
Indemnified Parties expressly for use or incorporation by reference therein, or
(B) the fact that the person asserting any such loss, liability, claim, damage
or expense did not receive a copy of an amended preliminary prospectus or the
final prospectus (or the final prospectus as amended or supplemented) at or
prior to the written confirmation of the sale of the Shares to such person
because of the failure of the Grantee to so provide such amended preliminary or
final prospectus.
(c) The Grantee and the Underwriters shall indemnify and hold harmless the
Grantor, its affiliates and its officers and directors against any losses,
claims, damages, liabilities or expenses to which the Grantor, its affiliates
and its officers and directors may become subject, insofar as such losses,
claims, damages, liabilities (or actions in respect thereof) and expenses arise
out of or are based upon (i) any untrue statement of any material fact contained
or incorporated by reference in any registration statement filed pursuant to
this paragraph, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was
B-6
<PAGE> 139
made in reliance upon and in conformity with written information furnished to
the Grantor by the Grantee or the Underwriters, as applicable, specifically for
use or incorporation by reference therein, or (ii) the fact that the person
asserting any such loss, liability, claim, damage or expense did not receive a
copy of an amended preliminary prospectus or the final prospectus (or the final
prospectus as amended or supplemented) at or prior to the written confirmation
of the sale of the Shares to such person because of the failure of the Grantee
to so provide such amended preliminary or final prospectus.
(d) Promptly after receipt by an indemnified party under subsection (b) or
(c) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnified party shall settle any action or claim
without the consent of the indemnifying party, which consent shall not be
unreasonably withheld or delayed.
8. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specifically provided
herein.
9. Modification or Amendment. Subject to the provisions of applicable law,
the parties hereto may modify or amend this Agreement, by written agreement
executed and delivered by duly authorized officers of the respective parties.
10. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
11. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT
SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties
hereby irrevocably submit to the jurisdiction of the courts of the State of New
York and the Federal courts of the United States of America located in the
Borough of Manhattan, The City of New York solely in respect of the
interpretation and enforcement of the provisions of this Agreement, the Merger
Agreement and of the other documents referred to in this Agreement and the
Merger Agreement, and in respect of the transactions contemplated hereby and
thereby, and hereby waive, and agree not to assert, as a defense in any action,
suit or proceeding for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in said courts or that the venue
thereof may not be appropriate or that this Agreement, the Merger Agreement, or
any such document may
B-7
<PAGE> 140
not be enforced in or by such courts, and the parties hereto irrevocably agree
that all claims with respect to such action or proceeding shall be heard and
determined in such a New York State or Federal court. The parties hereby consent
to and grant any such court jurisdiction over the person of such parties and
over the subject matter of such dispute and agree that mailing of process or
other papers in connection with any such action or proceeding in the manner
provided in Section 12 or in such other manner as may be permitted by law, shall
be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT, THE COMPOUND AGREEMENT, THE STOCK OPTION AGREEMENT OR THE
VOTING AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE MERGER
AGREEMENT, THE OTHER DOCUMENTS REFERRED TO IN THIS AGREEMENT AND THE MERGER
AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH
SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III)
EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION 11.
12. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to the Grantee:
Richard T. Collier
Pharmacia & Upjohn, Inc.
95 Corporate Drive
Bridgewater, New Jersey 08807
fax: (908) 306-4489
with copies to:
Neil T. Anderson
Matthew G. Hurd
Morgan N. Neuwirth
Martin J. Travers
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
fax: (212) 558-3588
B-8
<PAGE> 141
if to the Grantor:
Bruce E. MacMillan
SUGEN, Inc.
230 East Grand Avenue
South San Francisco, California 94080
fax: (650) 553-8342
with copies to:
Alan C. Mendelson
Suzanne Sawochka Hooper
Gianna M. Bosko
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
fax: (650) 857-0663
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
13. Entire Agreement. This Agreement (including any exhibits and schedules
hereto), the Merger Agreement and the other documents referred to in this
Agreement and the Merger Agreement, constitute the entire agreement, and
supersede all other prior agreements, understandings, representations and
warranties both written and oral, among the parties, with respect to the subject
matter hereof.
14. No Third Party Beneficiaries. This Agreement is not intended to confer
upon any person or entity other than the parties hereto any rights or remedies
hereunder.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons or entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
16. Specific Performance. The parties hereto each acknowledge that, in
view of the uniqueness of the subject matter hereof, the parties hereto would
not have an adequate remedy at law for money damages if this Agreement were not
performed in accordance with its terms, and therefore agree that the parties
hereto shall be entitled to specific enforcement of the terms hereof in addition
to any other remedy to which the parties hereto may be entitled at law or in
equity.
17. Assignment. This Agreement shall not be assignable by operation of law
or otherwise; provided, however, that the Grantee may assign its rights and
obligations under this Agreement to any of its direct or indirect wholly owned
subsidiaries (including Merger Sub). Any purported assignment made in
contravention of this Agreement shall be null and void.
B-9
<PAGE> 142
18. Captions. The Section captions herein are for convenience of reference
only and do not constitute part of this Agreement and shall not be deemed to
limit or otherwise affect any of the provisions hereof.
19. Termination. (a) The right to exercise the Option granted pursuant to
this Agreement shall terminate at (and the Option shall no longer be exercisable
after) the earliest of (i) the Effective Time (as defined in the Merger
Agreement), (ii) the first anniversary of the earliest to occur of the events
set forth in any of clauses (i), (ii), (iii) or (iv) of Section 2(d), and (iii)
the fifteenth day following the termination of the Merger Agreement if prior to
such fifteenth day the events set forth in any of clauses (i), (ii), (iii) or
(iv) of Section 2(d) shall not have occurred (such earliest date being referred
to in this Agreement as the "Termination Date"); provided that, if the Option
cannot be exercised or the Shares cannot be delivered to the Grantee upon such
exercise because one or more of the conditions set forth in Section 2(a) or (b)
hereof have not yet been satisfied, the Termination Date shall be extended until
thirty days after such impediment to exercise or delivery has been removed.
(b) All representations and warranties contained in this Agreement shall
survive delivery of and payment for the Shares.
20. Profit Limitation. Notwithstanding any other provision of this
Agreement or the Merger Agreement, any Cancellation Amount shall be reduced (but
not below zero) to the extent necessary so that the sum of the portion of any
termination fee described in Section 8.5(b) of the Merger Agreement actually
paid to the Grantee (such portion actually paid, the "Termination Fee"), the
aggregate of all Cancellation Amounts paid to Grantee pursuant to this Agreement
and the cash proceeds actually received by the Grantee as the result of selling
Shares to a third party which acquires more than 50% of the Grantor's
outstanding voting securities (other than the Company or any of its affiliates)
shall not exceed $21,900,000. In no event shall (i) the sum of the aggregate
Cancellation Amounts paid to Grantee pursuant to this Agreement and the cash
proceeds actually received by the Grantee as the result of selling Shares to a
third party which acquires more than 50% of the Grantor's outstanding voting
securities (other than the Company or any of its affiliates) exceed $21,900,000,
or (ii) the sum of the Termination Fee, the aggregate Cancellation Amounts paid
to Grantee pursuant to this Agreement and the cash proceeds actually received by
the Grantee as the result of selling Shares to a third party which acquires more
than 50% of the Grantor's outstanding voting securities (other than the Company
or any of its affiliates) exceed $21,900,000.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
duly authorized officers of the parties hereto as of the date hereof.
SUGEN, INC.
By: /s/ STEPHEN EVANS-FREKE
-----------------------------------
Name: Stephen Evans-Freke
Title: Chairman and Chief
Executive
Officer
B-10
<PAGE> 143
PHARMACIA & UPJOHN, INC.
By: /s/ CHRISTOPHER J. COUGHLIN
-----------------------------------
Name: Christopher J. Coughlin
Title: Executive Vice President
UNIVERSITY ACQUISITION CORP.
By: /s/ MATS PETTERSSON
-----------------------------------
Name: Mats Pettersson
Title: Senior Vice President
B-11
<PAGE> 144
ANNEX C
LEHMAN BROTHERS
June 15, 1999
Board of Directors
Sugen, Inc.
230 East Grand Avenue
South San Francisco, California 94080
Members of the Board:
We understand that Sugen, Inc. ("Sugen" or the "Company") has entered into
an agreement and plan of merger pursuant to which it will merge with and into a
subsidiary of Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn"). We further
understand that upon effectiveness of such merger, each share of Sugen common
stock will be exchanged for that number of shares of Pharmacia & Upjohn common
stock ("Exchange Ratio") determined by dividing $31.00 by the volume weighted
average trading price of such Pharmacia & Upjohn stock for the twenty trading
days ending on the third day prior to the Company's stockholders meeting to
approve such merger, provided, however, that if such average price shall be less
than $49.21875 then the Exchange Ratio shall be 0.62984 shares of Pharmacia &
Upjohn common stock for each share of Sugen stock, and if such average price
shall be greater than $60.15625 then the Exchange Ratio shall be 0.51533 shares
of Pharmacia & Upjohn common stock for each share of Sugen common stock (the
"Proposed Transaction"). The terms and conditions of the Proposed Transaction
are set forth in more detail in the Agreement and Plan of Merger, dated June 15,
1999, by and among Sugen and Pharmacia & Upjohn (the "Agreement").
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company's stockholders of the consideration to be offered to such stockholders
in the Proposed Transaction. We have not been requested to opine as to, and our
opinion does not in any manner address, the Company's underlying business
decision to proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) publicly available
information concerning the Company and Pharmacia & Upjohn that we believe to be
relevant to our analysis, including their respective Annual Reports on Form 10-K
for the year ended December 31, 1998 and Quarterly Reports on Form 10-Q for the
period ended March 31, 1999, (3) financial and operating information with
respect to the business, operations and prospects of the Company furnished to us
by the Company, (4) a trading history of the Company's common stock from May
1998 to the present and a comparison of that trading history with those of other
companies that we deemed relevant, (5) a trading history of Pharmacia & Upjohn's
common stock from May 1998 to the present and a comparison of that trading
history with those of other companies that we deemed relevant, (6) a comparison
of the historical financial results and present financial condition of the
Company with those of other companies that we deemed relevant, (7) a comparison
of the financial terms of the Proposed Transaction with the financial terms of
certain other
LEHMAN BROTHERS
3 WORLD FINANCIAL CENTER, NEW YORK, NY 10285
C-1
<PAGE> 145
Board of Directors
Sugen, Inc.
June 15, 1999
Page 2 of 3
transactions that we deemed relevant, (8) published estimates of third party
research analysts with respect to the future financial performance of Pharmacia
& Upjohn, (9) prior discussions held by the Company with third parties with
respect to a possible business combination with the Company and (10) the
Company's current cash flow forecast and limited cash position, its ability to
meet its liquidity requirements in the future and the potential alternatives
available to the Company to fund such requirements. In addition, we have had
discussions with the management of the Company concerning its business,
operations, assets, financial condition and prospects and have undertaken such
other studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company that they
are not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the financial projections of the
Company, upon advice of the Company we have assumed that such projections have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company. However, for purposes of our analysis, we
also have considered more conservative assumptions and estimates which resulted
in certain adjustments to the projections of the Company. We have discussed
these adjusted projections with the management of the Company and they have
consented to the use of such adjusted projections in performing our analysis. We
were not provided with, and did not have access to, any financial projections of
Pharmacia & Upjohn. Accordingly, upon advice of Pharmacia & Upjohn, we have
assumed that the published estimates of third party research analysts are a
reasonable basis upon which to evaluate the future financial performance of
Pharmacia & Upjohn and that Pharmacia & Upjohn will perform substantially in
accordance with such estimates. In arriving at our opinion, we have not
conducted a physical inspection of the properties and facilities of the Company
or Pharmacia & Upjohn and have not made or obtained any evaluations or
appraisals of the assets or liabilities of the Company or Pharmacia & Upjohn. In
addition, you have not authorized us to solicit, and we have not solicited, any
indications of interest from any third party with respect to a purchase of or
business combination with the Company. Upon advice of the Company and its legal
and accounting advisors, we have assumed that the Proposed Transaction will
qualify (i) for pooling-of-interests accounting treatment and (ii) as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended, and therefore as a tax-free transaction to the stockholders
of the Company. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
offered to the stockholders of the Company in the Proposed Transaction is fair
to such stockholders.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to
C-2
<PAGE> 146
Board of Directors
Sugen, Inc.
June 15, 1999
Page 3 of 3
indemnify us for certain liabilities that may arise out of the rendering of this
opinion. We also have performed various investment banking services for the
Company and PNU in the past and have received customary fees for such services.
In the ordinary course of our business, we actively trade in the securities of
the Company and Pharmacia & Upjohn for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
C-3
<PAGE> 147
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware (the "Delaware Law"), the Company's Certificate of
Incorporation includes a provision that eliminates the personal liability of a
director to the Company or its stockholders for monetary damages arising out of
the director's breach of his or her fiduciary duty of care, except as follows. A
director remains potentially liable for monetary damages (unless otherwise
permitted by applicable law) for (a) breach of the director's duty of loyalty to
the Company or its stockholders, (b) acts or omissions not in good faith or
which involve misconduct or a knowing violation of law, (c) an improper payment
of a dividend or an improper redemption or repurchase of the Company's stock (as
provided in Section 174 of the Delaware Law) or (d) any transaction from which a
director derives an improper personal benefit. Any repeal or modification of
this provision will not affect any right or protection of a director that exists
at the time of such repeal or modification.
Section 145 of the Delaware Law empowers a Delaware corporation to
indemnify any persons who are, or are threatened to be made, parties to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation) by reason of the fact that such person is or was
an officer, director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided that
such officer, director, employee or agent acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe his
or her conduct was unlawful. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him or
her against the expenses which such officer or director actually and reasonably
incurred.
Article VII of the bylaws of the Company provides in terms similar to those
of Section 145 of the Delaware Law that the Company shall have power and shall
be required to indemnify its directors and officers in accordance with the
Delaware Law.
Under the terms of various Directors and Officers Liability and Corporation
Reimbursement Liability Policies, the directors and officers of the Company are
insured, subject to applicable policy exclusions, limits and deductibles,
against any loss incurred in connection with any claim made against them or any
of them for any actual or alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or other act done or wrongfully attempted, or any
matter not excluded by the terms and conditions of the policy, claimed against
them solely by reason of their being directors or officers of the Company. The
foregoing statements are subject to the detailed provisions of such Policies.
The Company has entered into indemnification agreements with each of its
directors and officers. Such indemnification agreements provide that the Company
will pay certain
II-1
<PAGE> 148
amounts incurred by a director or officer in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, and specifically including actions by or in the
name of the Company (referred to as derivative suits), where the individual's
involvement is by reason of the fact that he or she is or was a director or
officer. Such amounts include, to the maximum extent permitted by law,
attorneys' fees, judgments, civil or criminal fines, settlement amounts, and
other expenses customarily incurred in connection with legal proceedings. Under
each indemnification agreement, a director or officer will not be indemnified if
he or she is found not to have 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
Company. Each indemnification agreement provides a number of procedures and
presumptions used in the determination of the right to indemnification, as well
as a requirement that in order to receive an advancement of expenses, the
director or officer must submit an undertaking to repay any expenses advanced on
his or her behalf with respect to which it is later determined the director or
officer was not entitled to receive. Each indemnification agreement is effective
for actions arising out of acts or omissions which may have occurred before or
after the execution of such indemnification agreement. The foregoing statements
are subject to the detailed provisions of such indemnification agreements.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of June 15, 1999,
among Pharmacia & Upjohn, Inc., University Acquisition Corp.
and SUGEN, Inc. (attached as Annex A to the Proxy
Statement/Prospectus contained in this Registration
Statement).
2.2 Stock Option Agreement, dated as of June 15, 1999, between
SUGEN, Inc. and Pharmacia & Upjohn, Inc. (attached as Annex
B to the Proxy Statement/Prospectus contained in this
Registration Statement).
3.1 Restated Certificate of Incorporation of Pharmacia & Upjohn,
Inc. (incorporated by reference to Exhibit 4.1 of Pharmacia
& Upjohn's Registration Statement on Form S-8 as filed May
3, 1996).
3.2 Amended bylaws of Pharmacia & Upjohn, Inc. (incorporated by
reference to Exhibit 3(ii) of Pharmacia & Upjohn's Annual
Report on Form 10-K for the fiscal year ended December 31,
1998).
4 Stockholder Protection Rights Agreement dated as of March 4,
1997 between Pharmacia & Upjohn, Inc. and First Chicago
Trust Company of New York (incorporated by reference to
Exhibit 1 of Pharmacia & Upjohn's Registration Statement on
Form 8-A dated March 5, 1997).
5 Opinion of Sullivan & Cromwell regarding the validity of the
shares of Pharmacia & Upjohn, Inc. Common Stock to be
registered under this Registration Statement.
8.1 Opinion of Sullivan & Cromwell regarding certain United
States federal income tax consequences of the Merger.
8.2 Opinion of Cooley Godward LLP regarding certain United
States federal income tax consequences of the Merger.
</TABLE>
II-2
<PAGE> 149
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
15 Awareness letter from PricewaterhouseCoopers LLP concerning
unaudited interim financial information.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Sullivan & Cromwell (contained in Exhibit 5).
23.4 Consent of Sullivan & Cromwell (contained in Exhibit 8.1).
23.5 Consent of Cooley Godward LLP (contained in Exhibit 8.2).
23.6 Consent of Lehman Brothers.
99.1 Opinion of Lehman Brothers (included as Annex C to the Proxy
Statement/ Prospectus contained in this Registration
Statement).
99.2 Form of Proxy for holders of SUGEN, Inc. Common Stock.
</TABLE>
(b) Financial Data Schedule.
Schedules are omitted because they either are not required or are not
applicable or because equivalent information has been included in the financial
statements, the notes thereto or elsewhere herein.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
that, for purposes of determining any liability under the Securities
Act of 1933, as amended (the "Securities Act"), each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
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 this form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of this form;
that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities 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 this registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, 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;
insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the
II-3
<PAGE> 150
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 Securities 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 Securities Act and will be governed by the final adjudication of such
issue;
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; and
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 this registration statement
when it became effective.
II-4
<PAGE> 151
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Pharmacia & Upjohn, Inc. has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Bridgewater, New Jersey, on July 30, 1999.
PHARMACIA & UPJOHN, INC.
By: /s/ FRED HASSAN
-----------------------------------
Name: Fred Hassan
Title: President and Chief
Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
POWER OF ATTORNEY
The undersigned directors and officers of Pharmacia & Upjohn, Inc. do
hereby constitute and appoint Fred Hassan, Christopher Coughlin and Richard
Collier, 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 offices, 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 Pharmacia & Upjohn 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 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.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ FRED HASSAN President and Chief July 30, 1999
- --------------------------------------------- Executive Officer and
Fred Hassan Director
/s/ CHRISTOPHER J. COUGHLIN Executive Vice President July 30, 1999
- --------------------------------------------- and Chief Financial
Christopher J. Coughlin Officer
(Principal Financial
Officer)
/s/ ROBERT G. THOMPSON Senior Vice President July 30, 1999
- --------------------------------------------- (Principal Accounting
Robert G. Thompson Officer)
/s/ RICHARD H. BROWN Director July 30, 1999
- ---------------------------------------------
Richard H. Brown
</TABLE>
II-5
<PAGE> 152
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ FRANK C. CARLUCCI Director July 30, 1999
- ---------------------------------------------
Frank C. Carlucci
/s/ GUSTAF A.S. DOUGLAS Director July 30, 1999
- ---------------------------------------------
Gustaf A.S. Douglas
/s/ M. KATHRYN EICKHOFF Director July 30, 1999
- ---------------------------------------------
M. Kathryn Eickhoff
/s/ J. SOREN GYLL Director July 30, 1999
- ---------------------------------------------
J. Soren Gyll
/s/ R.L. BERTHOLD LINDQUIST Director July 30, 1999
- ---------------------------------------------
R.L. Berthold Lindquist
/s/ OLOF G. LUND Director July 30, 1999
- ---------------------------------------------
Olof G. Lund
/s/ C. STEVEN MCMILLAN Director July 30, 1999
- ---------------------------------------------
C. Steven McMillan
/s/ WILLIAM U. PARFET Director July 30, 1999
- ---------------------------------------------
William U. Parfet
/s/ ULLA B. REINIUS Director July 30, 1999
- ---------------------------------------------
Ulla B. Reinius
/s/ BENGT SAMUELSSON Director July 30, 1999
- ---------------------------------------------
Bengt Samuelsson
</TABLE>
II-6
<PAGE> 153
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of June 15, 1999,
among Pharmacia & Upjohn, Inc., University Acquisition Corp.
and SUGEN, Inc. (attached as Annex A to the Proxy
Statement/Prospectus contained in this Registration
Statement).
2.2 Stock Option Agreement, dated as of June 15, 1999, between
SUGEN, Inc. and Pharmacia & Upjohn, Inc. (attached as Annex
B to the Proxy Statement/Prospectus contained in this
Registration Statement).
3.1 Restated Certificate of Incorporation of Pharmacia & Upjohn,
Inc. (incorporated by reference to Exhibit 4.1 of Pharmacia
& Upjohn's Registration Statement on Form S-8 as filed May
3, 1996).
3.2 Amended bylaws of Pharmacia & Upjohn, Inc. (incorporated by
reference to Exhibit (3)(ii) of Pharmacia & Upjohn's Annual
Report on Form 10-K for the fiscal year ended December 31,
1998).
4 Stockholder Protection Rights Agreement dated as of March 4,
1997 between Pharmacia & Upjohn, Inc. and First Chicago
Trust Company of New York (incorporated by reference to
Exhibit 1 of Pharmacia & Upjohn's Registration Statement on
Form 8-A dated March 5, 1997).
5 Opinion of Sullivan & Cromwell regarding the validity of the
shares of Pharmacia & Upjohn, Inc. Common Stock to be
registered under this Registration Statement.
8.1 Opinion of Sullivan & Cromwell regarding certain United
States federal income tax consequences of the Merger.
8.2 Opinion of Cooley Godward LLP regarding certain United
States federal income tax consequences of the Merger.
15 Awareness letter from PricewaterhouseCoopers LLP concerning
unaudited interim financial information.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Sullivan & Cromwell (contained in Exhibit 5).
23.4 Consent of Sullivan & Cromwell (contained in Exhibit 8.1).
23.5 Consent of Cooley Godward LLP (contained in Exhibit 8.2).
23.6 Consent of Lehman Brothers.
99.1 Opinion of Lehman Brothers (included as Annex C to the Proxy
Statement/ Prospectus contained in this Registration
Statement).
99.2 Form of Proxy for holders of SUGEN, Inc. Common Stock.
</TABLE>
II-7
<PAGE> 154
EXHIBIT 99.2
SUGEN, INC.
230 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James L. Knighton and Bruce E. MacMillan,
and each of them, with full power of substitution, as proxies to represent and
to vote, as specified below, all the shares of common stock of SUGEN, Inc., held
of record by the undersigned on July 29, 1999, at the Special Meeting of
Stockholders to be held on August 31, 1999 and at any adjournments,
postponements, continuations or reschedulings thereof. The undersigned hereby
revokes any previous proxies with respect to the matters covered in this proxy.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SUGEN STOCKHOLDERS VOTE
FOR ADOPTION OF THE MERGER AGREEMENT.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER SPECIFIED
BELOW. IF THIS CARD IS PROPERLY EXECUTED BUT NO VOTE IS SPECIFIED, THIS PROXY
WILL BE VOTED FOR ADOPTION OF THE MERGER AGREEMENT.
(continued on reverse side)
FOLD AND DETACH HERE
SUGEN, INC.
Please check the appropriate box on the voting card
to RSVP your attendance at the Special Meeting on August 31, 1999 at 10:00 a.m.
or phone SUGEN Investor Relations at (650) 553-8300
You can vote by completing, signing, dating and returning
the enclosed proxy card in the enclosed postage-paid envelope.
<PAGE> 155
Please mark your vote as indicated in this example: [X]
SUGEN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 1.
<TABLE>
<S> <C> <C> <C>
1. ADOPTION OF AGREEMENT AND PLAN OF MERGER,
DATED AS OF JUNE 15, 1999, AMONG SUGEN, [ ] FOR [ ] AGAINST [ ] ABSTAIN
INC., PHARMACIA & UPJOHN, INC. AND
UNIVERSITY ACQUISITION CORP.
</TABLE>
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS,
POSTPONEMENTS, CONTINUATIONS OR RESCHEDULINGS THEREOF. HOWEVER, NO PROXY THAT
IS VOTED AGAINST PROPOSAL 1 WILL BE VOTED IN FAVOR OF ADJOURNMENT,
POSTPONEMENT, CONTINUATION OR RESCHEDULING OF THE MEETING FOR THE PURPOSE OF
ALLOWING ADDITIONAL TIME TO SOLICIT ADDITIONAL VOTES OR PROXIES IN FAVOR OF
ADOPTION OF THE MERGER AGREEMENT.
CHECK HERE IF YOU PLAN TO ATTEND
THE SPECIAL MEETING: [ ]
Dated:
-------------------------------- ,
1999
--------------------------------
Signature (including title, if
any)
--------------------------------
Signature if held jointly
Please sign your name above
exactly as it appears hereon.
Joint owners should each sign.
When signing as attorney,
executor, administrator, trustee
or guardian, please give full
title as such. If a corporation,
please sign in full corporate
name by president or authorized
officer. If a partnership,
please sign in partnership name
by authorized person.
FOLD AND DETACH HERE
<PAGE> 1
EXHIBIT 5
[SULLIVAN & CROMWELL LETTERHEAD]
August 2, 1999
Pharmacia & Upjohn, Inc.,
95 Corporate Drive,
Bridgewater, New Jersey 08807.
Dear Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933
(the "Act") of 14,923,657 shares of Common Stock, par value $.01 per share (the
"Shares"), of Pharmacia & Upjohn, Inc., a Delaware corporation (the "Company"),
and the related stock purchase rights (the "Rights") issued pursuant to the
Stockholder Protection Rights Agreement, dated as of March 7, 1997 (the "Rights
Agreement"), between the Company and Harris Trust & Savings Bank, as Rights
Agent (the "Rights Agent"), we, as your counsel, have examined such corporate
records, certificates and other documents, and such questions of law, as we
have considered necessary or appropriate for the purposes of this opinion. Upon
the basis of such examination, we advise you that, in our opinion:
(1) The Shares have been duly authorized and, upon compliance with
the exchange procedures set forth in Section 4.2(b) of the Merger
Agreement, dated as of
<PAGE> 2
Pharmacia & Upjohn, Inc. -2-
June 15, 1999 (the "Merger Agreement"), among SUGEN, Inc., the Company and
University Acquisition Corp. (the "Exchange Procedures"), the Shares will
be validly issued, fully paid and nonassessable.
(2) The issuance of the Rights has been duly authorized by the
Company.
(3) Assuming that the Board of Directors of the Company, after fully
informing itself as to matters relating to the Rights Agreement and the
Rights and after giving due consideration to all relevant matters,
determined that the execution and delivery of the Rights Agreement and the
issuance of Rights thereunder would be in the best interests of the Company
and its stockholders, and assuming further that the Rights Agreement has
been duly authorized, executed and delivered by the Rights Agent, then upon
compliance with the Exchange Procedures, the Rights will be validly issued.
In connection with our opinion set forth in paragraph (2) above, we
note that the question whether the Board of Directors of the Company might be
required to redeem the Rights at some future time will depend upon facts and
circumstances
<PAGE> 3
Pharmacia & Upjohn, Inc. -3-
existing at that time and, accordingly, is beyond the scope of such opinion.
The foregoing opinion is limited to the Federal laws of the United
States and the General Corporation Law of the State of Delaware, and we are
expressing no opinion as to the effect of the laws of any other jurisdiction.
We have relied as to certain matters on information obtained from
public officials, officers of the Company and other sources believed by us to
be responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Shares and the Rights and to the
reference to us under the heading "Validity of Shares" in the Proxy
Statement/Prospectus relating to the Shares and the Rights. In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Act.
Very truly yours,
/s/ Sullivan & Cromwell
<PAGE> 1
Exhibit 8.1
August 2, 1999
Pharmacia & Upjohn, Inc.,
95 Corporate Drive,
Bridgewater, New Jersey 08807-1265.
Ladies and Gentlemen:
We have acted as counsel to Pharmacia & Upjohn, Inc. in connection with
the Registration Statement on Form S-4 of SUGEN, Inc. filed with the Securities
and Exchange Commission on August 2, 1999 and hereby confirm to you our opinion
set forth under the heading "Material Federal Income Tax Consequences" in the
Proxy Statement/Prospectus included in the Registration Statement, subject to
the assumptions set forth under such heading.
We hereby consent to the filing with the Securities and Exchange
Commission of this letter as an exhibit to the Registration Statement and to
the reference to us under the caption "Material Federal Income Tax
Consequences" in the Registration Statement and the Proxy Statement/Prospectus
included therein. In giving such consent, we do not thereby admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Sullivan & Cromwell
<PAGE> 1
EXHIBIT 8.2
[COOLEY GODWARD LLP LETTERHEAD]
August 2, 1999
SUGEN, Inc.
515 Galveston Drive
Redwood City, CA 94063
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Form S-4
Registration Statement (the "Registration Statement") filed pursuant to the
Agreement and Plan of Merger dated as of June 15, 1999, (the "Reorganization
Agreement") by and among Pharmacia & Upjohn, Inc., a Delaware corporation
("Parent"), University Acquisition Corp., a Delaware corporation and wholly
owned subsidiary of Parent ("Merger Sub"), and SUGEN, Inc., a Delaware
corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined, and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents (including all exhibits and
schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters dated July 30, 1999,
delivered to us by Parent, Merger Sub and the Company containing certain
representations of Parent, Merger Sub and the Company (the "Tax Representation
Letters"); and
(c) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and related to
the consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
1. Original documents submitted to us (including signatures thereto)
are authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
<PAGE> 2
SUGEN, Inc.
August 2, 1999
Page Two
2. All representations, warranties and statements made or agreed to by
Parent, Merger Sub and the Company, their managements, employees, officers,
directors and shareholders in connection with the Merger, including, but not
limited to, those set forth in the Reorganization Agreement (including the
exhibits thereto) and the Tax Representation Letters are true and accurate at
all relevant times;
3. All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
4. The Merger will be consummated in accordance with the terms of the
Reorganization Agreement, will be effective under the laws of the State of
Delaware, and will be reported by Parent and the Company on their respective
federal income tax returns in a manner consistent with the opinion set forth
below;
5. All classes of Company stock are properly classified as equity and
all Company instruments denominated as indebtedness are properly classified as
debt under Section 385 of the Code; and
6. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that, for federal income tax purposes, the Merger will be a reorganization
within the meaning of Section 368(a)(1) of the Code.
In addition to your request for our opinion on this specific matter of federal
income tax law, you have asked us to review the discussion of federal income tax
issues contained in the Registration Statement. We have reviewed the discussion
entitled "The Merger - Material Federal Income Tax Consequences" contained in
the Registration Statement and believe that, insofar as it relates to statements
of law and legal conclusions, it is correct in all material respects.
We consent to the references to our firm under the captions "The Merger -
Material Federal Income Tax Consequences" in the Proxy Statement included in the
Registration Statement and to the filing of this opinion as an exhibit to the
Registration Statement.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein. Furthermore, this opinion only
relates to the holders of Company
<PAGE> 3
SUGEN, Inc.
August 2, 1999
Page Three
capital stock who hold such stock as a capital asset. No opinion is expressed as
to the federal income tax treatment that may be relevant to a particular
investor in light of personal circumstances or to certain types of investors
subject to special treatment under the federal income tax laws (for example,
stockholders who are dealers in securities, banks, insurance companies or
tax-exempt organizations, who are subject to the alternative minimum tax
provisions of the Code, who are non-United States persons, who acquired their
shares of Company capital stock in connection with stock option or stock
purchase plans or in other compensatory transactions, or who hold their Company
capital stock as a hedge or as part of a hedging, straddle, conversion or other
risk reduction transaction).
No opinion is expressed as to any transaction other than the Merger as described
in the Reorganization Agreement, or as to any other transaction whatsoever,
including the Merger, if all of the transactions described in the Reorganization
Agreement are not consummated in accordance with the terms of the Reorganization
Agreement and without waiver of any material provision thereof. To the extent
that any of the representations, warranties, statements and assumptions material
to our opinion and upon which we have relied are not accurate and complete in
all material respects at all relevant times, our opinion would be adversely
affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes or interpretations would
not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered solely in connection with the Registration
Statement. It is intended for the benefit of Parent and Merger Sub and may not
be relied upon or utilized for any
<PAGE> 4
SUGEN, Inc.
August 2, 1999
Page Four
other purpose or by any other person and may not be made available to any other
person without our prior written consent.
Sincerely,
COOLEY GODWARD LLP
/s/ Susan Cooper Philpot
Susan Cooper Philpot
SCP.ls
<PAGE> 1
[PRICEWATERHOUSECOOPERS LETTERHEAD]
Exhibit 15
August 2, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated April 27, 1999 on our review of interim
financial information of Pharmacia & Upjohn, Inc. (the "Company") as of and for
the period ended March 31, 1999 and included in the Company's quarterly report
on Form 10-Q for the quarter then ended is incorporated by reference in its
Registration Statement dated August 2, 1999.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Pharmacia & Upjohn, Inc. of our report dated February
10, 1999 relating to the financial statements, which appears in Pharmacia &
Upjohn, Inc.'s Annual Report to Shareholders, which is incorporated by reference
in its Annual Report on Form 10-K for the year ended December 31, 1998. We also
consent to the reference to us under the heading "Independent Accountants".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
August 2, 1999
<PAGE> 1
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) of Pharmacia & Upjohn, Inc. for the
registration of shares of its common stock, and in the related Proxy Statement/
Prospectus of SUGEN, Inc. We also consent to the incorporation by reference
therein of our report dated February 5, 1999, except for Note 13 as to which
the date is March 24, 1999, with respect to the financial statements and
schedule of SUGEN, Inc. included in its Annual Report (Form 10-K/A) for the
year ended December 31, 1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Palo Alto, California
August 2, 1999
<PAGE> 1
Exhibit 23.6
CONSENT OF LEHMAN BROTHERS
--------------------------
We hereby consent to the use of our opinion letter dated June 15, 1999,
to the Board of Directors of SUGEN, Inc. (the "Company") attached as Appendix C
to the Company's Joint Proxy Statement/Prospectus on Form S-4 (the "Prospectus")
and to the references to our firm in the Prospectus under the headings "The
Merger--Background of the Merger" and "The Merger--SUGEN's Reason for the
Merger; Recommendation of the SUGEN Board." In giving such consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder and we do not
thereby admit that we are experts with respect to any part of the Registration
Statement under the meaning of the term "expert" as used in the Securities Act.
LEHMAN BROTHERS INC.
By: /s/ Randolph Stuzin
-------------------------------
Randolph Stuzin
New York, New York
August 2, 1999
<PAGE> 1
EXHIBIT 99.2
SUGEN, INC.
230 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James L. Knighton and Bruce E. MacMillan,
and each of them, with full power of substitution, as proxies to represent and
to vote, as specified below, all the shares of common stock of SUGEN, Inc., held
of record by the undersigned on July 29, 1999, at the Special Meeting of
Stockholders to be held on August 31, 1999 and at any adjournments,
postponements, continuations or reschedulings thereof. The undersigned hereby
revokes any previous proxies with respect to the matters covered in this proxy.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SUGEN STOCKHOLDERS VOTE
FOR ADOPTION OF THE MERGER AGREEMENT.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER SPECIFIED
BELOW. IF THIS CARD IS PROPERLY EXECUTED BUT NO VOTE IS SPECIFIED, THIS PROXY
WILL BE VOTED FOR ADOPTION OF THE MERGER AGREEMENT.
(continued on reverse side)
FOLD AND DETACH HERE
SUGEN, INC.
Please check the appropriate box on the voting card
to RSVP your attendance at the Special Meeting on August 31, 1999 at 10:00 a.m.
or phone SUGEN Investor Relations at (650) 553-8300
You can vote by completing, signing, dating and returning
the enclosed proxy card in the enclosed postage-paid envelope.
<PAGE> 2
Please mark your vote as indicated in this example: [X]
SUGEN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 1.
<TABLE>
<S> <C> <C> <C>
1. ADOPTION OF AGREEMENT AND PLAN OF MERGER,
DATED AS OF JUNE 15, 1999, AMONG SUGEN, [ ] FOR [ ] AGAINST [ ] ABSTAIN
INC., PHARMACIA & UPJOHN, INC. AND
UNIVERSITY ACQUISITION CORP.
</TABLE>
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS,
POSTPONEMENTS, CONTINUATIONS OR RESCHEDULINGS THEREOF. HOWEVER, NO PROXY THAT
IS VOTED AGAINST PROPOSAL 1 WILL BE VOTED IN FAVOR OF ADJOURNMENT,
POSTPONEMENT, CONTINUATION OR RESCHEDULING OF THE MEETING FOR THE PURPOSE OF
ALLOWING ADDITIONAL TIME TO SOLICIT ADDITIONAL VOTES OR PROXIES IN FAVOR OF
ADOPTION OF THE MERGER AGREEMENT.
CHECK HERE IF YOU PLAN TO ATTEND
THE SPECIAL MEETING: [ ]
Dated:
-------------------------------- ,
1999
--------------------------------
Signature (including title, if
any)
--------------------------------
Signature if held jointly
Please sign your name above
exactly as it appears hereon.
Joint owners should each sign.
When signing as attorney,
executor, administrator, trustee
or guardian, please give full
title as such. If a corporation,
please sign in full corporate
name by president or authorized
officer. If a partnership,
please sign in partnership name
by authorized person.
FOLD AND DETACH HERE
