<PAGE> 1
Filed by Pharmacia & Upjohn, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: Pharmacia & Upjohn, Inc.
Commission File No. 001-11557
[MONSANTO LOGO] [Pharmacia & Upjohn LOGO]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The boards of directors of Monsanto Company and Pharmacia & Upjohn, Inc.
have approved a "merger of equals" of the two companies. We believe the combined
company will be able to create substantially more stockholder value than could
be achieved by the companies individually.
Our combined company will be named Pharmacia Corporation. Its corporate
headquarters, and the headquarters of its pharmaceutical business, will be
located in Peapack, New Jersey. Our agricultural business will retain the
Monsanto name and will be headquartered in St. Louis, Missouri.
Upon completion of the merger, holders of Pharmacia & Upjohn common stock
will receive 1.19 shares of common stock of the combined company for each share
of Pharmacia & Upjohn common stock they own,
and each share of Pharmacia & Upjohn Series A Convertible Perpetual Preferred
Stock will be converted into an equivalent share of a newly created class of
preferred stock of the combined company. Monsanto stockholders will continue to
own their existing shares after the merger.
Approximately 618 million shares of common stock of the combined company
will be issued to Pharmacia & Upjohn stockholders in the merger, based on the
number of shares of Pharmacia & Upjohn common stock outstanding on January 26,
2000. These shares will represent approximately 49% of the outstanding common
stock of the combined company after the merger. Monsanto shares held by Monsanto
stockholders before the merger will represent approximately 51% of the
outstanding common stock of the combined company after the merger.
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- ------------------------------------------------------ ------------------------------------------------------
We are asking MONSANTO stockholders to approve We are asking PHARMACIA & UPJOHN stockholders to
the issuance of shares in the merger and to adopt the merger agreement. A special meeting of
approve amendments to Monsanto's charter to PHARMACIA & UPJOHN stockholders will be held:
facilitate the merger. A special meeting of [Day], [Date], 2000
MONSANTO stockholders will be held: [Time], Local Time
[Day], [Date], 2000 [Location]
[Time], Local Time [Address]
[Location] [City, State]
[Address] PHARMACIA & UPJOHN'S BOARD OF DIRECTORS
[City, State] UNANIMOUSLY RECOMMENDS THAT PHARMACIA & UPJOHN
MONSANTO'S BOARD OF DIRECTORS UNANIMOUSLY STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER
RECOMMENDS THAT MONSANTO STOCKHOLDERS VOTE FOR AGREEMENT.
THE ISSUANCE OF COMMON STOCK AND PREFERRED STOCK
IN THE MERGER, AND FOR THE MONSANTO CHARTER
AMENDMENTS, BOTH TO FACILITATE THE MERGER.
- ------------------------------------------------------ ------------------------------------------------------
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ROBERT P. SHAPIRO
Robert B. Shapiro
Chairman and Chief Executive Officer,
Monsanto Company
FRED HASSAN
Fred Hassan
Chief Executive Officer,
Pharmacia & Upjohn, Inc.
CONSIDER THE RISKS DESCRIBED ON PAGES I-15 THROUGH I-19 OF THIS DOCUMENT.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the stock to be issued under this document or
determined if this document is accurate or adequate. Any representation to the
contrary is a criminal offense.
Joint proxy statement/prospectus dated --, 2000 and first mailed to stockholders
on --, 2000.
<PAGE> 2
[MONSANTO LOGO]
NOTICE OF SPECIAL MEETING
TO BE HELD ON [DAY], [DATE], 2000
To the Stockholders of Monsanto Company:
A special meeting of stockholders of Monsanto Company will be held on
[Day], [Date], 2000 at [Time] a.m., local time, at [Location], [Address],
[City], [State] for the following purposes:
1. To consider and vote upon a proposal to issue shares of common stock and
convertible perpetual preferred stock in connection with the merger
contemplated by the Agreement and Plan of Merger, dated as of December
19, 1999 (the "Merger Agreement"), among Monsanto, a subsidiary of
Monsanto and Pharmacia & Upjohn, Inc. as described in the attached
document; and
2. To consider and vote upon a proposal to amend Monsanto's certificate of
incorporation as provided in the Merger Agreement.
Holders of record of Monsanto common stock at the close of business on
[Date], 2000, will be entitled to vote at the Monsanto meeting or any
adjournment or postponement.
Admittance to the special meeting will be granted only to stockholders of
record and guests of management. If you hold your shares in street name, please
bring proof of share ownership for admittance.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR STOCK.
/s/ R. WILLIAM IDE III
----------------------
R. William Ide III
Secretary
[Date], 2000
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MONSANTO
MEETING, PLEASE COMPLETE, DATE AND RETURN YOUR PROXY CARD IN THE ENCLOSED
ENVELOPE PROMPTLY OR AUTHORIZE THE INDIVIDUALS NAMED ON YOUR PROXY CARD TO VOTE
YOUR SHARES BY CALLING TOLL-FREE 1-877-PRX-VOTE (1-877-779-8683) OR, IF OUTSIDE
THE U.S., CALLING 1-201-536-8073 OR USING THE INTERNET (www.eproxyvote.com/mtc)
BY FOLLOWING THE INSTRUCTIONS INCLUDED WITH YOUR PROXY CARD.
<PAGE> 3
[Pharmacia & Upjohn LOGO]
NOTICE OF SPECIAL MEETING
TO BE HELD ON [DAY], [DATE], 2000
To the Stockholders of Pharmacia & Upjohn, Inc.:
A special meeting of stockholders of Pharmacia & Upjohn, Inc. will be held
on [Day], [Date], 2000, at [Time] a.m., local time, at [Location], [Address],
[City], [State] to consider and vote upon a proposal to adopt the Agreement and
Plan of Merger, dated as of December 19, 1999, among Pharmacia & Upjohn,
Monsanto Company and a subsidiary of Monsanto as described in the attached
document.
Holders of record of Pharmacia & Upjohn common stock and Series A
convertible perpetual preferred stock at the close of business on [Date], 2000,
will be entitled to vote at the Pharmacia & Upjohn meeting or any adjournment or
postponement.
If you attend the meeting, you must register before entering. We will give
priority seating to shareholders of record, beneficial owners who have evidence
of ownership, or their authorized representatives, and guests of management. You
may bring one guest.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR STOCK AT THIS TIME.
Don W. Schmitz
Corporate Secretary
[Date], 2000
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE PHARMACIA &
UPJOHN MEETING, PLEASE COMPLETE, DATE AND RETURN YOUR PROXY CARD IN THE ENCLOSED
ENVELOPE PROMPTLY OR AUTHORIZE THE INDIVIDUALS NAMED ON YOUR PROXY CARD TO VOTE
YOUR SHARES BY CALLING 1-888-221-0693 (TOLL FREE) AND BY FOLLOWING THE
INSTRUCTIONS INCLUDED WITH YOUR PROXY CARD.
<PAGE> 4
TABLE OF CONTENTS
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CHAPTER ONE
THE MERGER........................... I-1
QUESTIONS AND ANSWERS ABOUT THE
MERGER.......................... I-1
SUMMARY............................ I-3
SUMMARY OF FINANCIAL INFORMATION... I-9
RISK FACTORS....................... I-15
THE MERGER......................... I-21
General............................ I-21
Background of the Merger........... I-21
Our Reasons for the Merger;
Recommendations of Our Boards of
Directors....................... I-25
Material Federal Income Tax
Consequences of the Merger...... I-27
Regulatory Matters Relating to the
Merger.......................... I-29
Appraisal Rights................... I-30
Federal Securities Laws
Consequences.................... I-30
Accounting Treatment............... I-31
Stock Exchange Listings............ I-32
Monsanto Charter Amendments........ I-32
Amended and Restated Bylaws........ I-33
INTERESTS OF OFFICERS AND DIRECTORS
IN THE MERGER................... I-35
Board of Directors and Management
of the Combined Company......... I-35
Other Agreements and Plans with
Respect to Executive Officers... I-36
Ownership of Common Stock; Stock
Options......................... I-40
Additional Information Concerning
the Designees to the Board of
Directors....................... I-40
THE MERGER AGREEMENT............... I-43
Structure of the Merger............ I-43
Timing of Closing.................. I-43
Merger Consideration............... I-43
Treatment of Pharmacia & Upjohn
Stock Options................... I-43
Exchange of Shares................. I-44
The Combined Company Board and
Related Matters................. I-44
Intended Agribusiness IPO.......... I-45
Covenants.......................... I-45
Representations and Warranties..... I-50
Conditions......................... I-51
Termination of the Merger
Agreement....................... I-52
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Fees and Expenses Payable Because
of a Termination of the Merger
Agreement....................... I-53
Amendments, Extensions and
Waivers......................... I-55
STOCK OPTION AGREEMENTS............ I-56
The Stock Options.................. I-56
When the Stock Options May Be
Exercised....................... I-56
Election to Repurchase Options..... I-57
Limitation on Total Profit......... I-57
Effect of Stock Option
Agreements...................... I-57
OPINIONS OF FINANCIAL ADVISORS..... I-58
Opinions of Financial Advisors to
Monsanto........................ I-58
Opinion of Goldman Sachs to
Monsanto........................ I-58
Opinion of Morgan Stanley to
Monsanto........................ I-66
Opinions of Financial Advisors to
Pharmacia & Upjohn.............. I-72
Opinion of Bear Stearns to
Pharmacia & Upjohn.............. I-73
Opinion of J.P. Morgan to Pharmacia
& Upjohn........................ I-83
CHAPTER TWO
FINANCIAL INFORMATION................ II-1
MARKET PRICE AND DIVIDEND
INFORMATION..................... II-1
MONSANTO COMPANY SELECTED FINANCIAL
DATA............................ II-3
PHARMACIA & UPJOHN, INC. SELECTED
FINANCIAL DATA.................. II-5
MONSANTO COMPANY AND PHARMACIA &
UPJOHN, INC. COMPARATIVE PER
SHARE DATA...................... II-6
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL
INFORMATION..................... II-8
CHAPTER THREE
INFORMATION ABOUT THE MEETINGS AND
VOTING RELATED TO THE MERGER....... III-1
Matters Relating to the Meetings... III-1
Vote Necessary to Approve Monsanto
and Pharmacia & Upjohn
Proposals....................... III-3
How to Vote by Proxy............... III-4
Other Business; Adjournments....... III-6
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CHAPTER FOUR
CERTAIN LEGAL INFORMATION............ IV-1
Summary of Material Differences
Between Current Rights of
Pharmacia & Upjohn and Monsanto
Stockholders and Rights Those
Stockholders Will Have as
Pharmacia Corporation
Stockholders Following the
Merger.......................... IV-1
DESCRIPTION OF MONSANTO CAPITAL
STOCK........................... IV-5
General............................ IV-5
Monsanto Common Stock.............. IV-5
Monsanto Preferred Stock........... IV-6
Description of Rights.............. IV-8
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Transfer Agent and Registrar....... IV-9
Stock Exchange Listing; Delisting
and Deregistration of Pharmacia
& Upjohn Common Stock........... IV-9
LEGAL MATTERS...................... IV-9
INDEPENDENT ACCOUNTANTS............ IV-9
CHAPTER FIVE
ADDITIONAL INFORMATION FOR
STOCKHOLDERS....................... V-1
FUTURE STOCKHOLDER PROPOSALS....... V-1
WHERE YOU CAN FIND MORE
INFORMATION..................... V-I
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ANNEXES
Annex A -- Agreement and Plan of
Merger
Annex B -- Monsanto Option Agreement
Annex C -- Pharmacia & Upjohn Option
Agreement
Annex D -- Opinion of Goldman, Sachs &
Co.
Annex E -- Opinion of Morgan Stanley &
Co. Incorporated
Annex F -- Opinion of Bear Stearns &
Co. Inc.
Annex G -- Opinion of J.P. Morgan
Securities Inc.
Annex H -- Charter Amendments
Annex I -- Amended and Restated Bylaws
Annex J -- Certificate of Designations
for Monsanto Series B
Convertible Perpetual
Preferred Stock
Annex K -- Section 262 of the Delaware
General Corporation Law
ii
<PAGE> 6
CHAPTER ONE
THE MERGER
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN IN THE MERGER?
A: We are proposing to combine our companies in a "merger of equals"
transaction. In most mergers of equals, one company becomes a subsidiary of
the other company. In our merger, Pharmacia & Upjohn will become a wholly
owned subsidiary of Monsanto. Monsanto will then change its name to Pharmacia
Corporation. Pharmacia & Upjohn stockholders will exchange their shares of
common stock and preferred stock for newly-issued shares of common stock and
preferred stock of the combined company and Monsanto stockholders will retain
their existing shares. We expect that upon completion of the merger, about
51% of the outstanding common stock of the combined company will be held by
former Monsanto stockholders and about 49% of the outstanding common stock of
the combined company will be held by former Pharmacia & Upjohn stockholders.
Q: WHEN ARE THE STOCKHOLDERS' MEETINGS?
A: Each company's meeting will take place on --, 2000. The location of each
meeting is specified on the cover page to this document.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope or vote by
telephone, as soon as possible, so that your shares may be represented at
your meeting. Monsanto stockholders may also vote using the Internet
(www.eproxyvote.com/mtc). In order to assure that we obtain your vote, please
give your proxy as instructed on your proxy card even if you currently plan
to attend your meeting in person.
MONSANTO'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT MONSANTO
STOCKHOLDERS VOTE FOR THE ISSUANCE OF COMMON STOCK AND PREFERRED STOCK IN THE
MERGER, AND FOR THE MONSANTO CHARTER AMENDMENTS, BOTH TO FACILITATE THE
MERGER.
PHARMACIA & UPJOHN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT PHARMACIA
& UPJOHN STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
Q: WHAT SHOULD I DO IF I WANT TO CHANGE MY VOTE?
A: Just send in a later-dated, signed proxy card to your company's Secretary or
vote again by telephone (or, alternatively, if you are a Monsanto
stockholder, by Internet) before your meeting. Or, you can attend your
meeting in person and vote. You may also revoke your proxy by sending a
notice of revocation to your company's Secretary at the address under
"Summary -- The Companies" on page I-3.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker will not be permitted to vote them. You
should therefore be sure to provide your broker with instructions on how to
vote your shares. Please check the voting form used by your broker to see if
it offers telephone or Internet voting.
If you do not give voting instructions to your broker, you will, in effect,
be voting against the merger unless you appear in person at your
stockholders' meeting and vote in favor of the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, we will send Pharmacia & Upjohn stockholders
written instructions for exchanging their share certificates. Monsanto
stockholders will keep their existing certificates.
I-1
<PAGE> 7
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: We do not expect any changes in the current dividend policies of either of
the companies before the merger. Pharmacia & Upjohn's current quarterly
dividend is $0.27 per share of Pharmacia & Upjohn common stock, or $1.08 per
share on an annual basis. Monsanto's current quarterly dividend is $.03 per
share of Monsanto common stock, or $0.12 per share on an annual basis. The
combined company's dividend policy will be set by its board of directors. One
alternative that the combined company's board of directors could pursue is to
set an initial dividend rate approximately equal to the average of Monsanto's
and Pharmacia & Upjohn's current dividend rates, so that the aggregate amount
of dividends paid by the combined company is approximately the same as the
aggregate amount of dividends paid by Monsanto and Pharmacia & Upjohn. The
amount of dividends will depend on a number of factors, including the
combined company's financial condition, capital requirements, results of
operations, future business prospects and other factors that the combined
company's board of directors may deem relevant.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are hoping to complete the merger as quickly as practicable. In addition
to stockholder approvals, we must also obtain regulatory approvals. We expect
to complete the merger during the second quarter of 2000.
Q: WHOM DO I CALL IF I HAVE QUESTIONS ABOUT THE MEETINGS OR THE MERGER?
A: Monsanto stockholders may call Georgeson Shareholder Communications Inc. at
1-800-223-2064. Pharmacia & Upjohn stockholders may call 1-800-735-3107.
I-2
<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 and for a more complete description of the legal terms of the
merger, you should carefully read this document and the documents we refer to.
See "Where You Can Find More Information" on page V-1.
THE COMPANIES
MONSANTO COMPANY
800 North Lindbergh Blvd.
St. Louis, Missouri 63167
(314) 694-1000
Monsanto is a life sciences company, committed to finding solutions to the
growing global needs for food and health by applying common forms of science and
technology to agriculture, nutrition and health. Monsanto makes, researches and
markets high-value agricultural products, pharmaceuticals and nutrition-based
health products.
PHARMACIA & UPJOHN, INC.
100 Route 206 North
Peapack, New Jersey 07977
(888) 768-5501
Pharmacia & Upjohn is a global innovation-driven pharmaceutical and health
care company. Pharmacia & Upjohn's products, services and employees demonstrate
its commitment to improve wellness and quality of life for people around the
world.
REASONS FOR THE MERGER
We believe the combined company will build upon our complementary sales
infrastructure and product portfolios in the U.S. and European pharmaceutical
markets. The combined company will have a world-class research and development
capability with a robust pipeline and an annual pharmaceutical research and
development budget of more than $2 billion to fund future growth. The new
company will also have one of the world's leading fully integrated agricultural
businesses that is expected to have the autonomy and strong capital structure to
enhance its growth prospects.
To review our reasons for the merger in greater detail, see pages I-25
through I-27.
OUR RECOMMENDATIONS TO STOCKHOLDERS
(See page I-25)
TO MONSANTO STOCKHOLDERS:
MONSANTO'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
ISSUANCE OF COMMON STOCK AND PREFERRED STOCK IN THE MERGER, AND THAT YOU VOTE
FOR THE MONSANTO CHARTER AMENDMENTS, BOTH TO FACILITATE THE MERGER.
TO PHARMACIA & UPJOHN STOCKHOLDERS:
PHARMACIA & UPJOHN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
THE MERGER
The merger agreement is attached as Annex A to this document. We urge you
to read the merger agreement as it is the principal legal document that governs
the merger.
WHAT PHARMACIA & UPJOHN STOCKHOLDERS WILL RECEIVE (SEE PAGE I-43)
As a result of the merger, Pharmacia & Upjohn stockholders will receive
1.19 shares of common stock of the combined company for each share of Pharmacia
& Upjohn common stock, and one share of an equivalent series of convertible
perpetual preferred stock of the combined company for each share of Pharmacia &
Upjohn convertible perpetual preferred stock.
The combined company will not issue any fractional shares. Instead, the
company will pay
I-3
<PAGE> 9
holders of Pharmacia & Upjohn common stock cash equal to the value of any
fractional shares based on the closing price for a share of common stock of
Monsanto on the New York Stock Exchange on the effective date of the merger or
the immediately preceding business day.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGE I-58)
In connection with the merger, Monsanto's board of directors received the
opinions of Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated,
Monsanto's financial advisors, to the effect that, as of December 19, 1999, the
exchange ratio of 1.19 shares of common stock of the combined company for each
share of Pharmacia & Upjohn common stock is fair, from a financial point of
view, to Monsanto. Pharmacia & Upjohn's board of directors received the opinions
of Bear Stearns & Co. Inc. and J.P. Morgan Securities Inc., Pharmacia & Upjohn's
financial advisors, to the effect that, as of December 19, 1999, the exchange
ratio is fair, from a financial point of view, to Pharmacia & Upjohn's
stockholders. These opinions, which are attached as Annexes D through G, set
forth assumptions made, matters considered and limitations on the review
undertaken in connection with the opinions. WE URGE YOU TO READ THESE OPINIONS
IN THEIR ENTIRETY.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE II-6)
Monsanto and Pharmacia & Upjohn common stock are both listed on the New
York Stock Exchange. On December 17, 1999, the last full trading day before the
announcement of the merger agreement, Monsanto common stock closed at $41.75 and
Pharmacia & Upjohn common stock closed at $50.25. On -- , 2000, the last full
trading day before the mailing of this document, Monsanto common stock closed at
$-- and Pharmacia & Upjohn common stock closed at $--.
LISTING OF COMMON STOCK OF THE COMBINED COMPANY
The common stock of the combined company will be listed on the New York
Stock Exchange under the ticker symbol "--". Monsanto and Pharmacia & Upjohn
have agreed to use their reasonable best efforts to have the common stock of the
combined company listed on the Stockholm Stock Exchange.
STOCKHOLDER VOTES REQUIRED (SEE PAGE III-3)
For Monsanto stockholders: Approval of the issuance of common stock and
convertible perpetual preferred stock in the merger requires the approval of the
holders of a majority of the shares present in person or represented by proxy at
the meeting. Approval of the Monsanto charter amendments requires the approval
of the holders of a majority of the outstanding shares of Monsanto common stock.
For Pharmacia & Upjohn stockholders: Adoption of the merger agreement
requires the approval of the holders of a majority of the total votes entitled
to be cast by holders of Pharmacia & Upjohn common stock and Pharmacia & Upjohn
convertible perpetual preferred stock, voting as a single class.
OWNERSHIP OF THE COMBINED COMPANY AFTER THE MERGER
The combined company will issue approximately 618 million shares of its
common stock to Pharmacia & Upjohn stockholders in the merger. These shares will
represent approximately 49% of the outstanding common stock of the combined
company. This information is based on the number of shares of Monsanto common
stock and Pharmacia & Upjohn common stock outstanding on -- , 2000 and does not
take into account the Monsanto or Pharmacia & Upjohn convertible perpetual
preferred stock, stock options or other equity-based awards or other
transactions involving the issuance of common stock, including acquisitions.
I-4
<PAGE> 10
BOARD AND BOARD COMMITTEES AFTER THE MERGER (SEE PAGE I-35 AND PAGE I-44)
After the merger, the board of directors of the combined company will have
twenty members, consisting of ten persons designated by Monsanto and ten persons
designated by Pharmacia & Upjohn. All committees of the board of directors of
the combined company will initially consist of an equal number of Monsanto and
Pharmacia & Upjohn designees.
EXECUTIVE OFFICERS (SEE PAGE I-44)
After the merger, we intend that Mr. Robert B. Shapiro of Monsanto will be
the non-executive chairman of the combined company's board of directors and Mr.
Fred Hassan of Pharmacia & Upjohn will be the chief executive officer of the
combined company. Eighteen months after the merger occurs, we intend that Mr.
Hassan will become both the chairman and chief executive officer of the combined
company unless otherwise determined at that time by the affirmative vote of 80%
of the directors of the combined company. Our plan is that after the merger, the
twenty most senior positions in the combined company, other than that of the
chairman and the chief executive officer, will be comprised of ten executives
from Monsanto and ten executives from Pharmacia & Upjohn.
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE I-35)
When you consider our boards of directors' recommendations that you vote in
favor of the relevant proposals, you should be aware that a number of our
officers and directors will be entitled to receive certain significant benefits
if the merger occurs that they will not be entitled to receive if the merger
does not occur.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE I-27)
A Pharmacia & Upjohn stockholder's receipt of common stock or convertible
perpetual preferred stock of the combined company in the merger generally will
be tax-free for United States federal income tax purposes, except for tax
resulting from the receipt of cash instead of any fractional share of the common
stock of the combined company. The companies themselves, as well as Monsanto
stockholders, will not recognize gain or loss as a result of the merger.
ACCOUNTING TREATMENT (SEE PAGE I-31)
We expect the merger to qualify as a pooling of interests, which means that
we will treat our companies as if they had always been combined for accounting
and financial reporting purposes. However, completion of the merger is not
conditioned on the merger qualifying for such accounting treatment.
APPRAISAL RIGHTS (SEE PAGE I-30)
Neither the holders of Pharmacia & Upjohn common stock nor the holders of
Monsanto common stock have any right to an appraisal of the value of their
shares in connection with the merger or the charter amendments. The holder of
Pharmacia & Upjohn convertible perpetual preferred stock has appraisal rights
for its shares if it complies with procedures required under Delaware law.
REGULATORY APPROVALS (SEE PAGE I-29)
Pursuant to the Hart-Scott-Rodino Act, the merger cannot be completed until
after we have given certain information and materials to the Federal Trade
Commission and a required waiting period has expired or been terminated. We
submitted pre-merger notification and report forms on January 19, 2000.
The merger is also subject to review under the competition laws of the
European Union. We have informally notified the European Commission of the
merger, and expect to make the required formal pre-merger filing in February
2000.
The merger may also be subject to regulatory review in jurisdictions other
than the U.S. and the EU.
I-5
<PAGE> 11
We are not required to effect the merger unless the regulatory conditions
to completion of the merger are satisfied.
CONDITIONS TO THE COMPLETION OF THE MERGER (SEE PAGE I-51)
The completion of the merger depends upon the meeting of a number of
conditions, including the following:
- approval of the share issuance and charter amendments by Monsanto's
stockholders and adoption of the merger agreement by Pharmacia & Upjohn's
stockholders;
- absence of any law or order issued by a court or governmental entity
prohibiting the merger;
- absence of any law or order issued by a court or governmental entity that
would reasonably be expected to have a material adverse effect on the
combined company after the merger;
- expiration or termination of the waiting period under the
Hart-Scott-Rodino Act and receipt of necessary European Community
approvals;
- receipt of all governmental approvals and consents required for the
parties to effect the merger, the failure of which to obtain would
reasonably be expected to have a material adverse effect on the combined
company after the merger;
- material accuracy as of closing of the representations and warranties
made by the parties and material compliance by the parties with their
obligations; and
- receipt of opinions of counsel to Monsanto and Pharmacia & Upjohn that
the merger will qualify as a tax-free reorganization.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE I-52)
Either Monsanto or Pharmacia & Upjohn can terminate the merger agreement if
any of the following occurs:
- we do not complete the merger by December 31, 2000; or
- a law or order is issued that permanently prohibits the merger or a law
or order is not issued that is necessary to effect the merger; or
- Monsanto stockholders do not approve the issuance of common stock and
convertible perpetual preferred stock in the merger or the proposed
amendments to the Monsanto charter or Pharmacia & Upjohn stockholders do
not adopt the merger agreement; or
- before the other party's stockholder vote, the other party approves or
recommends a superior proposal made by a third party; or
- before its stockholder vote, either party determines that a superior
proposal has been made by a third party; or
- either party's board of directors modifies its recommendation of the
merger in a manner adverse to the other party.
In addition, Monsanto can terminate the merger agreement if a third party
acquires 15% or more of Pharmacia & Upjohn's common stock, and Pharmacia &
Upjohn can terminate the merger agreement if a third party acquires 20% or more
of Monsanto's common stock.
Neither Monsanto nor Pharmacia & Upjohn can terminate the merger agreement
based on the reason that the merger is not completed by December 31, 2000, if
the reason that the merger has not occurred is because it is in breach of the
merger agreement.
Monsanto and Pharmacia & Upjohn can also both agree to terminate the merger
agreement. Neither Monsanto nor Pharmacia & Upjohn is allowed to unreasonably
withhold its
I-6
<PAGE> 12
consent to a termination request if the conditions to the completion of the
merger regarding the material accuracy of its representations and warranties or
its material compliance with its covenants in the merger agreement would not
reasonably be expected to be satisfied prior to December 31, 2000, through the
exercise of its reasonable best efforts.
TERMINATION FEES (SEE PAGE I-53)
Either Pharmacia & Upjohn or Monsanto will be required to pay the other a
fee of $575 million (less any termination fee previously paid) if:
- it terminates the merger agreement to accept a superior proposal from a
third party after giving the other party three days to renegotiate
another transaction with it;
- it fails to obtain stockholder approval of the merger and:
(a) prior to its meeting of its stockholders, its board of directors
receives a business combination proposal from a third party; and
(b) within 12 months of the termination of the merger agreement, it
enters into an agreement with any third party regarding a business
combination or completes a business combination;
- as a result of its board of directors, prior to its special meeting,
approving or recommending a superior proposal involving a third party,
the other party terminates the merger agreement;
- the other party terminates the merger agreement as a result of a third
party acquiring 15% of Pharmacia & Upjohn's common stock or 20% of
Monsanto's common stock;
- the merger is not completed by December 31, 2000 and:
(a) on or before December 31, 2000, it receives a business combination
proposal from a third party, and
(b) following such business combination proposal and prior to
termination of the merger agreement, it intentionally breaches any
of its covenants, which breach materially contributes to the
failure of the merger to be completed on or prior to December 31,
2000, and
(c) within 12 months of any such termination of the merger agreement,
it enters into an agreement with a third party regarding a
business combination or completes a business combination; or
- it or the other party terminates the merger agreement because its board
of directors adversely changed its recommendation of the merger and:
(a) at or before its change of recommendation it received a business
combination proposal, and
(b) within 12 months of the termination of the merger agreement, it
enters into an agreement with a third party regarding a business
combination or completes a business combination.
Either Pharmacia & Upjohn or Monsanto will be required to pay the other a
fee of $250 million if the merger agreement is terminated as a result of its
board of directors adversely changing its recommendation of the merger. This
amount will be credited against any subsequent payment of the $575 million fee
described above.
STOCK OPTION AGREEMENTS (SEE PAGE I-56 AND ANNEXES B AND C)
In connection with the merger agreement, Monsanto and Pharmacia & Upjohn
entered into reciprocal stock option agreements under which Monsanto granted to
Pharmacia &
I-7
<PAGE> 13
Upjohn an option to purchase 94,774,810 shares of Monsanto common stock
(approximately 14.9% of Monsanto's outstanding common stock) at a price of
$41.75 per share, and Pharmacia & Upjohn granted to Monsanto an option to
purchase 77,388,932 shares of Pharmacia & Upjohn common stock (approximately
14.9% of Pharmacia & Upjohn's outstanding common stock) at a price of $50.25 per
share. These exercise prices represent our closing stock prices on December 17,
1999, the last trading day prior to the public announcement of the execution of
the merger agreement. The option to buy Monsanto shares is exercisable by
Pharmacia & Upjohn under circumstances in which Monsanto is required to pay
Pharmacia & Upjohn aggregate termination fees in the amount of $575 million as
described above. The option to buy Pharmacia & Upjohn shares is exercisable by
Monsanto under circumstances in which Pharmacia & Upjohn is required to pay
Monsanto aggregate termination fees in the amount of $575 million as described
above.
The stock option agreements limit the amount of profit either party is
permitted to receive as a result of both the receipt of a termination fee and
the exercise of the option to $635 million in total. We have attached the stock
option agreements as Annexes B and C to this document.
THE MONSANTO CHARTER AMENDMENTS AND BYLAWS (SEE PAGE I-32 AND ANNEXES H AND I)
Monsanto stockholders are also being asked to approve the amendments to the
Monsanto certificate of incorporation that would:
- change Monsanto's name to Pharmacia Corporation,
- increase the number of authorized shares of common stock from one billion
to three billion,
- eliminate the current prohibition on Monsanto preferred stock having more
than one vote per share, and
- change the par value of Monsanto's authorized preferred stock from no par
value to $0.01 par value per share.
The charter amendments are attached as Annex H.
Pursuant to the merger agreement, the Monsanto board of directors will also
make amendments to the Monsanto bylaws to implement various governance
arrangements consistent with a merger of equals structure, such as board
composition and management of the combined company. These amended bylaws will be
the bylaws of the combined company and are attached as Annex I.
THE AGRIBUSINESS IPO
We intend to reorganize Monsanto's agribusiness as a separate business
under the Monsanto name and sell up to 19.9% of it in an initial public offering
soon after the merger. We contemplate that the agribusiness subsidiary will have
a sound capital structure.
I-8
<PAGE> 14
MONSANTO COMPANY SUMMARY SELECTED FINANCIAL DATA
The table below shows summary selected historical financial information for
Monsanto as of and for the years ended December 31, 1998, 1997, 1996, 1995 and
1994 and has been prepared using the audited consolidated financial statements
of Monsanto. The information as of and for the nine months ended September 30,
1999 has been prepared using the unaudited condensed consolidated financial
statements of Monsanto. This information is only a summary, and you should read
it in conjunction with Monsanto'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 V-1.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED AT DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------
1999 1998(1) 1997(2) 1996(3) 1995(4) 1994(5)
------------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net Sales......................... $ 6,804 $ 7,237 $ 6,058 $4,862 $4,165 $3,639
Income (Loss) from Continuing
Operations...................... 457 (131) 149 279 386 350
Income (Loss) from Discontinued
Operations(6)................... 69 (119) 321 106 353 272
Net Income (Loss)(7).............. 506 (250) 470 385 739 622
PER SHARE INFORMATION:
Income (Loss) from Continuing
Operations -- Basic............. $ 0.72 $ (0.22) $ 0.26 $ 0.48 $ 0.68 $ 0.61
Net Income (Loss) -- Basic....... 0.80 (0.41) 0.80 0.66 1.30 1.09
Income (Loss) from Continuing
Operations -- Diluted........... $ 0.70 $ (0.22) $ 0.24 $ 0.47 $ 0.67 $ 0.63
Net Income (Loss) -- Diluted...... 0.78 (0.41) 0.77 0.64 1.27 1.06
Dividends per share(8)............ $ 0.090 $ 0.120 $ 0.500 $0.588 $0.540 $0.494
YEAR-END FINANCIAL POSITION:
Total Assets...................... $15,983 $16,385 $10,517 $8,619 $8,008 $6,537
Long-Term Debt.................... 5,961 6,259 1,979 1,608 1,667 1,405
Shareowners' Equity............... 5,243 4,986 4,104 3,690 3,732 2,948
</TABLE>
- -------------------------
(1) Loss from continuing operations for 1998 included $610 million, or $1.01 per
share, for restructuring and special charges, write-offs for acquired
in-process research and development (R&D), and charges for the cancellation
of DEKALB stock options.
(2) Income from continuing operations for 1997 included $404 million, or $0.66
per share, for the write-off of acquired in-process R&D.
I-9
<PAGE> 15
(3) Income from continuing operations for 1996 included restructuring and other
unusual charges of $226 million, or $0.38 per share, associated with the
closure or rationalization of certain facilities, asset write-offs, and work
force reductions.
(4) Income from continuing operations for 1995 included restructuring expenses
and other unusual items of $63 million, $0.11 per share.
(5) Income from continuing operations for 1994 included a net aftertax gain for
restructuring and other unusual items of $20 million, or $0.03 per share.
(6) Includes the operations of the styrenics plastics business, chemicals
businesses, and the alginates business prior to their disposition in 1995,
1997 and 1999, respectively. The operations of the artificial sweeteners and
biogums businesses have also been included for all periods presented as a
result of management's decision during 1999 to exit these businesses.
(7) Net income for the nine months ended September 30, 1999 included a $20
million loss for a cumulative effect of a change in accounting principle.
(8) The quarterly common stock dividend was reduced from $0.16 per share to
$0.03 per share in the first quarter of 1997.
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<PAGE> 16
PHARMACIA & UPJOHN, INC. SUMMARY SELECTED FINANCIAL DATA
The table below shows summary selected historical financial information for
Pharmacia & Upjohn. The historical financial information as of and for the years
ended December 31, 1998, 1997, 1996, 1995 and 1994 has been prepared using the
audited consolidated financial statements of Pharmacia & Upjohn. The information
as of and for the nine months ended September 30, 1999 and 1998 has been
prepared using the unaudited condensed consolidated financial statements of
Pharmacia & Upjohn. 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 V-1.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1999(2) 1998(2) 1998(2) 1997(2) 1996(2) 1995(2) 1994(2)
------- ------- ------- ------- ------- ------- -------
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales............................ $ 5,310 $ 4,909 $ 6,758 $ 6,586 $ 7,176 $ 6,949 $ 6,704
Income from Continuing Operations.... 589 509 631 258 550 733 824
Income from Discontinued
Operations......................... 2
Net Income........................... 589 509 631 258 550 733 826
PER SHARE INFORMATION:
Income from Continuing Operations --
Basic.............................. $ 1.12 $ 0.97 $ 1.20 $ 0.48 $ 1.04 $ 1.41 $ 1.60
Net Income -- Basic................ 1.12 0.97 1.20 0.48 1.04 1.41 1.60
Income from Continuing Operations --
Diluted............................ $ 1.09 $ 0.95 $ 1.17 $ 0.48 $ 1.03 $ 1.39 $ 1.57
Net Income -- Diluted................ 1.09 0.95 1.17 0.48 1.03 1.39 1.57
Dividends declared per share(3)...... $ 0.81 $ 0.81 $ 1.08 $ 1.08 $ 1.08 $ 0.27 -
YEAR-END FINANCIAL POSITION:
Total Assets......................... $10,458 $10,308 $10,343 $10,457 $11,259 $11,536 $10,984
Long Term Debt(1).................... 339 565 513 651 823 870 953
Shareowner's Equity.................. 5,548 5,659 5,596 5,578 6,313 6,446 5,637
</TABLE>
- -------------------------
(1) Includes guarantee of ESOP debt. See Note 11 to the audited annual
consolidated financial statements incorporated by reference herein.
(2) Consolidated amounts for all periods presented have been restated
retroactively for the effects of the August 1999 merger with SUGEN, Inc.,
which was accounted for as a pooling of interests.
(3) Separate dividend information for Pharmacia AB and The Upjohn Company prior
to the November 1995 merger date has not been presented because this
information would not be meaningful.
I-11
<PAGE> 17
COMPARATIVE PER SHARE DATA
MARKET PRICE DATA
The table below presents the high and low closing prices per share of
Monsanto common stock and Pharmacia & Upjohn common stock on the New York Stock
Exchange on December 17, 1999, the last full trading day immediately preceding
the public announcement of the proposed merger, and on --, 2000, the last full
trading day before the mailing of this document, as well as the "equivalent
stock price" of shares of Pharmacia & Upjohn common stock on such dates. The
"equivalent stock price" of shares of Pharmacia & Upjohn common stock represents
the per share closing price for Monsanto's common stock on the New York Stock
Exchange at such specified date, multiplied by the exchange ratio of 1.19, which
is the number of shares of Monsanto common stock that a Pharmacia & Upjohn
stockholder would receive for each share of Pharmacia & Upjohn common stock.
Keep in mind that because of market price fluctuations the "equivalent stock
price" may be greater than or less than the value of the Monsanto common stock
and cash in lieu of fractional shares that a Pharmacia & Upjohn stockholder will
receive for each share of Pharmacia & Upjohn common stock in connection with the
merger. Pharmacia & Upjohn stockholders should obtain current market quotations
for the shares of Monsanto common stock and Pharmacia & Upjohn common stock
prior to making any decision with respect to the merger.
<TABLE>
<CAPTION>
PHARMACIA & PHARMACIA &
MONSANTO UPJOHN UPJOHN EQUIVALENT
COMMON STOCK COMMON STOCK STOCK PRICE
(DOLLARS PER (DOLLARS PER (DOLLARS PER
SHARE) SHARE) SHARE)
---------------- ---------------- ------------------
HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
December 17, 1999............... $42.88 $40.75 $54.06 $50.00 $51.03 $48.49
- --, 2000........................ $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
Following the consummation of the merger, shares of Pharmacia & Upjohn
common stock will cease to be traded on the New York Stock Exchange.
I-12
<PAGE> 18
SUMMARY UNAUDITED COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
Set forth below are the net income, cash dividends and book value per
common share data separately for Monsanto and Pharmacia & Upjohn on a historical
basis, for the combined company on a pro forma combined basis and on a pro forma
combined basis per Pharmacia & Upjohn equivalent share. The pro forma data for
the combined company was derived by combining the historical consolidated
financial information of Monsanto and Pharmacia & Upjohn using the pooling of
interests method of accounting for business combinations as described under
"Unaudited Pro Forma Condensed Combined Financial Information" beginning on page
II-8. The Pharmacia & Upjohn equivalent share pro forma information shows the
effect of the merger from the perspective of an owner of Pharmacia & Upjohn
common stock. The information was computed by multiplying the combined company's
pro forma per share information by the exchange ratio of 1.19. You should read
the information below together with our historical financial statements and
related notes contained in the annual reports and other information that we have
filed with the SEC and incorporated by reference. See "Where You Can Find More
Information" on page V-1. The unaudited pro forma combined data below is for
illustrative purposes only. The companies may have performed differently had
they always been combined. You should not rely on this information as being
indicative of the historical results that would have been achieved had the
companies always been combined or the future results that the combined company
will experience after the merger.
I-13
<PAGE> 19
<TABLE>
<CAPTION>
AS OF AND FOR
THE NINE
MONTHS
ENDED AS OF AND FOR THE YEAR
SEPTEMBER 30, ENDED DECEMBER 31,
-------------- ----------------------
1999 1998 1998 1997 1996
------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
MONSANTO HISTORICAL PER COMMON SHARE DATA:
Basic earnings per share -- continuing
operations........................................ $ 0.72 $0.47 $(0.22) $0.26 $0.48
Diluted earnings per share -- continuing
operations................................... 0.70 0.45 (0.22) 0.24 0.47
Dividends per common share...................... 0.09 0.09 0.12 0.50 0.59
Book value per common share..................... 8.26 -- 7.93 -- --
PHARMACIA & UPJOHN HISTORICAL PER COMMON SHARE
DATA:
Basic earnings per share -- continuing
operations................................... $ 1.12 $0.97 $ 1.20 $0.48 $1.04
Diluted earnings per share -- continuing
operations................................... 1.09 0.95 1.17 0.48 1.03
Dividends per common share...................... 0.81 0.81 1.08 1.08 1.08
Book value per common share..................... 10.71 -- 10.81 -- --
UNAUDITED PRO FORMA COMBINED:
Basic earnings per share -- continuing
operations................................... $ 0.83 $0.64 $ 0.40 $0.33 $0.68
Diluted earnings per share -- continuing
operations................................... 0.81 0.62 0.39 0.32 0.67
Dividends per common share(1)...................
Book value per common share..................... 8.56 -- 8.43 -- --
UNAUDITED PRO FORMA COMBINED PER PHARMACIA &
UPJOHN EQUIVALENT SHARE:
Basic earnings per share -- continuing
operations................................... $ 0.99 $0.76 $ 0.48 $0.39 $0.81
Diluted earnings per share -- continuing
operations................................... 0.96 0.74 0.46 0.38 0.80
Dividends per common share(1)...................
Book value per common share..................... 10.19 -- 10.03 -- --
</TABLE>
- ---------------
(1) Monsanto's current quarterly dividend is $0.03 per share of common stock
($0.12 per share annualized) and is subject to future approval and
declaration of the board of directors of Monsanto. Pharmacia & Upjohn's
current quarterly dividend is $0.27 per share of common stock ($1.08 per
share annualized) and is subject to future approval and declaration by the
board of directors of Pharmacia & Upjohn. The combined company's dividend
policy will be set by its board of directors. One alternative that the
combined company's board of directors could pursue is to set an initial
dividend rate approximately equal to the average of Monsanto's and
Pharmacia's current dividend rates, so that the aggregate amount of
dividends paid by the combined company is approximately the same as the
aggregate amount of dividends paid by Monsanto and Pharmacia & Upjohn. The
amount of dividends will depend on a number of factors, including the
combined company's financial condition, capital requirements, results of
operations, future business prospects and other factors that the company's
board of directors may deem relevant.
I-14
<PAGE> 20
RISK FACTORS
You should consider the following risk factors in determining how to vote
at the meeting.
MONSANTO COMMON STOCK COULD EXPERIENCE FLUCTUATIONS IN PRICE WHICH COULD AFFECT
THE VALUE OF SHARES ISSUED TO PHARMACIA & UPJOHN STOCKHOLDERS
Recently, the stock market and Monsanto common stock have experienced price
and volume fluctuations. The broad market fluctuations may adversely affect the
market price of Monsanto common stock. The value of one share of the common
stock of the combined company on the date on which the merger is completed, the
date that Pharmacia & Upjohn stockholders receive shares of stock of the
combined company or the date the stockholders eventually sell their stock of the
combined company may be significantly different than the price of 1.19 shares of
Monsanto common stock today. Pharmacia & Upjohn stockholders are advised to
obtain recent market quotations for Monsanto common stock. Neither company may
terminate the merger agreement or elect not to complete the merger solely
because of changes in their stock prices.
WE MAY BE UNABLE TO SUCCESSFULLY INTEGRATE OUR OPERATIONS AND REALIZE THE FULL
COST SAVINGS WE ANTICIPATE
The merger involves the integration of two companies that have previously
operated independently. The difficulties of combining the companies' operations
include:
- the necessity of coordinating geographically separated organizations;
- integrating personnel with diverse business backgrounds; and
- combining different corporate cultures.
The process of integrating operations could cause an interruption of, or
loss of momentum in, the activities of one or more of the combined company's
businesses and the loss of key personnel. The diversion of management's
attention and any delays or difficulties encountered in connection with the
merger and the integration of the two companies' operations could have an
adverse effect on the business, results of operations or financial condition of
the combined company.
Among the factors considered by the Pharmacia & Upjohn and the Monsanto
boards of directors in connection with their respective approvals of the merger
agreement were the opportunities for economies of scale and operating
efficiencies that could result from the merger. We cannot give any assurance
that these savings will be realized within the time periods contemplated or
realized at all.
WE WILL INCUR SIGNIFICANT MERGER-RELATED AND INTEGRATION-RELATED EXPENSES
A one-time charge for direct incremental merger-related transaction costs
will be recorded in the quarter in which the merger is consummated. The direct
incremental merger-related transaction costs consist principally of charges
related to investment banking fees, professional services, registration and
other regulatory costs (approximately $110 million) and stock compensation
arrangements (approximately $70 million before tax). The charges for stock
compensation arrangements consist of accounting charges related to certain
Monsanto stock options which were granted with exercise prices above the fair
market value of Monsanto common stock on the date such options were granted.
Pursuant to the terms of these options, at consummation of the merger, the
exercise price of such options will be reduced to equal the fair market value of
Monsanto common stock on the date of grant. We expect to incur pre-tax charges
to operations, currently estimated to be between $500 and $800 million, to
reflect costs associated with combining the operations of the two companies.
These costs will be recorded subsequent to consummation of the merger. These
amounts are preliminary estimates and are therefore subject to change.
Additional unanticipated expenses may be
I-15
<PAGE> 21
incurred in the integration of our businesses. Although we expect that the
elimination of duplicative expenses as well as the realization of other
efficiencies related to the integration of the businesses may result in cost
savings, we cannot assure you that these benefits will be achieved in the near
term or at all.
OBTAINING REQUIRED REGULATORY APPROVALS MAY DELAY CONSUMMATION OF THE MERGER
Consummation of the merger is conditioned upon the receipt of all material
governmental authorizations, consents, orders and approvals, including the
expiration or termination of the applicable waiting periods, and any extension
of the waiting periods, under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and approval by the European Commission. We intend to vigorously pursue
all required regulatory approvals. The requirement for these approvals could
delay the consummation of the merger for a significant period of time after our
stockholders have approved the proposals relating to the merger at the special
meetings. See "The Merger -- Regulatory Matters Relating to Merger" on page I-29
for a description of the regulatory approvals necessary in connection with the
merger.
WE CANNOT ASSURE STOCKHOLDERS OF THE TIMING OF OR PROCEEDS FROM THE MONSANTO
AGRIBUSINESS IPO
Although we intend to complete an initial public offering of Monsanto's
agribusiness as soon as practical after the merger, the timing, proceeds and
consummation of the intended IPO are subject to a variety of uncertainties,
including market conditions. Therefore, we cannot give any assurances as to the
proceeds from, or the timing or consummation of, the agribusiness IPO.
WE FACE INTENSE COMPETITION FROM NEW PRODUCTS AND FROM LOWER-COST GENERIC
PRODUCTS
The pharmaceutical and agricultural industries are highly competitive and
rapidly changing. Our principal competitors are major international corporations
with substantial resources for research and development, production and
marketing.
Our products that are under patent protection face intense competition from
competitors' proprietary products. This competition may increase as new products
enter the market. We also face increasing competition from lower-cost generic
products after patents on our products expire. For example, the family of
Roundup(R) herbicides is a major product line for Monsanto's agribusiness. These
herbicides are likely to face increasing competition from generic products.
Patents protecting Roundup(R) in several countries expired in 1991. Compound per
se patent protection for the active ingredient in Roundup(R) herbicide expires
in the United States in September 2000.
As new products enter the market, our products may become obsolete or our
competitors' products may be more effective or more effectively marketed and
sold than our products.
If the combined company fails to maintain its competitive position, this
could have a material adverse effect on its business and results of operations.
OUR RESEARCH AND DEVELOPMENT EFFORTS MAY NOT SUCCEED OR OUR COMPETITORS MAY
DEVELOP MORE EFFECTIVE OR SUCCESSFUL PRODUCTS
In order to remain competitive, we must commit substantial resources each
year to research and development. In 1999, Pharmacia & Upjohn spent
approximately $1.4 billion on research and development and Monsanto spent
approximately $1.4 billion on research and development.
A number of companies are engaged in agricultural research in general and
plant biotechnology research in particular. Technological advances by others
could render our agribusiness' products less competitive. We believe that
competition will intensify, not only from agricultural biotechnology firms but
from major agrichemical, seed and food companies with conventional biotechnology
laboratories. Some of our agribusiness' agricultural competi-
I-16
<PAGE> 22
tors will continue to have substantially greater financial, technical and
marketing resources than our agribusiness will.
In the pharmaceutical business, 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 we will not achieve our goals and have to abandon a product in which we
have invested substantial amounts. We cannot assure you that the combined
company will continue to succeed in its research and development efforts. If the
combined company 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 our
business and results of operations.
OUR PHARMACEUTICAL BUSINESS WILL CONTINUE TO BE SUBJECT TO THE FOLLOWING RISKS:
1. PRODUCT REGULATION MAY ADVERSELY AFFECT OUR ABILITY TO BRING NEW PRODUCTS TO
MARKET
We and our competitors are subject to strict government controls on the
development, manufacture, labeling, distribution and marketing of products. We
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 our 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 us of developing new products and increases the risk that we will
not succeed in selling them successfully.
2. PRICE CONTROLS CAN LIMIT OUR REVENUES AND ADVERSELY AFFECT OUR BUSINESS AND
RESULTS OF OPERATIONS
In addition to normal price competition in the marketplace, the prices of
our products are restricted by price controls imposed by governments and health
care providers in most countries where we sell 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 we earn on our products and
may have an adverse effect on our business and results of operations.
3. PRODUCT LIABILITY CLAIMS COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF
OPERATIONS
Product liability is a significant commercial risk for us. 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.
We are involved in a substantial number of product liability cases claiming
damages as a result of the use of our products. We believe that any potentially
unaccrued costs and liabilities associated with such matters will not have a
material adverse effect on the combined company's 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 the combined company would not have an adverse effect on its business or
results of operations.
I-17
<PAGE> 23
OUR AGRIBUSINESS WILL CONTINUE TO BE SUBJECT TO THE FOLLOWING RISKS:
1. GOVERNMENTS AND THE PUBLIC MAY NOT ACCEPT OUR PRODUCTS.
The commercial success of agricultural and food products developed through
biotechnology will depend in part on government and public acceptance of their
cultivation, distribution and consumption. Biotechnology has enjoyed and
continues to enjoy substantial support from the scientific community, regulatory
agencies and many governmental officials around the world (including in the
United States). Future scientific developments, media coverage and political
events may strengthen or diminish such support. Monsanto continues to work with
consumers, customers and regulatory bodies to encourage understanding of
nutritional and agricultural biotechnology products. However, public attitudes
may be influenced by claims that genetically modified plant products are unsafe
for consumption or pose unknown risks to the environment or to traditional
social or economic practices. Securing governmental approvals for, and consumer
confidence in, such products poses numerous challenges, particularly outside the
United States. For instance, France has instituted a moratorium on the planting
of certain genetically modified seeds, and consumer groups have brought lawsuits
in various countries seeking to halt industry activities with respect to
products developed through biotechnology. Some countries also have labeling
requirements. In some markets, because these crops are not yet approved for
import, growers in other countries may be restricted from introducing or selling
their grain. In these cases, the grower may have to arrange to sell the grain
only in the domestic market or to use the grain for feed on his or her farm. The
market success of products developed through biotechnology could be delayed or
impaired in certain geographical areas because of such factors.
2. THE SUCCESS OF THE AGRIBUSINESS DEPENDS ON SUCCESSFULLY INTEGRATING RECENT
TRANSACTIONS.
Monsanto has made significant acquisitions, mergers and joint ventures
involving seed, agricultural biotechnology and grain processing companies. In
the long term, our agribusiness must integrate these companies into its business
to realize projected synergies. It must also fit such acquisitions, mergers and
joint ventures into its growth strategy to generate sufficient value to justify
their cost. Mergers, acquisitions, and joint ventures also present other
challenges, including geographical coordination, personnel integration, and the
reconciliation of corporate cultures. This integration could cause a temporary
interruption of or loss of momentum in the agribusiness and the loss of key
personnel from the acquired company. There can be no assurance that the
diversion of management's attention to such matters or the delays or
difficulties encountered in connection with integrating these operations will
not have an adverse effect on the agribusinesses' business, results of
operations, or financial condition.
3. THE AGRIBUSINESS IS SUBJECT TO WEATHER CONDITIONS AND NATURAL DISASTERS.
The agribusiness is highly seasonal. It is subject to weather conditions
and natural disasters that affect commodity prices, seed yields, and decisions
by growers regarding purchases of seed and herbicides. Commodity prices also
affect growers' decisions about the types and amounts of crops to plant. All of
these factors influence sales of the agribusiness' herbicide and seed products.
OUR BUSINESSES WILL CONTINUE TO EXPOSE US TO RISKS OF ENVIRONMENTAL LIABILITIES
We use hazardous materials, chemicals, viruses and compounds in our product
development programs and manufacturing processes. Although we believe that our
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, the combined company could be held liable for any
damages
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or fines, which could have an adverse effect on our business and results of
operations.
FOREIGN EXCHANGE FLUCTUATIONS MAY ADVERSELY AFFECT OUR EARNINGS AND THE VALUE OF
OUR NON-U.S. ASSETS
We record our transactions and prepare our financial statements in U.S.
dollars, but a significant portion of our earnings and expenditures are in other
currencies. Changes in exchange rates between the U.S. dollar and such
currencies will result in increases or decreases in our costs and earnings.
Fluctuations in exchange rates between the U.S. dollar and other currencies may
also affect the book value of our assets outside the United States and the
amount of shareholders' equity. We will seek to minimize our currency exposure
by engaging in hedging transactions where we deem it appropriate.
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CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document, such as statements
concerning the combined company's anticipated financial or product performance,
its pipeline, plans for growth and other factors that could affect future
operations or financial position, and other non-historical facts, are
"forward-looking statements" (as such term is defined in the Private Securities
Litigation Reform Act of 1995). Such statements often include the words,
"believes," "expects," "anticipates," "intends," "plans," "estimates," or
similar expressions. 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:
- the ability to attain estimated expense savings;
- the ability to continue to successfully market existing products, which
may be adversely impacted by the introduction of competitive products;
- the combined company's ability to integrate the two businesses and other
prior mergers and acquisitions;
- the combined company's ability to successfully develop and market new
products;
- the ability to expand the market for existing products;
- the ability to fund research and development activities;
- the ability to get to market ahead of competition;
- the success of the combined company's research and development activities
and the speed with which regulatory authorizations and product rollouts
may be achieved;
- the ability to successfully negotiate pricing of pharmaceutical products
with managed care groups, health care organizations and government
agencies worldwide;
- fluctuations in currency exchange rates;
- the effects of the combined company's accounting policies and general
changes in generally accepted accounting practices;
- the combined company's exposure to product liability lawsuits and
contingencies related to actual or alleged environmental contamination;
- the combined company's exposure to antitrust lawsuits;
- the combined company's success in litigation involving its intellectual
property;
- social, legal and political developments, especially those relating to
health care reform and product liabilities;
- general economic and business conditions;
- the combined company's ability to attract and retain management and other
employees;
- the combined company's ability to compensate for anticipated generic
competition for its products, including Roundup(R) herbicide, after the
expiration of patents in the U.S.;
- governmental and public acceptance of agbiotech products;
- the effect of seasonal conditions and of current commodity prices on
agricultural markets; and
- other risk factors detailed in Monsanto's and Pharmacia & Upjohn's
respective Securities and Exchange Commission filings, including their
respective Proxy Statements and Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q.
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THE MERGER
GENERAL
The Monsanto board of directors is using this document to solicit proxies
from the holders of Monsanto common stock for use at the Monsanto meeting. The
Pharmacia & Upjohn board of directors is also using this document to solicit
proxies from the holders of Pharmacia & Upjohn common stock and convertible
perpetual preferred stock for use at the Pharmacia & Upjohn meeting.
MONSANTO PROPOSALS
At the Monsanto meeting, Monsanto stockholders will be asked to vote upon
proposals to approve the issuance of Monsanto common stock and convertible
perpetual preferred stock in the merger and the Monsanto charter amendments
contemplated by the merger agreement. We sometimes refer to these proposals as
the "Monsanto proposals."
PHARMACIA & UPJOHN PROPOSAL
At the Pharmacia & Upjohn meeting, holders of Pharmacia & Upjohn common
stock and Pharmacia & Upjohn convertible perpetual preferred stock will be asked
to vote upon a proposal to adopt the merger agreement. We sometimes refer to
this proposal as the "Pharmacia & Upjohn proposal."
BACKGROUND OF THE MERGER
The respective management groups of Monsanto and Pharmacia & Upjohn review,
on a continuing basis, the strategic focus of their companies in light of the
changing competitive environment of the pharmaceuticals industry and, with
respect to Monsanto, the agribusiness industry, with the objective of
identifying alternative strategies to enhance shareholder value. Each company
believes it has attractive future prospects on a stand-alone basis. However, the
management of Monsanto and Pharmacia & Upjohn have also explored possible joint
ventures, business combinations and other strategic alternatives as a means of
achieving critical mass and potentially attaining a more competitive position
given the trend toward industry consolidation. The boards of directors of
Pharmacia & Upjohn and Monsanto have been updated regularly concerning such
matters.
In the months that followed the October 1998 termination of Monsanto's
merger agreement with American Home Products Corporation, Monsanto's management
explored a variety of strategic alternatives to enhance shareholder value,
including the planned sale of its nutrition businesses, a split-up of its
pharmaceutical and agricultural businesses into two separate companies, a sale
or other business combination of its pharmaceutical business with another
company's pharmaceutical business or a business combination of Monsanto with a
pharmaceutical or life sciences company. During this period, Monsanto's
management entered into confidentiality agreements and held preliminary
discussions with a number of parties concerning such matters. Monsanto's board
of directors periodically assessed Monsanto's strategic alternatives and was
updated regarding discussions with third parties.
On September 17, 1999, Fred Hassan, the President and Chief Executive
Officer of Pharmacia & Upjohn, and Robert Shapiro, the Chairman and Chief
Executive Officer of Monsanto, discussed the possibility of a co-promotion
collaboration in which the U.S. sales force of Monsanto's Searle pharmaceutical
division would co-promote Pharmacia & Upjohn's Detrol, a drug for overactive
bladder. This conversation led to a brief discussion concerning the potential
for an even broader
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relationship, including the possibility of a merger between Monsanto and
Pharmacia & Upjohn. Mr. Hassan subsequently mentioned the concept of a possible
merger between Pharmacia & Upjohn and Monsanto at Pharmacia & Upjohn's board of
directors meeting on September 21. Monsanto's board of directors held its annual
planning meetings between September 22 and 24 to review the business plans of
each of its businesses and evaluate the relative attractiveness of Monsanto's
strategic alternatives. During these meetings, Mr. Shapiro discussed the
contacts he had had with Pharmacia & Upjohn and other parties. The board
authorized management to continue to pursue its discussions with third parties
regarding potential business combinations or other strategic alternatives.
Following these discussions, representatives of Monsanto and Pharmacia &
Upjohn, together with their respective financial and legal advisors, began a
preliminary review of a number of potential transactions between the two
companies. On October 6, 1999, Mr. Hassan and Mr. Shapiro met briefly in Chicago
where they discussed some broad concepts about a business combination. On
October 13, Monsanto and Pharmacia & Upjohn entered into a confidentiality
agreement, but discussions between the two companies did not progress
significantly during the month of October.
In October 1999, Mr. Shapiro received preliminary indications of interest
from a non-U.S. headquartered company regarding a possible business combination
with Monsanto, in which Monsanto's stockholders could receive stock valued at a
premium over its then recent trading prices, and from a U.S. based company
relating to a possible combination of the two companies' pharmaceutical
businesses. Monsanto's senior management and its financial advisors had
preliminary discussions regarding such potential transactions with senior
management and financial advisors of such companies. At its regular meeting on
October 22, 1999, Monsanto's board of directors further reviewed the company's
strategic alternatives and received a report on the current status of
discussions with third parties.
Over the next several weeks, Monsanto's management, together with its legal
and financial advisors, held discussions with several other parties to explore
the terms of possible transactions. The non-U.S. headquartered company conducted
due diligence on Monsanto and delivered a draft merger agreement to Monsanto,
which was discussed with Monsanto's management and legal advisors. Its proposal
for a business combination with Monsanto included the following principal terms:
(1) it planned to announce a transaction in early December to dispose
of one of its substantial businesses (the completion of such disposition,
which was expected to occur in the second half of 2000, would be a
condition to its obligation to close the Monsanto business combination);
(2) since the non-U.S. company's shares were not currently listed on
any U.S. stock exchange or otherwise regularly traded in the U.S., the
closing would also be conditioned on it preparing financial statements that
were reconciled in accordance with U.S. generally accepted accounting
principles and obtaining a listing for its American Depositary Receipts on
the New York Stock Exchange;
(3) it would issue a fixed number of American Depositary Receipts
initially having a nominal value, based upon the trading price of the
company's stock on a non-U.S. stock exchange immediately following the
announcement of the non-U.S. company's planned disposition of its business,
of $49 per Monsanto share; such exchange ratio would not be adjusted to
reflect any reduction in the value of the American Depositary Receipts
arising from the actual disposition of its business even if such business
were to be distributed as a dividend to the shareholders of the non-U.S.
headquartered company;
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(4) Monsanto would be required to grant it a 50/50 co-promotion
agreement for Celebrex that would be effective upon signing the merger
agreement and that would survive any termination of the merger agreement;
and
(5) Monsanto would not have any right to terminate the merger
agreement in order to accept a superior proposal.
On November 20, 1999, Mr. Shapiro met with the chairman and chief executive
officer of the non-U.S. headquartered company to discuss further the terms of
its proposal, and was advised that it was not prepared to increase the value of
its proposal. In view of the uncertainties regarding value, the timing and
consummation risk associated with the planned divestiture of the other company's
business, and the material business and financial risk to Monsanto of the other
company's proposal to enter into a co-promotion agreement for Monsanto's most
successful pharmaceutical product whether or not any business combination was
consummated, Monsanto's management determined to devote its attention to
pursuing other alternatives available to Monsanto.
Mr. Hassan again raised the possibility of a business combination with
Monsanto at Pharmacia & Upjohn's board of directors meeting on November 15 and
16, 1999, but the board took no action at that time. In late November 1999,
Messrs. Hassan and Shapiro had a telephone conversation in which they agreed to
renew discussions concerning the possibility of a business combination between
Monsanto and Pharmacia & Upjohn, provided that certain matters raised by
Pharmacia & Upjohn's board of directors could be addressed. In late November and
early December, representatives of Monsanto and Pharmacia & Upjohn and each
company's respective legal and financial advisors held a series of discussions
concerning the potential terms of a merger between the two companies, including
a range of exchange ratios, governance issues, the structure of the transaction
and the strategic direction and business plan for the combined company,
including managing the agricultural business as a separate company with up to
20% of its stock held by public stockholders.
At its regularly scheduled meeting on December 10, 1999, Monsanto's board
of directors again reviewed the company's strategic alternatives. Mr. Shapiro
updated the board on his recent contacts with third parties regarding a possible
business combination or other transaction with Monsanto. In its review at both
the October and December board meetings, the board assessed, among other things:
- the potential initial and long-term values obtainable from different
alternatives;
- the nature of the currency to be received by Monsanto's stockholders;
- the other terms of any transaction, including risks of non-consummation;
- information concerning the financial performance, business operations,
debt and capital levels and prospects of each other party as a separate
entity and on a combined basis;
- the current and prospective tax consequences to Monsanto and its
stockholders of different alternatives, including the substantial tax
costs associated with a sale or merger of Monsanto's pharmaceutical
business either directly or following a split-up of Monsanto;
- the flexibility for Monsanto to pursue alternative or follow-on
transactions;
- the potential synergies that could be achieved in a business combination;
- the potential opportunities for each of Monsanto's businesses to grow and
compete more effectively in a changing environment; and
- the capital implications of Monsanto's existing indebtedness, which had
been incurred principally to fund Monsanto's seed acquisitions over the
preceding two years, on the
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company's future financial flexibility in a split-up of the company
compared to a business combination with an unleveraged partner.
At its December meeting, following its consideration of these matters,
Monsanto's board of directors made a preliminary determination that a merger of
equals transaction with Pharmacia & Upjohn, in which Monsanto's stockholders
would own approximately 51% of the combined company, was the most attractive
alternative for Monsanto. The board considered, among other things, the
complementary sales infrastructure, strong product portfolios with minimal
near-term patent expiration exposure, significant synergies and long-term growth
prospects of the proposed combination, as well as several factors discussed
under "Our Reasons for the Merger; Recommendations of Our Boards of Directors."
The board authorized management to pursue further discussions with Pharmacia &
Upjohn.
On December 12, 1999, Monsanto's legal counsel delivered a draft merger
agreement to legal counsel for Pharmacia & Upjohn. Shortly thereafter,
representatives of Monsanto and Pharmacia & Upjohn completed their respective
due diligence reviews of each other's business and their collective analysis of
the strategic and financial value of the combined entity, including the amount
of synergies that could be achieved in the combination, with the assistance of
their legal and financial advisors.
On December 14, 1999, Pharmacia & Upjohn distributed to its board of
directors material prepared by its management with the assistance of its
financial advisors that described Monsanto's businesses in greater depth and the
merits of a Monsanto-Pharmacia & Upjohn combination relative to other strategic
alternatives. On December 15, the Pharmacia & Upjohn board of directors held a
telephonic meeting during which Pharmacia & Upjohn management updated its board
on the status of discussions with Monsanto and received approval to continue
negotiations. The board agreed to formally vote on the merger proposal at a
special board meeting scheduled for December 18.
With this approval for Pharmacia & Upjohn to continue discussions,
representatives of Pharmacia & Upjohn and Monsanto management, together with
their advisors, began negotiating the merger agreement and various related
agreements beginning on December 16. On December 17, 1999, Monsanto's directors
held a conference call with members of Monsanto's senior management to exchange
their views on the company's strategic alternatives. Later that day, Monsanto
distributed materials to its board of directors including drafts and a summary
of the merger agreement and related agreements, and other background information
on Pharmacia & Upjohn's businesses and the proposed transaction.
On December 18, 1999, the Pharmacia & Upjohn board of directors held a
special meeting in London. At this meeting, members of the Pharmacia & Upjohn
management team made presentations concerning the proposed merger. Bear Stearns
and J.P. Morgan then made a financial presentation to the board of directors and
each provided its oral opinion (subsequently confirmed in writing) to the board
as to the fairness, from a financial point of view, to Pharmacia & Upjohn common
stockholders of the merger consideration. Legal counsel to Pharmacia & Upjohn
described the terms and conditions of the draft merger agreement and stock
option agreements and other related matters, including the principal issues
previously lacking agreement. Mr. Hendrik Verfaillie, President of Monsanto, and
Mr. Hugh Grant, Co-President of Monsanto's Agricultural Sector, made a
presentation to the Pharmacia & Upjohn board concerning Monsanto's agricultural
business and its future strategy. Pharmacia & Upjohn's board then discussed the
matters presented by management and by the company's financial and legal
advisors, including the factors discussed in both "Our Reasons for the Merger;
Recommendations of Our Boards of Directors" and the presentation concerning
Monsanto's agricultural business. After discussion and due consideration, the
Pharmacia & Upjohn board unanimously approved the draft merger agreement and
stock option agreements, and related matters, and authorized management to
finalize the terms of these agreements.
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On the morning of December 19, 1999, certain members of Pharmacia &
Upjohn's board met again with members of Pharmacia & Upjohn's management to
review the status of negotiations with Monsanto, including the principal issues
not yet resolved.
The Monsanto board of directors held a special meeting on the morning of
December 19, 1999. Mr. Hassan and certain members of Pharmacia & Upjohn's board
of directors also attended this meeting. At this meeting, Mr. Hassan described
Pharmacia & Upjohn's strategy, financial performance, and the rationale for the
value to be created to both sets of shareholders by combining the two
businesses. Mr. Hassan then outlined his strategic vision for the new
pharmaceutical entity, articulated his perceptions of the opportunities and
challenges facing Monsanto's agricultural business and outlined the merits of a
partial IPO following merger approval.
A second meeting of Monsanto's board of directors and Monsanto management
only was then held on the afternoon of December 19, 1999. Monsanto management
and its legal and financial advisors made presentations to the board concerning
the proposed merger and the status of discussions with other parties, as well as
a review of other strategic alternatives available to Monsanto, including a
possible split-up of the company's pharmaceutical and agricultural businesses or
a sale of one of these businesses. Goldman Sachs and Morgan Stanleyeach made a
financial presentation to the board of directors and each gave its oral opinion
(subsequently confirmed in writing) to the board as to the fairness, from a
financial point of view, to Monsanto of the exchange ratio. Legal counsel to
Monsanto described the terms and conditions of the draft merger agreement and
stock option agreements and other related matters. The Monsanto board discussed
the matters presented by management and by the company's financial and legal
advisors, including the factors discussed under "Our Reasons for the Merger;
Recommendations of Our Boards of Directors." After discussion and due
consideration, the Monsanto board unanimously approved the draft merger
agreement and stock option agreements and related matters, and authorized
management to finalize the terms of these agreements.
On the evening of December 19, 1999, representatives of Monsanto and
Pharmacia & Upjohn and their respective legal counsel finalized the merger
agreement, the stock option agreements, and related documents. Monsanto and
Pharmacia & Upjohn then entered into these agreements and issued a joint press
release announcing the merger.
OUR REASONS FOR THE MERGER; RECOMMENDATIONS OF OUR BOARDS OF DIRECTORS
We believe that the combined company will build upon our complementary
sales infrastructure and product portfolios in the U.S. and European
pharmaceutical markets. The combined company will have a world-class research
and development capability with a robust pipeline and an annual pharmaceutical
R&D budget of more than $2 billion to fund future growth. The new company will
also have one of the world's leading fully integrated agricultural businesses
that is expected to have the autonomy and strong capital structure to enhance
its growth prospects. We believe shareholder value will be further enhanced by
top-line synergies as well as more than $600 million of synergies relating to
cost avoidance and elimination of duplication, some of which will be reinvested
to accelerate growth opportunities.
Each of our boards of directors, in reaching its decision on the merger,
consulted with its financial and legal advisors and its senior management,
reviewed a significant amount of information and considered a number of factors.
The most relevant information reviewed and factors considered are set forth
below.
- the reasons described above under "Our Reasons for the Merger" and the
risks described under "Risk Factors";
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- the strategic and financial alternatives available to each of Monsanto
and Pharmacia & Upjohn in the rapidly consolidating pharmaceuticals
industry;
- the strategic fit between Pharmacia & Upjohn and Monsanto, and the belief
that the combined company has the potential to enhance stockholder value
through additional opportunities and operating efficiencies;
- the opportunity for the Monsanto and Pharmacia & Upjohn stockholders to
participate in a larger, more competitive company;
- the fact that the transaction was structured as a merger of equals with
shared corporate governance for the combined company, including equal
representation of Monsanto and Pharmacia & Upjohn designees on the
company's board of directors, as well as the fact that Mr. Robert Shapiro
will initially be the chairman and Mr. Fred Hassan will initially serve
as chief executive officer of the combined company and, unless otherwise
determined by 80% of the company's board of directors, that Mr. Hassan
will become the chairman and chief executive Officer 18 months after the
merger, thus enabling each of Monsanto and Pharmacia & Upjohn to provide
substantial input into the policies and operation of the combined
businesses and effect the long-term goals of each company;
- information concerning the financial performance, pharmaceutical
pipeline, business operations, debt capacity and asset quality of
Pharmacia & Upjohn and Monsanto and of the two companies on a combined
basis;
- the opinions of our respective financial advisors that, as of December
19, 1999, and subject to the assumptions and limitations set forth in the
opinions, the consideration in the merger was fair from a financial point
of view, and the financial presentations made by our respective financial
advisors to our respective boards of directors in connection with the
delivery of their opinions;
- the likely impact of the merger on each company's employees and
customers;
- the expected effect of the merger on our existing joint ventures and
other relationships with third parties;
- the interests of officers and directors of each company in the merger, as
described under "Interests of Officers and Directors in the Merger";
- the fact that each of Pharmacia & Upjohn and Monsanto is permitted to
terminate the merger agreement upon receipt of a superior acquisition
proposal, subject to the payment of specified termination fees;
- our respective obligations to pay termination fees under the
circumstances described in the merger agreement, the option agreements,
and the impact that the termination fees and the option agreements may
have on potential third-party acquirors; and
- the qualification of the merger as a tax-free transaction for United
States federal income tax purposes (except for tax resulting from any
cash received for fractional shares by the holders of Pharmacia & Upjohn
common stock) and the expected accounting treatment as a "pooling of
interests" for financial accounting purposes.
The Monsanto board of directors also considered the following: (i) its
review of other strategic alternatives, including a separation of Monsanto's
agricultural and pharmaceutical businesses, as well as contacts and preliminary
discussions Monsanto's management had with third parties regarding
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possible business combinations or asset sales and (ii) the expected immediate
accretion in earnings per share of Monsanto as a result of the merger.
The foregoing discussion of the information and factors considered by our
boards of directors is not intended to be exhaustive. In view of the wide
variety of the material factors considered in connection with their respective
evaluations of the merger and the complexity of these matters, our boards of
directors did not find it practicable to, and did not, quantify or otherwise
attempt to assign any relative weight to the various factors considered. In
addition, our boards of directors did not undertake to make any specific
determination as to whether any particular factor, or any aspect of any
particular factor, was favorable or unfavorable to our boards of directors'
ultimate determination, but rather our boards of directors conducted an overall
analysis of the factors described above, including discussions with and
questioning of our respective management and legal and financial advisors. In
considering the factors described above, individual members of our boards of
directors may have given different weight to different factors.
There can be no assurance that any of the potential savings, synergies or
opportunities considered by our boards of directors will be achieved through
consummation of the merger. See "Risk Factors" and "Cautionary Statement
Concerning Forward-Looking Statements" beginning on page I-20.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF MONSANTO
MONSANTO'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT MONSANTO
STOCKHOLDERS VOTE FOR THE ISSUANCE OF COMMON STOCK AND PREFERRED STOCK IN THE
MERGER, AND FOR THE MONSANTO CHARTER AMENDMENTS, BOTH TO FACILITATE THE MERGER.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF PHARMACIA & UPJOHN
PHARMACIA & UPJOHN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
PHARMACIA & UPJOHN STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material United States federal
income tax consequences of the merger. This discussion is based on the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations,
administrative interpretations and court decisions as in effect as of the date
of this document, all of which may change, possibly with retroactive effect.
This discussion does not address all aspects of federal income taxation
that may be important to a holder of Pharmacia & Upjohn common stock or
Pharmacia & Upjohn convertible perpetual preferred stock in light of that
holder's particular circumstances or to a holder subject to special rules, such
as:
- a stockholder who is not a citizen or resident of the United States,
- a financial institution or insurance company,
- a tax-exempt organization,
- a dealer or broker in securities,
- a stockholder that holds Pharmacia & Upjohn common stock or Pharmacia &
Upjohn convertible perpetual preferred stock as part of a hedge,
appreciated financial position, straddle or conversion transaction, or
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- a stockholder who acquired Pharmacia & Upjohn common stock or Pharmacia &
Upjohn convertible perpetual preferred stock pursuant to the exercise of
options or otherwise as compensation.
TAX OPINIONS. Pharmacia & Upjohn has received an opinion of Davis Polk &
Wardwell, and Monsanto has received an opinion of Arnold & Porter (together with
Davis Polk & Wardwell, "tax counsel"), each dated as of the date of this
document, 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 Monsanto, Monsanto's newly formed merger subsidiary and Pharmacia &
Upjohn will each be a party to that reorganization within the meaning of Section
368(b) of the Internal Revenue Code. It is a condition to the obligation of each
of Monsanto and Pharmacia & Upjohn to complete the merger that the relevant tax
counsel confirm its opinion as of the closing date. Neither Monsanto nor
Pharmacia & Upjohn intends to waive this condition.
The opinions of tax counsel regarding the merger have relied, and the
confirmation opinions regarding the merger as of the closing date (the "closing
date opinions") will rely, on (1) representations and covenants made by Monsanto
and Pharmacia & Upjohn, including those contained in certificates of officers of
Monsanto and Pharmacia & Upjohn, and (2) specified assumptions, including an
assumption regarding the completion of the merger in the manner contemplated by
the merger agreement. In addition, the opinions of tax counsel have assumed, and
tax counsel's ability to provide the closing date opinions will depend on, the
absence of changes in existing facts or in law between the date of this document
and the closing date. If any of those representations, covenants or assumptions
is inaccurate, tax counsel may not be able to provide the closing date opinions
and the tax consequences of the merger could differ from those described in the
opinions that tax counsel have delivered. Tax counsel's opinions neither bind
the IRS nor preclude the IRS or the courts from adopting a contrary position.
Monsanto and Pharmacia & Upjohn do not intend to obtain a ruling from the IRS on
the tax consequences of the merger.
FEDERAL INCOME TAX TREATMENT OF THE MERGER. 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 Monsanto, Monsanto's newly formed
merger subsidiary and Pharmacia & Upjohn will each be a party to that
reorganization within the meaning of Section 368(b) of the Internal Revenue
Code.
FEDERAL INCOME TAX CONSEQUENCES TO PHARMACIA & UPJOHN STOCKHOLDERS. For
federal income tax purposes:
- A holder of Pharmacia & Upjohn common stock will not recognize any gain
or loss upon its exchange in the merger of its shares of Pharmacia &
Upjohn common stock for shares of the common stock of the combined
company.
- If a holder of Pharmacia & Upjohn common stock receives cash instead of a
fractional share of the common stock of the combined company, the holder
will be required to recognize gain or loss, measured by the difference
between the amount of cash received instead of that fractional share and
the portion of the tax basis of the holder's shares of Pharmacia & Upjohn
common stock allocable to that fractional share. This gain or loss will
be capital gain or loss provided such common stock was held as a capital
asset, and will be long-term capital gain or loss if the share of
Pharmacia & Upjohn common stock exchanged for that fractional share of
the common stock of the combined company was held for more than one year
on the closing date.
- A holder of Pharmacia & Upjohn common stock will have a tax basis in the
common stock of the combined company received in the merger equal to (1)
the tax basis of the Pharmacia & Upjohn common stock surrendered by that
holder in the merger, reduced by
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(2) any tax basis of the Pharmacia & Upjohn common stock surrendered that
is allocable to any fractional share of the common stock of the combined
company for which cash is received.
- The holding period for shares of the common stock of the combined company
received in exchange for shares of Pharmacia & Upjohn common stock in the
merger will include the holding period for the shares of Pharmacia &
Upjohn common stock surrendered in the merger, provided such common stock
was held as a capital asset.
- A holder of Pharmacia & Upjohn convertible perpetual preferred stock will
not recognize any gain or loss upon its exchange in the merger of its
shares of Pharmacia & Upjohn convertible perpetual preferred stock for
shares of the convertible perpetual preferred stock of the combined
company.
- A holder of Pharmacia & Upjohn convertible perpetual preferred stock will
have a tax basis in the convertible perpetual preferred stock of the
combined company received in the merger equal to the tax basis of the
Pharmacia & Upjohn convertible perpetual preferred stock surrendered by
that holder in the merger.
- The holding period for shares of the convertible perpetual preferred
stock of the combined company received in exchange for shares of
Pharmacia & Upjohn convertible perpetual preferred stock in the merger
will include the holding period for the shares of Pharmacia & Upjohn
convertible perpetual preferred stock surrendered in the merger, provided
such preferred stock was held as a capital asset.
FEDERAL INCOME TAX CONSEQUENCES TO MONSANTO STOCKHOLDERS. For federal
income tax purposes, holders of Monsanto common stock will not recognize gain or
loss as a result of the merger.
This discussion of material federal income tax consequences is intended to
provide only a general summary, and is not a complete analysis or description of
all potential federal income tax consequences of the merger. This discussion
does not address tax consequences that may vary with, or are contingent on,
individual circumstances. In addition, it does not address any non-income tax or
any foreign, state or local income tax consequences of the merger. ACCORDINGLY,
WE STRONGLY URGE EACH HOLDER OF PHARMACIA & UPJOHN COMMON STOCK OR PHARMACIA &
UPJOHN CONVERTIBLE PERPETUAL PREFERRED STOCK TO CONSULT HIS OR HER OWN TAX
ADVISOR TO DETERMINE THE PARTICULAR UNITED STATES FEDERAL, STATE OR LOCAL OR
FOREIGN INCOME OR OTHER TAX CONSEQUENCES TO HIM OR HER OF THE MERGER.
REGULATORY MATTERS RELATING TO THE MERGER
ANTITRUST REVIEW
Monsanto and Pharmacia & Upjohn believe that the merger promotes
competition and is in the public interest in part because the combined company
will be able to compete more effectively with larger pharmaceuticals companies
than either Monsanto or Pharmacia & Upjohn could alone. However, there can be no
assurance that the antitrust review process will move rapidly or that a
challenge to the merger on antitrust grounds will not be made.
U.S. ANTITRUST APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
rules promulgated under the Hart-Scott-Rodino Act, the merger may not be
consummated until notifications have been given and certain information and
materials have been furnished to and reviewed by the Department of Justice and
the Federal Trade Commission and specified waiting period requirements have been
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<PAGE> 35
satisfied. On January 19, 2000, Monsanto and Pharmacia & Upjohn filed the
premerger notification forms required by the Hart-Scott-Rodino Act with the DOJ
and the FTC. Unless a request for additional information is made by the
reviewing federal agency, or early termination of the waiting period is granted,
the waiting period under the Hart-Scott-Rodino Act applicable to the merger will
expire at midnight on February 18, 2000. At any time prior to or after the
consummation of the merger, the DOJ or the FTC could take action under the
federal antitrust laws, including seeking to enjoin the merger or seeking
conditions thereon. State antitrust authorities and private parties in certain
circumstances may bring legal action under the antitrust laws seeking to enjoin
the merger or impose conditions.
EUROPEAN COMMUNITY APPROVALS
The merger is also subject to review under the competition laws of the
European Community. We have informally notified the Commission of the European
Community of the merger, and expect to make the required formal pre-merger
filing in February 2000.
OTHER APPROVALS
Pharmacia & Upjohn and Monsanto each conduct business in countries that are
not members of the European Union. The merger may require the review and
approval of regulatory bodies in certain of these countries.
APPRAISAL RIGHTS
Holders of Monsanto common stock and Pharmacia & Upjohn common stock do not
have appraisal rights under Delaware law in connection with the merger.
The holder of Pharmacia & Upjohn convertible perpetual preferred stock will
have appraisal rights under Delaware law in connection with the merger. If such
holder has not voted in favor of the merger agreement, it has the right to
demand appraisal of, and to be paid the fair market value for the shares of
Pharmacia & Upjohn convertible perpetual preferred stock. The value of the
Pharmacia & Upjohn convertible perpetual preferred stock for this purpose will
exclude any element of value arising from the accomplishment or expectation of
the merger. In order for the holder of Pharmacia & Upjohn convertible perpetual
preferred stock to exercise its right to an appraisal, if any, such holder must
deliver to Pharmacia & Upjohn a written demand for an appraisal of the shares of
Pharmacia & Upjohn convertible perpetual preferred stock prior to the date of
the Pharmacia & Upjohn meeting as provided by Delaware law. Annex K to this
document sets forth the pertinent provisions of Delaware law addressing
appraisal rights. Simply voting against the merger will not be considered a
demand for appraisal rights. If the holder of Pharmacia & Upjohn convertible
perpetual preferred stock fails to send a demand prior to the date of the
Pharmacia & Upjohn meeting to the corporate secretary of Pharmacia & Upjohn,
Inc. at 100 Route 206 North, Peapack, New Jersey 07977, it will lose the right
to an appraisal. In addition, if such holder votes for the merger, it will lose
the right to an appraisal. The preceding discussion is not a complete statement
of the law pertaining to appraisal rights under the Delaware General Corporation
Law and is qualified in its entirety by the provisions of Delaware law attached
as Annex K to this document.
FEDERAL SECURITIES LAWS CONSEQUENCES
This document does not cover any resales of the common stock or convertible
perpetual preferred stock of the combined company to be received by the
stockholders of Pharmacia & Upjohn
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<PAGE> 36
upon completion of the merger, and no person is authorized to make any use of
this document in connection with any such resale.
All shares of the common stock of the combined company received by
Pharmacia & Upjohn stockholders in the merger will be freely transferable,
except that shares of the common stock of the combined company received by
persons who are deemed to be "affiliates" of Pharmacia & Upjohn under the
Securities Act of 1933, as amended, at the time of the Pharmacia & Upjohn
meeting may be resold by them only in transactions permitted by Rule 145 under
the 1933 Act or as otherwise permitted under the 1933 Act. Persons who may be
deemed to be affiliates of Pharmacia & Upjohn for the above purposes generally
include individuals or entities that control, are controlled by or are under
common control with Pharmacia & Upjohn and include directors and executive
officers of Pharmacia & Upjohn. The merger agreement requires that Pharmacia &
Upjohn use its reasonable best efforts to cause each of such affiliates to
deliver to Monsanto not less than 30 days prior to the effective time of the
merger a written agreement to the effect that such persons will not offer, sell
or otherwise dispose of any of the shares of Monsanto common stock issued to
them in the merger in violation of the 1933 Act or the related SEC rules. In
addition, Monsanto and Pharmacia & Upjohn have each agreed to use their
reasonable best efforts to cause all of their respective "affiliates" for
purposes of qualifying the merger for pooling of interests accounting treatment
under Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations to enter into an agreement restricting such affiliates' ability to
sell shares of Monsanto or Pharmacia & Upjohn for a period of time. Persons who
may be deemed to be affiliates of Monsanto or Pharmacia & Upjohn for accounting
purposes generally include individuals or entities that control, are controlled
by or are under common control with Monsanto or Pharmacia & Upjohn, as
applicable, and include directors and executive officers of the applicable
company.
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 are restated as though the companies had been
combined from inception as required under United States generally accepted
accounting principles.
We expect that prior to the completion of the merger:
- PricewaterhouseCoopers LLP will deliver to Pharmacia & Upjohn a letter
stating that based upon discussions with officials of Pharmacia & Upjohn
responsible for financial and accounting matters and information
furnished to PricewaterhouseCoopers LLP, PricewaterhouseCoopers LLP
concurs with Pharmacia & Upjohn management's conclusion that, as of the
date of its letter, no conditions exist related to Pharmacia & Upjohn
that would preclude Monsanto from accounting for the merger as a pooling
of interests.
- Deloitte & Touche LLP will deliver to Monsanto a letter stating that
based upon discussions with officials of Monsanto responsible for
financial and accounting matters and information provided to Deloitte &
Touche LLP, including the letter provided by PricewaterhouseCoopers LLP
to Pharmacia & Upjohn, Deloitte & Touche LLP concurs with Monsanto
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.
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<PAGE> 37
Monsanto and Pharmacia & Upjohn have agreed to use their reasonable best
efforts to cause the merger to qualify as a pooling of interests. HOWEVER, THE
COMPLETION OF THE MERGER IS NOT CONDITIONED ON THE MERGER QUALIFYING AS A
POOLING OF INTERESTS.
STOCK EXCHANGE LISTINGS
The common stock of the combined company will be listed on the New York
Stock Exchange under the ticker symbol "--". Monsanto and Pharmacia & Upjohn
have agreed to use their reasonable best efforts to cause the Monsanto common
stock to be listed on the Stockholm Stock Exchange.
MONSANTO CHARTER AMENDMENTS
Approval of the Monsanto charter amendments is a condition to the merger.
The Monsanto charter amendments must be approved by the affirmative vote of the
holders of a majority of the outstanding shares of Monsanto common stock. After
approval, the Monsanto charter amendments will become effective upon the filing
of a Certificate of Amendment in accordance with the Delaware General
Corporation Law. However, the Monsanto charter amendments will not take effect
unless, and until, the merger is consummated. This amended charter will be the
certificate of incorporation of the combined company following the merger. A
form of the Monsanto charter amendments is included as Annex H to this document.
NAME CHANGE
The Monsanto charter amendments would amend Article I of the combined
company's certificate of incorporation to change the name of the combined
company to Pharmacia Corporation.
INCREASE IN AUTHORIZED SHARES OF MONSANTO COMMON STOCK
Monsanto must increase the number of authorized shares of Monsanto common
stock in order to have a sufficient number of authorized shares to issue in the
merger. The Monsanto board of directors believes that it is advisable to amend
Article IV of the Monsanto charter to increase the number of authorized shares
of Monsanto common stock from 1,000,000,000 shares to 3,000,000,000 shares.
As of January 26, 2000, of the 1,000,000,000 shares of Monsanto common
stock authorized by the Monsanto charter, approximately 636.5 million shares
were issued and outstanding, approximately 99.2 million shares were reserved for
issuance upon exercise of outstanding options and 17,500,000 shares were
reserved for issuance pursuant to Monsanto's 6.50% Adjustable Conversion-rate
Equity Security Units. Based upon the number of shares of Pharmacia & Upjohn
stock outstanding on January 26, 2000, approximately 618.6 million shares of
Monsanto common stock will be issued in the merger to holders of Pharmacia &
Upjohn common stock, approximately 11.6 million shares of Monsanto common stock
will be reserved for issuance upon conversion of the Monsanto convertible
perpetual preferred stock that will be issued in the merger to holders of
Pharmacia & Upjohn convertible perpetual preferred stock and approximately 31.9
million shares of Monsanto common stock will be reserved for issuance upon
exercise of Pharmacia & Upjohn options then outstanding. If the Monsanto charter
amendments are approved by the stockholders, approximately 1.58 billion shares
of Monsanto common stock would be authorized, but unissued and not reserved for
issuance.
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The Monsanto board of directors has concluded that this amount of
authorized common stock will provide the combined company the necessary
flexibility for actions it might wish to take relating to possible financing
programs, acquisitions, mergers, employee benefit plans, stock splits and other
corporate purposes without the expense and delay of a special stockholders'
meeting to increase authorized capital.
No further action or authorization by the combined company's stockholders
would be necessary prior to issuance of the additional shares except as may be
required by applicable law or regulatory agencies or by the rules of any stock
exchange on which the combined company's securities may then be listed. For
example, the New York Stock Exchange currently requires specific stockholder
approval as a prerequisite to listing shares in several instances, including
acquisition transactions where the issuance of shares could result in a 20% or
greater increase in the number of shares of common stock outstanding. Other than
in connection with the merger, Monsanto has no present agreements or commitments
for the issuance of any of the additional shares that would be authorized by the
amendment of Article IV of Monsanto's charter.
The proposed increase in the number of authorized shares of Monsanto common
stock is not intended to impede a change of control. It should be noted,
however, that the additional shares could be issued in connection with defending
the combined company against a hostile takeover bid. The issuance of additional
shares could have the effect of diluting earnings and book value of outstanding
shares of common stock of the combined company, could be used to dilute the
stock ownership of a person or entity seeking to obtain control of the combined
company, or could result in a private placement with purchasers who might side
with the board of directors of the combined company if it chose to oppose a
specific change of control.
MONSANTO PREFERRED STOCK
The Monsanto charter amendments regarding preferred stock are proposed in
order to permit the issuance of Monsanto convertible perpetual preferred stock
that is substantially identical to the existing Pharmacia & Upjohn convertible
perpetual preferred stock, which currently has 1,450 votes per share (which
would increase to 1,725.5 votes per share following the merger) and $0.01 par
value per share. See "Description of Monsanto Capital Stock -- Monsanto
Preferred Stock" on page IV-6.
The Monsanto charter amendments would amend Article IV of the Monsanto
charter to change the par value of Monsanto's authorized preferred stock from no
par value to $0.01 par value per share. The Monsanto charter amendments would
further amend Article IV of the Monsanto charter to eliminate the requirement
that preferred stock have no more than one vote per share.
The elimination of the requirement that preferred stock have no more than
one vote is not intended to impede a change of control of the combined company.
It should be noted, however, that shares of super-voting preferred stock could
be issued in connection with defending against a hostile takeover bid, which
could discourage an acquisition attempt or other transaction that some, or a
majority, of the stockholders might believe to be in their best interests or in
which stockholders might receive a premium for their stock over the then market
price of such stock.
AMENDED AND RESTATED BYLAWS
Pursuant to the merger agreement, the Monsanto board of directors will
amend Monsanto's bylaws to implement certain governance arrangements consistent
with a merger of equals. These amended bylaws will be the bylaws of the combined
company. A form of the Amended and Restated Bylaws is included as Annex I to
this document.
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<PAGE> 39
The Amended and Restated Bylaws would, among other provisions, provide:
- that if Mr. Fred Hassan is the chief executive officer of the combined
company on the date that is 18 months after the effective time of the
merger, he would become chairman of the board and chief executive officer
of the combined company unless otherwise determined at that time by the
affirmative vote of at least 80 percent of the board of directors of the
combined company,
- for a separate office of chief executive officer and would provide for
certain customary responsibilities for such office,
- that the board of directors of the combined company would have an
executive committee, a compensation committee, a nominating committee and
an audit committee, that the board of directors may designate additional
committees and that each committee would consist of two or more
directors,
- that the executive committee consist of six members and that the chief
executive officer and the chairman of the board be members,
- that the nominating committee consist of four members, that the power of
the board of directors of the combined company to nominate persons for
election as directors be delegated to the nominating committee and that
vacancies on the nominating committee would be filled with individuals
appointed by the remaining directors on the nominating committee,
- that the location of offices of the combined company may be determined
from time to time by the board of directors of the combined company or as
the business of the company may require, and
- that meetings of stockholders be held at a location determined by the
board of directors.
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<PAGE> 40
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendations of Monsanto's board of directors and
Pharmacia & Upjohn's board of directors with respect to the merger, stockholders
of Monsanto and Pharmacia & Upjohn should be aware that the officers and
directors of Monsanto and Pharmacia & Upjohn have interests in the merger that
are different from, or in addition to, their interests as stockholders of
Monsanto and Pharmacia & Upjohn generally. Monsanto's board of directors and
Pharmacia & Upjohn's board of directors were aware of these interests and
considered them, among other matters, in approving the merger agreement and the
transactions contemplated by the merger agreement. One executive officer of
Pharmacia & Upjohn, Mr. Fred Hassan, was also a member of Pharmacia & Upjohn's
12-person board of directors when that board approved the merger and he will
become chief executive officer of the combined company. Three executive officers
of Monsanto, Mr. Robert B. Shapiro, Mr. Hendrik A. Verfaillie, and Mr. Richard
U. De Schutter were also members of Monsanto's ten-person board of directors
when the Monsanto board approved the merger. The three Monsanto executives will
serve as directors and/or executives of the combined company, with Mr. Shapiro
serving as non-executive chairman and Mr. De Schutter serving as senior
executive vice president. Mr. Verfaillie will be chief executive officer of the
agricultural business.
BOARD OF DIRECTORS AND MANAGEMENT OF THE COMBINED COMPANY
We have agreed in the merger agreement that, as of the effective time of
the merger, the board of directors of the combined company will have twenty
members, consisting of ten persons designated by Monsanto and ten persons
designated by Pharmacia & Upjohn. More information concerning the Pharmacia &
Upjohn designees is provided under the heading "Additional Information
Concerning the Designees to the Board of Directors" beginning on page I-40. All
committees of the combined company's board of directors will initially be
composed of an equal number of members designated by each of Monsanto and
Pharmacia & Upjohn. The bylaws of the combined company will provide that only
persons nominated by the nominating committee of the board of directors or by a
stockholder will be eligible to be elected as directors.
We have also agreed that Mr. Robert B. Shapiro, the chief executive officer
and chairman of Monsanto, will become the chairman of the board of directors and
Mr. Fred Hassan, chief executive officer of Pharmacia & Upjohn, will become the
chief executive officer of the combined company. The bylaws of the combined
company will provide that 18 months after the completion of the merger, Mr.
Hassan, if he is then the chief executive officer of the combined company, will
become the chairman of the board of directors of the combined company, unless
otherwise determined at that time by the affirmative vote of 80% of the members
of the board of directors. The parties intend that at the time of the completion
of the merger, the twenty most senior executive positions in the combined
company, excluding the chairman and the chief executive officer, will be held by
ten executives of Monsanto and ten executives of Pharmacia & Upjohn.
Pursuant to the merger agreement, the combined company will assume
Pharmacia & Upjohn's employment agreement with Mr. Hassan. This agreement
provides, among other things, that Mr. Hassan will serve as chief executive
officer through November 30, 2004, and thereafter the agreement is subject to
cancellation upon six months' prior notice by either party. Pursuant to his
agreement, Mr. Hassan's annual compensation will consist, at a minimum, of a
base salary of $1,200,000 per year. For the year 2000, Mr. Hassan is also
eligible to receive an annual bonus of up to 100% of his base salary depending
on achievement of performance-based goals. Mr. Hassan's agreement also provides
for welfare benefits, participation in company retirement and incentive plans,
and his use of company-provided transportation for security reasons. Mr. Shapiro
entered into an agreement with Monsanto in connection with the merger and will
serve as chairman of the board of
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<PAGE> 41
directors of the combined company for 18 months following the effective time of
the merger and as a senior advisor for a term commencing at the effective time
of the merger and concluding December 31, 2003. Mr. Shapiro's agreement includes
annual compensation of $50,000 per year for his service as chairman, in addition
to regular fees to serve as a member of the board, and $480,000 per year for his
services as a senior advisor. Mr. Shapiro's agreement also provides that during
the term of the agreement, Mr. Shapiro will receive welfare benefits,
secretarial services and security services, including company-provided
transportation.
OTHER AGREEMENTS AND PLANS WITH RESPECT TO EXECUTIVE OFFICERS
PHARMACIA & UPJOHN
EMPLOYMENT AGREEMENTS
In addition to the salary and bonus described above, the terms of Pharmacia
& Upjohn's employment agreement with Mr. Hassan provide that all stock options
granted to Mr. Hassan under the agreement (including Mr. Hassan's year 2000
annual stock option grant to purchase 350,000 shares under the Pharmacia &
Upjohn, Inc. Long-Term Incentive Plan and an additional option grant to purchase
150,000 shares based on the performance of Pharmacia & Upjohn stock) vest and
become fully exercisable as a result of the merger. Under the terms of the
employment agreement, Mr. Hassan also received a grant of 200,000 restricted
shares of Pharmacia & Upjohn stock, which will not vest as a result of the
merger.
STOCK OPTIONS AND INCENTIVE PLANS
As a result of the merger, all outstanding options, stock appreciation
rights, deferred shares and restricted stock grants awarded under the Pharmacia
& Upjohn, Inc. Long-Term Incentive Plan, the Pharmacia & Upjohn, Inc. Equity
Compensation Plan and the Pharmacia & Upjohn Directors Equity Compensation and
Deferral Plan prior to the consummation of the proposed merger, whether or not
fully vested, will, with regard to options, stock appreciation rights and
deferred shares, accelerate, vest and become fully exercisable, and, will, with
respect to restricted stock (except for restricted stock awarded to Mr. Hassan
under his employment agreement), become unrestricted and freely transferable
(including options and restricted stock awarded to Pharmacia & Upjohn
directors), except as set forth in the affiliate agreements. Any option, stock
appreciation right or deferred share that is not exercised before the date the
merger becomes effective will be converted into an immediately exercisable right
with respect to common stock of Monsanto following the merger, in a manner
intended to maintain the aggregate intrinsic value of the converted options,
stock appreciation rights or deferred shares. The number of shares of Monsanto
stock to which any such converted award will pertain will equal the number of
Pharmacia & Upjohn shares subject to such award multiplied by 1.19, and with
respect to options and stock appreciation rights, the exercise price of such
awards will be the current exercise price of such award divided by 1.19.
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<PAGE> 42
The following table shows the number of unvested options and the estimated
value of unvested options that will become exercisable and the number of shares
of restricted stock which become unrestricted for executive officers of
Pharmacia & Upjohn, assuming the merger is completed on June 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF UNVESTED
PHARMACIA & UPJOHN AGGREGATE VALUE OF NUMBER OF
NAME OPTIONS(1) UNVESTED OPTIONS(2) RESTRICTED SHARES
- ---- ------------------ ------------------- -----------------
<S> <C> <C> <C>
F. Hassan........................ 1,066,665 $ 9,514,562 0
G.A. Ando........................ 203,659 1,816,638 0
T.G. Rothwell.................... 192,631 1,718,269 7,300
C.J. Coughlin.................... 248,332 2,215,121 25,000
C. Smith Cox..................... 239,997 2,140,773 0
All other executive officers
as a group..................... 1,072,890 9,570,179 25,667
--------- ----------- -------
3,024,174 $26,975,632 57,967
</TABLE>
- -------------------------
(1) Includes all options granted (including options to be granted in February
2000) that will be unvested and outstanding on June 30, 2000.
(2) Grants valued using Black-Scholes value of $8.92/option. This is the value
used in the 1999 proxy statement.
In anticipation of the merger, the board of directors of Pharmacia & Upjohn
adopted a resolution that, for purposes of the Pharmacia & Upjohn Pension Plan,
the merger would not be deemed to be a "change in control" (as defined in the
pension plan).
MONSANTO
Change of Control Employment Agreements. Monsanto has entered into change
of control employment agreements with each of its executive officers and certain
other key executives. Each change of control agreement provides for the
continuing employment of the executive after a "change of control" (including as
a result of the consummation of the merger) on terms and conditions no less
favorable than those in effect before the change of control. If the executive's
employment is terminated by the company without "cause" or if the executive
terminates his or her own employment for "good reason" (as each term is defined
in the change of control employment agreement), the executive is entitled to
severance benefits equal to a "multiple" of his or her annual compensation
(including bonus and, in the case of Mr. Gary L. Crittenden and one other
executive, long-term incentives) and continuation of certain benefits for a
number of years equal to the multiple. The multiple is three for 25 executives
and two for 7 other executives (or, in either case, the shorter number of years
until the executive's normal retirement date). In addition, each of the
executives entitled to a severance multiple of three is entitled to receive the
severance benefits if he or she voluntarily terminates his or her own employment
during the 30-day period beginning on the first anniversary of certain changes
of control, including the merger. Moreover, the executives are entitled to an
additional payment, if necessary, to make them whole as a result of any excise
tax imposed by the Internal Revenue Code on certain change of control payments.
Monsanto believes that no such additional payments will be necessary as a result
of the merger. Finally, in the event that Mr. De Schutter's employment
terminates other than for cause, he may become entitled to an additional
severance amount of up to one half of the annual bonus payable to him by reason
of outstanding performance and two times his annual compensation, pursuant to
his termination retention agreement with Monsanto.
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<PAGE> 43
As a result of ceasing to be the chief executive officer of Monsanto
immediately following the merger, Mr. Shapiro will become entitled to receive
the severance benefits provided for in his change of control employment
agreement, including cash severance of approximately $7,020,000. If the
employment of the other four most highly compensated executive officers of
Monsanto were terminated immediately following the merger under circumstances
entitling them to benefits under the change of control employment agreements,
the approximate total cash severance benefit that would be paid under such
agreements would be as follows: Mr. De Schutter $4,950,000; Mr. Gary L.
Crittenden $8,400,000; Mr. Philip Needleman $5,100,000; and Mr. Verfaillie
$4,800,000. The approximate maximum aggregate total cash amount that could be
paid under such agreements to the other 12 executive officers of Monsanto who
have change of control employment agreements under such circumstances would be
approximately $32,206,000 (15 individuals who are not executive officers also
have change of control employment agreements). Monsanto would also be
responsible for continuing certain benefits and the additional excise
tax-related payments described above, if applicable. Monsanto, however,
currently believes that the aggregate amounts indicated above significantly
exceed amounts that will actually be paid under such agreements.
STOCK OPTIONS. In accordance with the terms of the applicable stock option
agreements and except as described below, all Monsanto stock options will become
exercisable at the effective time of the merger. In addition, for certain
Monsanto stock options which were issued with exercise prices above the fair
market value of Monsanto common stock on the date such options were issued, at
the effective time of the merger, in accordance with their terms, the exercise
price of such premium options will be reduced to equal the fair market value on
the date of issuance. Purchased options and Year 2000 options granted in 1999
will be vested and exercisable on the later of the effective time of the merger
or the date the employee-option holder pays the required purchase price through
reduction of salary or by a direct payment. Employees who might otherwise
forfeit the options they have not paid for if they terminate employment can
complete payment within 30 days after termination and have their unvested
purchased options and Year 2000 options vest. The following table indicates the
number of Monsanto stock options for which exercisability will accelerate as a
result of the merger, the value of such options, and the amount by which the
exercise price of premium options will be reduced. The value of the Monsanto
stock options for which exercisability will accelerate was calculated based on
the difference between the per share exercise price and the closing price of
Monsanto common stock on the NYSE Composite Transactions Tape on January 26,
2000 ($35.50) and assumes the effective time of the merger is no later than June
30, 2000.
<TABLE>
<CAPTION>
VALUE OF OPTIONS
NUMBER OF FOR WHICH
OPTIONS FOR WHICH EXERCISABILITY INCREASE IN
EXERCISABILITY WILL WILL BE VALUE OF
BE ACCELERATED(1) ACCELERATED(2) PREMIUM OPTIONS
------------------- ---------------- ---------------
<S> <C> <C> <C>
R. B. Shapiro......................... 425,988 $159,059 $15,354,750(3)
G. L. Crittenden...................... 397,041 $ 0 $ 0
R. U. De Schutter..................... 174,305 $ 25,837 $ 1,301,250
P. Needleman.......................... 185,479 $ 23,255 $ 1,301,250
H. A. Verfaillie...................... 236,081 $ 25,837 $ 4,164,000
All other Monsanto executive officers
as a group (12 persons)............. 1,197,024 $ 87,279 $ 7,250,200
</TABLE>
- -------------------------
(1) This represents the number estimated to be unvested as of June 30, 2000.
(2) The estimated value of unvested options shown in this table assumes a
hypothetical price of Monsanto common stock of $35.50 per share. These
values exclude options having an exercise price above $35.50.
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<PAGE> 44
(3) Mr. Shapiro has indicated that he intends to donate a substantial portion of
the increase in value of his premium options, when realized, to a charitable
foundation for the benefit of communities in which Monsanto has major
facilities.
EXECUTIVE STOCK PURCHASE INCENTIVE PLAN. Thirty-five of Monsanto's
executive officers participate in the Monsanto Executive Stock Purchase
Incentive Plan ("ESPIP"), which permits executives to purchase Monsanto common
stock with the proceeds of a full-recourse loan from Monsanto. The purchase
loans are generally payable in three equal installments beginning on December
31, 2001, or over a three-year period following a change of control, including
the merger. Executives who purchase stock through the ESPIP receive a deferred
cash incentive award in the maximum amount of the full-recourse loan plus
accrued interest. The participant receives up to two-thirds of the maximum award
based on Monsanto's stock performance relative to that of a specified
comparative stock index over a performance period which will end December 31,
2000 (the "Shareowner Return Incentive Award"), and up to one-third is based on
continued employment with Monsanto over the performance period (the "Service
Award"). In order to receive any Shareowner Return Incentive Award, Monsanto's
shareowner return through the performance period must be above the 50th
percentile of the index. In order for an executive to earn the maximum
Shareowner Return Incentive Award, Monsanto's shareowner return through the
performance period must be at or above the 75th percentile of the index.
Under the ESPIP, following the merger, participating executives will be
entitled to receive the full Service Award, of which 87.5% would have been
vested as of May 31, 2000, even in the absence of the merger. Additionally,
participating executives may be eligible to receive a Shareowner Return
Incentive Award, calculated based upon performance through the tenth business
day prior to the effective time of the merger. The following table shows the
incremental cash payment under the ESPIP that will result from a change of
control and that would not have been vested as of May 31, 2000 in the absence of
a change of control and assumes, based upon the relative stock price performance
of Monsanto and the relevant index through December 31, 1999, that no Shareowner
Return Incentive Award will be payable.
<TABLE>
<CAPTION>
INCREMENTAL CASH PAYMENT
------------------------
<S> <C>
R. B. Shapiro............................................... $226,410
G. L. Crittenden............................................ $ 0
R. U. De Schutter........................................... $ 62,379
P. Needleman................................................ $ 25,157
H. A. Verfaillie............................................ $ 81,759
All other Monsanto executive officers as a group (12
persons).................................................. $288,015
</TABLE>
RESTRICTED STOCK. Restricted Monsanto common stock is occasionally granted
to Monsanto employees, usually in connection with job offers or to recognize
significant accomplishments. At the effective time of the merger, the
restrictions on all such shares previously awarded will lapse and the shares
will become fully vested and no longer subject to forfeiture. As of January 26,
2000, executive officers of Monsanto owned a total of 47,410 restricted shares
of Monsanto common stock, together with 2,400 shares of Solutia Inc. common
stock issued with respect to such restricted shares when Monsanto spun off its
chemical businesses in September 1997. The Solutia Inc. restricted shares are
subject to the same restrictions as the restricted shares of Monsanto common
stock. The restricted shares of Monsanto common stock (and the related
restricted shares of Solutia Inc. common stock) will vest at the effective time
of the merger. The aggregate value of such restricted shares on
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<PAGE> 45
January 26, 2000 was $1,714,855, calculated based on the closing price of
Monsanto common stock of $35.50 and Solutia Inc. common stock of $13.25, each as
reported on the NYSE composite transactions tape on that date.
OWNERSHIP OF COMMON STOCK; STOCK OPTIONS
As of --, 2000, directors and executive officers of Pharmacia & Upjohn
beneficially owned an aggregate of -- shares of Pharmacia & Upjohn common stock
and no shares of Pharmacia & Upjohn convertible perpetual preferred stock,
including options to purchase -- shares of Pharmacia & Upjohn common stock
exercisable within 60 days. Such shares of common stock collectively constitute
fewer than 1% of the outstanding shares of Pharmacia & Upjohn common stock.
As of --, 2000, directors and executive officers of Monsanto beneficially
owned an aggregate of approximately -- shares of Monsanto common stock,
including options to purchase -- shares of Monsanto common stock exercisable
within 60 days. Such shares of common stock collectively constitute fewer than
1% of the outstanding shares of Monsanto common stock.
ADDITIONAL INFORMATION CONCERNING THE DESIGNEES TO THE BOARD OF DIRECTORS
Following the merger, the combined company's board of directors will have
twenty members, consisting of ten individuals designated by Monsanto and ten
individuals designated by Pharmacia & Upjohn. All committees of the combined
company's board of directors will consist of an equal number of Monsanto and
Pharmacia & Upjohn designees.
The following individuals are Pharmacia & Upjohn's directors, of whom ten
will become directors of the combined company. Certain of these directors were
directors either of The Upjohn Company or Pharmacia Aktiebolag prior to the 1995
combination of Upjohn and Pharmacia.
FRANK C. CARLUCCI, AGE 69, CHAIRMAN, THE CARLYLE GROUP, A MERCHANT
BANK. Mr. Carlucci served as U.S. Secretary of Defense from 1987 to 1989. Mr.
Carlucci is currently on the board of directors of Ashland, Inc., Kaman
Corporation, Neurogen Corporation, Northern Telecom Limited, The Quaker Oats
Company, SunResorts, Ltd., N.V. and Texas Biotechnology Corporation. He also
serves on the board of trustees for the nonprofit Rand Corporation. He had
served as a director of Upjohn before the combination with Pharmacia.
GUSTAF DOUGLAS, AGE 61, CHAIRMAN OF INVESTMENT AB LATOUR, AN INVESTMENT
HOLDING COMPANY. Mr. Douglas is also chairman of the Stockholm Chamber of
Commerce and AB Fagerhult, vice chairman of Securitas AB and Sveriges Television
AB, and a member of the board of directors of Assa Abloy AB, Munksjo AB, Sakl AB
and Stiftelsen Svenska Dagbladet. He had served as a director of Pharmacia
before the combination with Upjohn.
M. KATHRYN EICKHOFF, AGE 60, PRESIDENT, EICKHOFF ECONOMICS INCORPORATED,
ECONOMIC CONSULTANTS. Ms. Eickhoff is the former associate director for Economic
Policy, United States Office of Management and Budget. She also serves as a
director of AT&T Corp., Tenneco Inc. and Fleet Bank, NA. Ms. Eickhoff is a
member of several business organizations including the Conference of Business
Economists, the Economic Club of New York and the National Association of
Business Economists. She had served as a director of Upjohn before the
combination with Pharmacia. Pharmacia & Upjohn has retained Eickhoff Economics
Incorporated to provide economic services to Pharmacia & Upjohn for an annual
fee of $25,000.
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<PAGE> 46
SOREN GYLL, AGE 59, CHAIRMAN OF THE BOARD OF PHARMACIA & UPJOHN AND FORMER
PRESIDENT AND CHIEF EXECUTIVE OFFICER OF AB VOLVO, AN AUTOMOBILE
MANUFACTURER. Mr. Gyll had also been Chairman of Procordia AB, the predecessor
of Pharmacia, from 1992 until 1995, and before that had served as Procordia's
President and Chief Executive Officer. Mr. Gyll is a member of the board of
directors of Bilia AB, AB Volvo, SKF AB, SCA AB, Skanska AB, Oresa Ventures and
the Federation of Swedish Industries. Mr. Gyll is also a member of the Royal
Swedish Academy of Engineering Sciences. He had served as a director of
Pharmacia before the combination with Upjohn.
FRED HASSAN, AGE 54, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF PHARMACIA &
UPJOHN. Mr. Hassan had been Executive Vice President and a member of the board
of directors of American Home Products Corporation immediately prior to joining
Pharmacia & Upjohn in May 1997, and he had been senior vice president of
American Home Products Corporation before that. He joined Pharmacia & Upjohn's
board of directors in 1997.
BERTHOLD LINDQVIST, AGE 61, FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
GAMBRO AB, A GLOBAL MEDICAL TECHNOLOGY COMPANY. Mr. Lindqvist is also a member
of the board of directors of Gambro AB, Trelleborg AB, PLM AB, Munters AB and
Securitas AB. Mr. Lindqvist is also a member of the Royal Swedish Academy of
Sciences. He had served as a Director of Pharmacia before the combination with
Upjohn.
OLOF LUND, AGE 69, FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER OF CELSIUS
INDUSTRIER AB, A DEFENSE MANUFACTURING COMPANY. Mr. Lund is the chairman of
AssiDoman AB, Enator AB, SIAR Foundation and the Swedish Financial Accounting
Standards Council, and is a member of the board of directors of FPG/AMFK, Posten
AB and the Federation of Swedish Industries. Mr. Lund is also a member of the
Royal Academy of War Sciences. He had served as a director of Pharmacia before
the combination with Upjohn.
C. STEVEN MCMILLAN, AGE 54, PRESIDENT AND CHIEF OPERATING OFFICER OF SARA
LEE CORPORATION, A CONSUMER GOODS COMPANY. Mr. McMillan previously held other
management positions at Sara Lee before assuming his current position. Mr.
McMillan is a member of the board of directors of Sara Lee Corporation and
Illinova Corporation. He also serves on the boards of several not-for-profit and
civic organizations. He joined Pharmacia & Upjohn's board of directors in 1998.
WILLIAM U. PARFET, AGE 53, CO-CHAIRMAN OF MPI RESEARCH, LLC, A PRECLINICAL
TOXICOLOGY AND CLINICAL PHARMACEUTICAL TESTING LABORATORY. Mr. Parfet assumed
his current position in November 1995 and had previously served from October
1993 to January 1996 as president and chief executive officer of Richard Allan
Medical Industries, a medical device manufacturer. Prior to that, he had served
as Vice Chairman of the board of directors of Upjohn. Mr. Parfet serves as a
member of the board of directors of CMS Energy Corporation, the Financial
Accounting Foundation, Stryker Corporation and Sybron International. He had
served as a director of Upjohn before the combination with Upjohn. From time to
time, Pharmacia & Upjohn has retained MPI Research, LLC to conduct pre-clinical
and clinical testing work for Pharmacia & Upjohn. In addition, MPI Research
conducts pre-clinical and clinical testing work for independent entities with
whom Pharmacia & Upjohn has contractual and business relationships. Mr. Parfet
is the brother of Donald R. Parfet, senior vice president of Pharmacia & Upjohn.
ULLA REINIUS, AGE 62, PRESIDENT OF U. REINIUS FINANSFAKTA AB, PUBLISHER AND
FINANCIAL INFORMATION CONSULTANT. Ms. Reinius is also a member of the board of
directors of the Swedish Association for Share Promotion and a member of the
Ethical Advisory Board of the Swedish County Pension Funds and of the Swedish
Royal Opera. She is a former member of the Swedish Government Ethical Committee.
She had served as a director of Pharmacia before the combination with Upjohn.
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<PAGE> 47
BENGT SAMUELSSON, M.D., AGE 65, PROFESSOR OF MEDICAL AND PHYSIOLOGICAL
CHEMISTRY, AND, FORMERLY, PRESIDENT, KAROLINSKA INSTITUTE. Dr. Samuelsson was
the Nobel Laureate in Physiology or Medicine in 1982 and is currently chairman
of the Nobel Foundation. He is also a member of the board of directors of
Svenska Handelsbanken, the Liposome Company and Nicox, S.A., Valboune, France.
Dr. Samuelsson is a member of the Royal Swedish Academy of Sciences, the
American Academy of Arts and Sciences, the Association of American Physicians,
Adacemie des Sciences, Paris, the U.S. National Academy of Sciences, and the
Royal Society, London. He had served as a director of Pharmacia before the
combination with Upjohn. Pharmacia & Upjohn provides research grants and other
business-related funding to the Karolinska institute.
MORTON L. TOPFER, AGE 63, COUNSELOR TO THE CHIEF EXECUTIVE OFFICER OF DELL
COMPUTER CORPORATION. Mr. Topfer is presently counselor to the chief executive
officer of Dell Computer Corporation. He previously served as vice chairman of
Dell from 1994 to 1999. For 23 years prior to joining Dell, Mr. Topfer held
various positions with Motorola, Inc., last serving as corporate executive vice
president and president of the Land Mobile Products Sector. Before joining
Motorola in 1971, Mr. Topfer spent 11 years with RCA Laboratories in various
research and development and management positions. He began his professional
career as a research engineer with Kollsman Instruments Corporation in New York.
He is a member of the board of directors of Autodesk, Inc., Alliance Gaming and
Dell.
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<PAGE> 48
THE MERGER AGREEMENT
The following summary of the merger agreement is qualified by reference to
the complete text of the merger agreement, which is incorporated by reference
and attached as Annex A.
STRUCTURE OF THE MERGER
Under the merger agreement, a newly formed Monsanto subsidiary will merge
into Pharmacia & Upjohn so that Pharmacia & Upjohn becomes a wholly owned
subsidiary of the combined company.
TIMING OF CLOSING
The closing of the merger will take place on the second business day after
all closing conditions set forth in the merger agreement have been satisfied or
waived, unless Monsanto and Pharmacia & Upjohn agree to a different date. We
expect that immediately upon the closing of the merger, we will file a
certificate of merger with the Secretary of State of the State of Delaware. The
effective time of the merger will either be the time the certificate of merger
is filed, or at such later time as may be specified in the certificate of
merger.
MERGER CONSIDERATION
The merger agreement provides that each share of Pharmacia & Upjohn common
stock outstanding immediately prior to the effective time of the merger will at
the effective time be converted into the right to receive 1.19 shares of common
stock of the combined company. However, any shares of Pharmacia & Upjohn common
stock issued and owned or held by Pharmacia & Upjohn or Monsanto or any of their
subsidiaries will be canceled without any payment for those shares.
In addition, each outstanding share of Pharmacia & Upjohn convertible
perpetual preferred stock (other than shares as to which appraisal rights have
been exercised) will, at the effective time, be converted into the right to
receive one share of convertible perpetual preferred stock of the combined
company having, to the extent possible, terms identical to those of the
Pharmacia & Upjohn convertible perpetual preferred stock.
The combined company will not issue any fractional shares in the merger.
Holders of Pharmacia & Upjohn common stock who would otherwise receive
fractional shares will instead receive a cash payment based upon the value of
such fractional shares of the common stock of the combined company.
As a result of the merger, all shares of Pharmacia & Upjohn common stock
and convertible perpetual preferred stock will no longer be outstanding and
shall be canceled.
TREATMENT OF PHARMACIA & UPJOHN STOCK OPTIONS
At the effective time, each outstanding option granted by Pharmacia &
Upjohn to purchase shares of Pharmacia & Upjohn common stock will be converted
into an immediately exercisable option with respect to common stock of the
combined company following the merger, in a manner intended to maintain the
aggregate intrinsic value of the converted options. The number of shares of
common stock of the combined company which any such converted award will pertain
to will equal the number of Pharmacia & Upjohn shares subject to such award
multiplied by 1.19, and the exercise price of such award will be the current
exercise price of such award divided by 1.19.
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<PAGE> 49
Each other stock-based award already granted by Pharmacia & Upjohn under
its employee or directors plans or arrangements prior to the effective time will
be converted, as of the effective time, into similar stock-based awards of the
combined company, adjusted as appropriate to preserve the award's inherent
value. Pursuant to their terms, all Pharmacia & Upjohn stock-based awards
outstanding at the effective time will vest and become immediately exercisable
or, in the case of restricted stock grants, become freely transferrable upon the
occurrence of the merger. For additional information on the Pharmacia & Upjohn
stock-based awards, see "Interests of Officers and Directors in the Merger" on
page I-35.
EXCHANGE OF SHARES
Monsanto will appoint an exchange agent to handle the exchange of Pharmacia
& Upjohn stock certificates for stock certificates of the combined company in
the merger and the payment of cash for fractional shares that would otherwise
have been issued in the merger. Soon after the effective time of the merger, the
exchange agent will send to each former Pharmacia & Upjohn stockholder a letter
of transmittal to be used to exchange Pharmacia & Upjohn stock certificates for
stock certificates of the combined company and to receive cash instead of any
fractional shares. The letter of transmittal will contain instructions
explaining the procedure for surrendering Pharmacia & Upjohn stock certificates.
YOU SHOULD NOT RETURN ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Holders of Pharmacia & Upjohn stock who surrender their stock certificates
to the exchange agent, together with a properly completed letter of transmittal,
will receive the appropriate merger consideration. Holders of unexchanged shares
of Pharmacia & Upjohn stock will not be entitled to receive any dividends or
other distributions payable by the combined company after the effective time of
the merger until they surrender their stock certificates in accordance with the
exchange agent's instructions.
Stockholders of Monsanto will not be required to exchange their Monsanto
certificates as a result of the merger. At the effective time, these
certificates will automatically represent an equal number of shares in the
combined company.
THE BOARD OF THE COMBINED COMPANY AND RELATED MATTERS
BOARD OF DIRECTORS OF THE COMBINED COMPANY. Monsanto and Pharmacia &
Upjohn have agreed to take the necessary action so that, as of the effective
time of the merger, the board of directors of the combined company will consist
of 20 members, 10 of whom will be designated by Monsanto and 10 of whom will be
designated by Pharmacia & Upjohn. In addition, each board committee will
initially have an equal number of members designated by each of Monsanto and
Pharmacia & Upjohn.
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS OF THE
COMBINED COMPANY. The merger agreement provides that, as of the effective time
of the merger, Mr. Robert B. Shapiro, chairman and chief executive officer of
Monsanto, will serve as the chairman of the board of directors of the combined
company and that Mr. Fred Hassan, president and chief executive officer of
Pharmacia & Upjohn, will serve as chief executive officer of the combined
company. If Mr. Hassan is still chief executive officer of the combined company
18 months after the merger, he will then become chairman of the board, unless
otherwise determined at that time by the affirmative vote of 80% of the members
of the board of directors of the combined company. If Mr. Shapiro is not the
chief executive officer of Monsanto and/or Mr. Hassan is not the chief executive
officer of Pharmacia & Upjohn, in each case immediately prior to the merger, we
have agreed to use our reasonable best efforts to agree upon an individual or
individuals to replace Mr. Shapiro and/or Mr. Hassan as chairman and/or chief
executive officer, as the case may be.
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<PAGE> 50
EXECUTIVE OFFICERS OF THE COMBINED COMPANY. We agreed in the merger
agreement that it is our intention that the twenty most senior positions of the
combined company, excluding the chairman and the chief executive officer, will
be held by ten executives from each of Monsanto and Pharmacia & Upjohn.
HEADQUARTERS OF THE COMBINED COMPANY. We agreed in the merger agreement
that it is our intention that following the effective time of the merger the
principal corporate offices of the combined company and the headquarters of its
pharmaceuticals business will be located in Peapack, New Jersey and that the
headquarters of its agribusiness will be in St. Louis, Missouri.
INTENDED AGRIBUSINESS IPO
The merger agreement includes a description of our plans with respect to
Monsanto's agribusiness unit. It states that our intention is that as promptly
as practicable following the merger, the combined company will reorganize the
agribusiness unit under the Monsanto name as a direct or indirect subsidiary and
sell up to 19.9% of that subsidiary by means of an initial public offering of
its common stock to be listed on the New York Stock Exchange. At the time of the
agribusiness initial public offering, we intend that the agribusiness subsidiary
will have a sound capital structure.
COVENANTS
We have each undertaken to perform certain covenants in the merger
agreement. The principal covenants are as follows:
NO SOLICITATION. Except as described below, we have agreed that each of us
and our subsidiaries will not directly or indirectly, or through our officers or
directors will not, and we will use our reasonable best efforts to cause each of
our, and our subsidiaries', employees, agents and representatives, not to
solicit, initiate, encourage or knowingly facilitate any inquiries or proposals
relating to an "acquisition proposal," as defined below, or participate in any
discussions or negotiations regarding any acquisition proposal. This prohibition
on solicitation and facilitation precludes, among other things, us from
furnishing confidential information to any other person relating to an
acquisition proposal.
An "acquisition proposal" is:
- any purchase or sale of assets of Monsanto or Pharmacia & Upjohn or any
one of our subsidiaries, valued at 10% or more of the market
capitalization of such party or any purchase or sale of, or tender or
exchange for 10% or more of any equity securities of Monsanto or
Pharmacia & Upjohn; or
- any merger, reorganization, consolidation, share exchange, business
combination, recapitalization, liquidation or dissolution or similar
transaction involving Monsanto or Pharmacia & Upjohn, other than a
proposal made by the other party or its affiliate.
However, in response to an unsolicited bona fide written acquisition
proposal to acquire either company, the company which receives such acquisition
proposal may:
- furnish any information to any person making such acquisition proposal;
- participate in discussions or negotiations regarding such acquisition
proposal; and
- recommend approval of such acquisition proposal and withdraw the
recommendation to approve this merger.
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<PAGE> 51
In order for either company to engage in any of the above activities in
response to the unsolicited acquisition proposal:
- its meeting of stockholders must not have occurred;
- in order to furnish information or participate in discussions or
negotiations as described above, its board of directors must conclude in
good faith that the acquisition proposal could reasonably be expected to
result in a "superior proposal";
- in order to recommend approval of such acquisition proposal or withdraw
its recommendation as described above, its board of directors must
conclude in good faith that the acquisition proposal constitutes a
"superior proposal";
- prior to providing any information or data to any person in connection
with an acquisition proposal it receives from that person an executed
confidentiality agreement containing terms at least as stringent as the
terms contained in the confidentiality agreement we entered into before
signing the merger agreement; and
- prior to providing any information or data to any person or entering into
discussions or negotiations with any person, it notifies the other party.
Neither company is prevented from taking and disclosing to its stockholders
its position with respect to an acquisition proposal in order to comply with
Rules 14d-9 and 14e-2 under the Securities Exchange Act of 1934.
Each company has also agreed:
- to terminate any discussions or negotiations with any parties regarding
acquisition proposals that were being conducted at the time the merger
agreement was signed and to request that any party possessing
confidential information about one of us in connection with any such
acquisition proposal return or destroy all such information; and
- to promptly keep the other party informed of the status and terms of any
proposals, offers, discussions or negotiations related to a bona fide
unsolicited written acquisition proposal.
A "superior proposal" for Monsanto or Pharmacia & Upjohn, as applicable, is
a written proposal made by a third party for:
(1) a merger, reorganization, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving it, as a result of which either:
(A) its stockholders before the transaction cease to own at least 50%
of the voting securities of the entity surviving or resulting from
such transaction, or the ultimate parent entity of the surviving
entity; or
(B) the individuals comprising its board of directors before the
transaction do not constitute a majority of the board of directors
of that ultimate parent entity;
(2) a sale, lease, exchange, transfer or other disposition of at least 50%
of the assets of it and its subsidiaries, taken as a whole, in a single
transaction or a series of related transactions; or
(3) the acquisition, directly or indirectly, by a person of beneficial
ownership of 50% or more of its common stock, whether by merger,
consolidation, share exchange, business combination, tender or exchange
offer or otherwise, other than a merger, consolidation, share exchange,
business combination, tender or exchange offer or other transaction
upon the consummation
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<PAGE> 52
of which such party's stockholders would in the aggregate beneficially
own greater than 60% of the voting securities of such person;
which is otherwise on terms which its board of directors in good faith
concludes, after consultation with its financial advisors and outside counsel,
after taking into account, among other things, all legal, financial, regulatory
and other aspects of the proposal and the person making the proposal, would, if
consummated, result in a transaction that is more favorable to its stockholders,
from a financial point of view, than the merger between Monsanto and Pharmacia &
Upjohn, and is reasonably capable of being completed.
BOARD OF DIRECTORS' COVENANT TO RECOMMEND. We have agreed that each of our
respective boards of directors will, subject to its fiduciary duties under
applicable law and its right to pursue certain types of bona fide written
unsolicited acquisition proposals that it receives, recommend to our respective
stockholders the adoption of the merger agreement in the case of Pharmacia &
Upjohn and the approval of the issuance of shares in the merger and of the
Monsanto charter amendments in the case of Monsanto, and will not, subject to
its fiduciary duties under applicable law and its right to pursue certain types
of bona fide written unsolicited acquisition proposals that it receives,
withdraw, modify or materially qualify in a manner adverse to the other company
its recommendation, or to take any action or make any statement in connection
with its stockholders' meeting that is materially inconsistent with its
recommendation.
STOCKHOLDERS' MEETINGS. We have each agreed, as promptly as reasonably
practicable, to convene meetings of our stockholders to consider and vote upon
adoption of the merger agreement in the case of Pharmacia & Upjohn and the
approval of the issuance of shares in the merger and of the Monsanto charter
amendments in the case of Monsanto, and to prepare appropriate proxy statements
for such meetings. We have also agreed to use our reasonable best efforts to
have the registration statement for the shares to be issued in the merger
declared effective by the SEC.
OPERATIONS OF THE TWO COMPANIES PENDING CLOSING. We have each agreed to
restrictions on our activities until either the effective time of the merger or
the termination of the merger agreement. In general, we are required to conduct
our business in the usual, regular and ordinary course in all material respects,
in substantially the same manner as previously conducted, and to use all
reasonable efforts to preserve intact our present lines of business, maintain
our rights and franchises and preserve our relationships with third parties with
the intention that our ongoing businesses shall not be impaired in any material
respect. An exception to this covenant is the ability of Monsanto to divest
certain of its nutrition and consumer businesses. Each of us has agreed to
specific restrictions that prohibit us from:
- entering into any new material lines of business or incurring or
committing to any capital expenditures or obligations or liabilities in
connection with any new material line of business beyond specified
amounts;
- declaring or paying dividends in excess of $0.03 per share of Monsanto
common stock per quarter, $0.27 per share of Pharmacia & Upjohn common
stock per quarter, and $629.69 per share of Pharmacia & Upjohn Series A
convertible perpetual preferred stock per quarter or making other
distributions in respect of our capital stock;
- splitting, combining or reclassifying our capital stock or issuing
securities in respect of, in lieu of or in substitution for our capital
stock;
- repurchasing or redeeming our capital stock, except in the ordinary
course of business consistent with past practice in connection with our
respective employee benefit plans;
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<PAGE> 53
- issuing, delivering or selling or entering into any agreement to issue,
deliver or sell, any shares of our capital stock or other voting
securities, or any securities convertible into or exercisable into
capital stock or other voting securities, other than in connection with
our benefit plans or in connection with the exercise of options or other
stock awards or stock option agreements or in connection with permitted
acquisitions or in connection with certain issuances by our subsidiaries;
- amending our certificates of incorporation, by-laws or other governing
documents (other than pursuant to the merger agreement);
- making acquisitions of, or investments in, other entities beyond
specified amounts;
- disposing of assets, other than inventory in the ordinary course
consistent with past practice and certain of Monsanto's nutrition and
consumer businesses, beyond specified amounts;
- making loans, advances, capital contributions or investments in any other
person other than certain intercompany loans, or pursuant to existing
obligations or in the ordinary course consistent with past practice and
not in excess of specified amounts;
- incurring debt, other than under existing agreements or in the ordinary
course consistent with past practice;
- taking actions that would prevent or impede the merger from qualifying as
a pooling of interests for accounting purposes or as a reorganization for
tax purposes;
- increasing the compensation of any director or executive officer or
materially increasing employee benefits or adopting any material new
employee benefit plan or making any material contribution, other than
regularly scheduled contributions, to a benefit plan, other than in the
ordinary course consistent with past practice or as required by an
existing agreement;
- changing our accounting methods except as may be required by changes in
generally accepted accounting principles;
- changing our fiscal year or making any material tax election other than
in the ordinary course consistent with past practice;
- entering into any agreement or arrangement that limits or restrict us or
from engaging or competing in any line of business or geographic area if
that resulting restriction would have a material adverse effect on the
combined company and its subsidiaries, taken together, after the merger;
- amending our respective stockholder rights plans to make them
inapplicable to any transaction, or redeeming the rights issued under
those plans other than to permit another transaction that the applicable
company's board has determined is a superior proposal to be consummated
after termination of the merger agreement; and
- making any contributions to any grantor trust or other funding
arrangement for any non-qualified deferred compensation that is
considered "unfunded" for purposes of ERISA.
REASONABLE BEST EFFORTS COVENANT. We have agreed to use our reasonable
best efforts to take all actions and do all things necessary or advisable under
applicable laws to complete the merger and the other transactions contemplated
by the merger agreement as soon as practicable. This cooperation may include
selling, holding separately or otherwise disposing of assets, or conducting
business in a specified manner, in response to the requirements imposed by
antitrust authorities. Neither of us will be required for any reason to sell,
hold separate or otherwise dispose of assets, or to conduct its
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<PAGE> 54
business in a specified manner, if such action is not conditioned on closing the
merger or would reasonably be expected to have a material adverse effect on the
combined company after the merger.
EMPLOYEE MATTERS. We have agreed that the combined company will honor all
Monsanto and Pharmacia & Upjohn benefit plans and related funding arrangements
in accordance with their respective terms and will interpret those plans in
accordance with the respective past practices of Monsanto and Pharmacia &
Upjohn.
During the period from the merger to December 31, 2001, we do not intend
the combined company to reduce base salary, annual bonus opportunities or
long-term incentive opportunities for our employees, except as otherwise
determined by the board of directors or compensation committee of the combined
company .
In addition, from the effective time of the merger until December 31, 2001,
the combined company will provide employee benefits to the employees and former
employees of Monsanto and Pharmacia & Upjohn that are in the aggregate no less
favorable to those provided to them under existing benefit plans at Monsanto or
Pharmacia & Upjohn, excluding equity and equity-based compensation. In
particular, the combined company will provide severance pay and benefits to its
employees whose employment terminates on or before December 31, 2001, in
accordance with the following:
- with respect to employees who are employed by Monsanto immediately before
the merger, not less favorable than those provided under the applicable
Monsanto employee benefit plan; and
- with respect to employees who are employed by Pharmacia & Upjohn
immediately before the merger, not less favorable than those provided
under the applicable Pharmacia & Upjohn employee benefit plan.
With respect to any employee benefit plans in which any employees of the
combined company first become eligible to participate on or after the merger
occurs, and in which they did not participate prior to the merger, the combined
company will:
- waive all pre-existing conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to
employees of the combined company who may be eligible to participate,
except to the extent such pre-existing conditions, exclusions and waiting
periods would apply under the analogous Monsanto or Pharmacia & Upjohn
benefit plan;
- provide each employee of the combined company with credit for any
co-payments and deductibles paid prior to the merger to the same extent
such credit was given under the analogous Monsanto or Pharmacia & Upjohn
employee benefit plan before the merger; and
- recognize all service of employees of the combined company with Pharmacia
& Upjohn and Monsanto for all purposes (including eligibility, vesting,
entitlement, and, except with respect to defined benefit pension plans,
benefit accrual) in any new benefit plan of the combined company in which
those employees may be eligible to participate after the merger, to the
extent that service is taken into account under the applicable plan of
the combined company.
We have agreed to take all steps necessary or appropriate to amend any of
our grantor trusts so that no contributions to those trusts are required to be
made as a result of or in connection with the merger. We have also agreed to
take all steps necessary to cause our defined benefit pension plans not to
contain "change of control" provisions that would become effective upon the
merger.
PAYMENT OF DIVIDENDS PENDING THE MERGER. We have agreed to coordinate
declaring dividends and the related record dates and payment dates so that
Monsanto and Pharmacia & Upjohn
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stockholders do not receive two dividends, or fail to receive one dividend, for
any single calendar quarter.
NYSE AND STOCKHOLM STOCK EXCHANGE LISTING. Monsanto has agreed to use its
reasonable best efforts to cause common stock of the combined company to be
listed on the NYSE and the Stockholm Stock Exchange.
INSURANCE AND INDEMNIFICATION. After it becomes a wholly-owned subsidiary
of the combined company, Pharmacia & Upjohn is obligated to (and the combined
company is obligated to cause Pharmacia & Upjohn to):
- indemnify and hold harmless, and provide advancement of expenses to, all
past and present directors, officers and employees of Pharmacia & Upjohn
and its subsidiaries, to the same extent those persons are currently
indemnified or have the right to advancement of expenses, for acts or
omissions occurring on or before the merger;
- cause Pharmacia & Upjohn's certificate of incorporation and by-laws to
include, for a period of six years after the merger, the current
provisions regarding elimination of liability of directors,
indemnification of officers, directors and employees and advancement of
expenses; and
- cause to be maintained for a period of six years after the merger the
current policies of directors' and officers' liability insurance and
fiduciary liability insurance maintained by Pharmacia & Upjohn, or
policies of at least the same coverage and amounts containing terms and
conditions which are, in the aggregate, no less advantageous to the
insured, with respect to claims arising from facts or events that
occurred on or before the merger. Pharmacia & Upjohn will not be required
to expend in any one year an amount in excess of 200% of its current
annual premiums for this insurance.
EXPENSES. We have each agreed to pay our own costs and expenses incurred
in connection with the merger and the merger agreement. We will, however, share
equally the expenses incurred in connection with the filing with the SEC of this
document and the related registration statement and the costs associated with
the printing and mailing of this document. If the merger is consummated, the
surviving corporation will pay all property or transfer taxes imposed on
Pharmacia & Upjohn or its subsidiaries.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains substantially reciprocal representations and
warranties made by each of us to the other. The representations and warranties
relate to:
- corporate existence, qualification to conduct business and corporate
standing and power;
- ownership of subsidiaries;
- capital structure;
- corporate authority to enter into, and carry out the obligations under,
the merger agreement and enforceability of the merger agreement;
- absence of a breach of the certificate of incorporation, by-laws, law or
material agreements as a result of the merger;
- filings with the SEC;
- financial statements;
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- information supplied for use in this joint proxy statement/prospectus;
- board of directors approval;
- votes required for approval;
- litigation;
- compliance with laws;
- absence of certain changes or events;
- environmental matters;
- intellectual property matters;
- payment of fees to finders or brokers in connection with the merger
agreement;
- opinions of financial advisors;
- accounting matters;
- tax matters;
- restrictive contracts; and
- employee benefits.
In addition, we also represented to each other that our respective
stockholder rights plans are not applicable to the merger, the merger agreement
and the stock option agreements. The merger agreement also contains
representations and warranties relating to the wholly owned subsidiary of
Monsanto that will be merged into Pharmacia & Upjohn, including due
organization, corporate authorization, non-contravention and no prior business
activities.
The representations and warranties contained in the merger agreement do not
survive the effective time of the merger.
CONDITIONS
Each of our respective obligations to complete the merger are subject to
the satisfaction or waiver of various conditions the most significant of which
are:
- the adoption of the merger agreement by Pharmacia & Upjohn stockholders,
and the approval of the issuance of common stock and preferred stock in
the merger and amendments to the Monsanto certificate of incorporation by
Monsanto stockholders;
- the absence of any law, order or injunction prohibiting completion of the
merger or which otherwise would reasonably be expected to have a material
adverse effect on the combined company and its subsidiaries, taken
together, after the merger;
- the expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act;
- the approval of the merger by the Commission of the European Community;
- the receipt of all other governmental and regulatory consents, approvals
and authorizations necessary for the merger and the issuance of common
stock and preferred stock in the merger, unless not obtaining those
consents or approvals would not reasonably be expected to have a
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material adverse effect on the combined company and its subsidiaries,
taken together, after the merger;
- the approval for listing on the NYSE of the Monsanto common stock to be
issued in the merger, subject to official notice of issuance;
- the SEC having declared effective the Monsanto registration statement for
the common stock of the combined company to be issued in the merger;
- the representations and warranties contained in the merger agreement of
the other company being true and correct in all material respects on the
date of the merger agreement and the date of the merger as if they were
made on that date, except to the extent that those representations and
warranties speak as of another date;
- the other company having adequately performed or complied with its
obligations and covenants contained in the merger agreement;
- the receipt of an opinion of each company's counsel that the merger will
qualify as a reorganization for federal tax purposes and that each of
Monsanto, Monsanto's merger subsidiary and Pharmacia & Upjohn will be a
party to the reorganization; and
- no event having occurred which would trigger a distribution under the
other company's stockholder rights plan.
Additionally, Pharmacia & Upjohn does not have to complete the merger
unless:
- 10 of its designees have been elected to the board of directors of the
combined company;
- the persons appointed as non-executive chairman of the combined company
and chief executive officer of the combined company are reasonably
acceptable to Monsanto and Pharmacia & Upjohn; and
- the combined company's corporate governing instruments, as amended in
accordance with the merger agreement, are in effect.
TERMINATION OF THE MERGER AGREEMENT
TERMINATION BY MONSANTO OR PHARMACIA & UPJOHN. Either one of us, by action
of our respective boards of directors, may terminate the merger agreement and
abandon the merger at any time prior to the merger if:
(a) both of us agree to terminate effective by mutual written consent (and
it being agreed that neither one of us is allowed to unreasonably
withhold its consent to a termination request of the other party if any
of its representations or warranties or covenants that are conditions
to the merger in the merger agreement would not reasonably be expected
to be satisfied prior to December 31, 2000, through the exercise of its
reasonable best efforts);
(b) the merger has not been completed by December 31, 2000, provided that
the terminating party's failure to fulfill any obligation under the
merger agreement is not the cause of the merger not being completed;
(c) a court order or ruling of another governmental entity permanently
prohibiting the completion of the merger becomes final and
non-appealable, provided that the terminating party shall have used its
reasonable best efforts to avoid or remove such prohibition;
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(d) a court or another governmental entity fails to issue an order or
ruling that is necessary to effect the merger and the denial of a
request to issue such an order or ruling becomes final and
non-appealable, provided that the terminating party shall have used its
reasonable best efforts to obtain such order or ruling;
(e) either company's stockholders fail to approve the proposals contained
in this document at the applicable stockholders' meetings; or
(f) either company's board of directors makes an adverse change in its
recommendations to its stockholders regarding the merger.
TERMINATION BY MONSANTO. Monsanto, by action of its board of directors,
may terminate the merger agreement and abandon the merger at any time prior to
the merger if:
(a) prior to the Pharmacia & Upjohn stockholders' meeting the board of
directors of Pharmacia & Upjohn approves or recommends a superior
proposal by a third party;
(b) prior to its stockholders' meeting and after providing Pharmacia &
Upjohn three business days to negotiate a revised transaction with it,
the board of directors of Monsanto concludes, after taking into account
any proposals by Pharmacia & Upjohn, that it has received a superior
proposal; or
(c) a stock acquisition date has occurred under the Pharmacia & Upjohn
stockholder rights plan, which will generally occur if a third party
acquires 15% or more of Pharmacia & Upjohn's outstanding voting stock.
TERMINATION BY PHARMACIA & UPJOHN. Pharmacia & Upjohn, by action of its
board of directors, may terminate the merger agreement and abandon the merger at
any time prior to the merger if:
(a) prior to the Monsanto stockholders' meeting the board of directors of
Monsanto approves or recommends a superior proposal by a third party;
(b) prior to its stockholders' meeting and after providing Monsanto three
business days to negotiate a revised transaction with it, the board of
directors of Pharmacia & Upjohn concludes, after taking into account
any proposals by Monsanto, that it has received a superior proposal; or
(c) a share acquisition date has occurred under the Monsanto stockholder
rights plan, which will generally occur if a third party acquires 20%
or more of Monsanto's outstanding voting stock.
FEES AND EXPENSES PAYABLE BECAUSE OF A TERMINATION OF THE MERGER AGREEMENT
FEES PAYABLE BY PHARMACIA & UPJOHN RELATING TO TERMINATION.
- Pharmacia & Upjohn has agreed to pay Monsanto an alternate transaction
fee of $575 million if:
- either party terminates the merger agreement because the merger has
not been completed by December 31, 2000, and (1) there exists a
business combination proposal with respect to Pharmacia & Upjohn at
any time prior to December 31, 2000, (2) an intentional material
breach by Pharmacia & Upjohn of the merger agreement following the
occurrence of that business combination proposal materially
contributed to the failure to complete the merger on or prior to
December 31, 2000, and (3) within 12 months of the
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termination of the merger agreement, Pharmacia & Upjohn enters into a
business combination or an agreement to enter into a business
combination;
- either party terminates the merger agreement because the stockholders
of Pharmacia & Upjohn have failed to adopt the merger agreement at the
Pharmacia & Upjohn stockholders' meeting and (1) on or prior to the
date of the meeting of Pharmacia & Upjohn stockholders a business
combination proposal with respect to Pharmacia & Upjohn has been
publicly announced or otherwise communicated to the board of directors
of Pharmacia & Upjohn, and (2) within 12 months of the termination of
the merger agreement, Pharmacia & Upjohn enters into a business
combination or an agreement to enter into a business combination;
- Monsanto terminates the merger agreement because prior to Pharmacia &
Upjohn's stockholders' meeting the board of directors of Pharmacia &
Upjohn approved or recommended a superior proposal by a third party;
- Pharmacia & Upjohn terminates the merger agreement after providing
Monsanto three business days to negotiate a revised transaction with
it, and the board of directors of Pharmacia & Upjohn concludes, after
taking into account any proposals by Monsanto, that it has received a
superior proposal from a third party;
- either party terminates the merger agreement because prior to the
Pharmacia & Upjohn stockholders' meeting, the board of directors of
Pharmacia & Upjohn has adversely changed its recommendation and (1) on
or prior to that change a business combination proposal relating to
Pharmacia & Upjohn has been publicly announced or otherwise
communicated to the board of directors of Pharmacia & Upjohn, and (2)
within 12 months of the termination, Pharmacia & Upjohn enters into a
business combination or an agreement to enter into a business
combination; or
- Monsanto terminates the merger agreement because a stock acquisition
date has occurred under the Pharmacia & Upjohn stockholder rights
plan, which will generally occur if a third party acquires 15% or more
of Pharmacia & Upjohn's outstanding voting stock.
- Pharmacia & Upjohn has also agreed to pay Monsanto a termination fee of
$250 million if either party terminates the merger agreement because the
board of directors of Pharmacia & Upjohn has adversely changed its
recommendation of the merger. This termination fee is not payable if
Monsanto is in material breach of the merger agreement at the time of the
adverse change. This termination fee is not payable if the $575 million
alternate transaction fee is also payable, and any payment of this $250
million termination fee will be credited against any $575 million
alternate transaction fee that subsequently becomes payable.
FEES PAYABLE BY MONSANTO RELATING TO TERMINATION.
- Monsanto has agreed to pay Pharmacia & Upjohn an alternate transaction
fee of $575 million if:
- either party terminates the merger agreement because the merger has
not been completed by December 31, 2000, and (1) there exists a
business combination proposal with respect to Monsanto at any time
prior to December 31, 2000, (2) an intentional material breach by
Monsanto of the merger agreement following the occurrence of that
business combination proposal materially contributed to the failure to
complete the merger on or prior to December 31, 2000, and (3) within
12 months of the termination of the merger
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agreement, Monsanto enters into a business combination or an agreement
to enter into a business combination;
- either party terminates the merger agreement because the stockholders
of Monsanto have failed to approve the issuance of Monsanto stock or
the proposed amendments to Monsanto's certificate of incorporation at
the Monsanto stockholders' meeting and (1) on or prior to the date of
the meeting of Monsanto stockholders a business combination proposal
with respect to Monsanto has been publicly announced or otherwise
communicated to the board of directors of Monsanto and (2) within 12
months of the termination of the merger agreement, Monsanto enters
into a business combination or an agreement to enter into a business
combination;
- Pharmacia & Upjohn terminates the merger agreement because prior to
Monsanto's stockholders' meeting the board of directors of Monsanto
approved or recommended a superior proposal by a third party;
- Monsanto terminates the merger agreement after providing Pharmacia &
Upjohn three business days to negotiate a revised transaction with it,
and the board of directors of Monsanto concludes, after taking into
account any proposals by Pharmacia & Upjohn, that it has received a
superior proposal from a third party;
- either party terminates the merger agreement because prior to
Monsanto's stockholders' meeting the board of directors of Monsanto
has adversely changed its recommendation and (1) on or prior to that
change a business combination proposal relating to Monsanto has been
publicly announced or otherwise communicated to the board of directors
of Monsanto, and (2) within 12 months of the termination, Monsanto
enters into a business combination or an agreement to enter into a
business combination; or
- Pharmacia & Upjohn terminates the merger agreement because a share
acquisition date has occurred under the Monsanto stockholder rights
plan, which will generally occur if a third party acquires 20% or more
of Monsanto's outstanding voting stock.
- Monsanto has also agreed to pay Pharmacia & Upjohn a termination fee of
$250 million if either party terminates the merger agreement because the
board of directors of Monsanto has adversely changed its recommendation
of the merger. This termination fee is not payable if Pharmacia & Upjohn
is in material breach of the merger agreement at the time of the adverse
change. This termination fee is not payable if the $575 million alternate
transaction fee is also payable, and any payment of this $250 million
termination fee will be credited against any $575 million alternate
transaction fee that subsequently becomes payable.
AMENDMENTS, EXTENSIONS AND WAIVERS
The merger agreement may be amended by action of the board of directors of
the parties at any time before or after the stockholders' meetings. All
amendments to the merger agreement must be in a writing signed by each party.
At any time prior to the effective time of the merger, any party to the
merger agreement may, to the extent legally allowed:
- extend the time for the performance of any of the obligations or other
acts of the other parties to the merger agreement;
- waive any inaccuracies in the representations and warranties of the other
parties contained in the merger agreement; and
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- waive compliance by the other parties with any of the agreements or
conditions contained in the merger agreement.
All extensions and waivers must be in writing and signed by the party
against whom the waiver is to be effective.
STOCK OPTION AGREEMENTS
The following summary of the stock option agreements is qualified by
reference to the complete text of the stock option agreements, which are
incorporated by reference and attached as Annex B and Annex C.
THE STOCK OPTIONS
At the same time we entered into the merger agreement, we also entered into
reciprocal stock option agreements. Under the terms of the stock option granted
by Monsanto to Pharmacia & Upjohn, Pharmacia & Upjohn may purchase up to
94,774,810 shares of Monsanto common stock (representing approximately 14.9% of
the outstanding Monsanto common stock as of December 19, 1999) at an exercise
price of $41.75 per share. Under the terms of the stock option granted by
Pharmacia & Upjohn to Monsanto, Monsanto may purchase up to 77,388,932 shares of
Pharmacia & Upjohn common stock (representing approximately 14.9% of the
outstanding Pharmacia & Upjohn common stock as of December 19, 1999) at an
exercise price of $50.25 per share. These exercise prices represent our closing
stock prices on December 17, 1999, the last trading day prior to the execution
of the merger agreement and the stock option agreements. The terms of these
stock option agreements are substantially identical and are summarized below.
WHEN THE STOCK OPTIONS MAY BE EXERCISED
Each of us can exercise the option granted to it, in whole or in part, at
any time after the occurrence of an event which would entitle it to receive a
full termination fee of $575 million under the merger agreement and prior to
termination of the option. See "The Merger Agreement -- Fees and Expenses
Payable Because of a Termination of the Merger Agreement."
The right to exercise the option terminates upon the earliest to occur of
the following circumstances:
- the merger is completed;
- six months after the option first becomes exercisable;
- termination of the merger agreement under circumstances which cannot
result in the option holder becoming entitled to receive termination fees
of $575 million or more from the other party;
- the option holder receives $635 million, less any termination fee
received by the option holder, for the repurchase of the option; and
- twelve months after termination of the merger agreement under
circumstances which could result in the option holder becoming entitled
to receive an aggregate termination fee of $575 million upon the
occurrence of a subsequent event.
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ELECTION TO REPURCHASE OPTIONS
If a stock option becomes exercisable, the option holder may, as to all or
part of the shares of common stock subject to the option, elect to receive a
cash payment from the option grantor. This cash payment would terminate the
option holder's right to purchase those shares of common stock upon the exercise
of the option. The cash to be paid per share would be equal to the difference
between the exercise price of the option and the higher of:
- the highest price per share proposed to be paid by any other person in
connection with an acquisition proposal; and
- the average closing price of the stock for the ten trading days preceding
the date that the election to receive cash is exercised.
If a stock option becomes exercisable, the party granting the option may
elect to repurchase the option from the option holder for a cash payment. This
cash payment would terminate the option holder's right to purchase those shares
upon the exercise of the option. The cash to be paid per share would be computed
the same as if the option holder had elected to receive cash for the option.
LIMITATION ON TOTAL PROFIT
Each of the stock option agreements provides that the total profit that a
party is permitted to receive under the option agreement and the termination
provisions of the merger agreement cannot exceed $635 million in the aggregate.
EFFECT OF STOCK OPTION AGREEMENTS
The option agreements may have the effect of making an acquisition or other
business combination of either company by or with a third party more costly
because of the need in any transaction to acquire any shares issued pursuant to
the option agreement or because of any cash payments made pursuant to the option
agreement. Moreover, we believe that, if the option granted by either Monsanto
or Pharmacia & Upjohn becomes exercisable, it is likely to hinder other parties
from attaining pooling-of-interests accounting treatment under U.S. generally
accepted accounting principles in any merger or business combination transaction
with that company for the following two years.
The option agreements may therefore discourage certain third parties from
proposing an alternative transaction to the current merger proposed by us,
including one that might be more favorable from a financial point of view to the
stockholders of Monsanto or Pharmacia & Upjohn, as the case may be, than the
merger.
The boards of directors of the companies considered the impact of the
option agreements on potential third party-acquirors in their approval of the
merger agreement and the option agreements; see "Background of the Merger" on
page I-21 and "Our Reasons for the Merger; Recommendations of Our Boards of
Directors" on page I-25, for a more complete description of the factors
considered by each board.
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OPINIONS OF FINANCIAL ADVISORS
OPINIONS OF FINANCIAL ADVISORS TO MONSANTO
<TABLE>
<CAPTION>
MONSANTO LOCATION OF
FINANCIAL ADVISOR THEIR FULL OPINION
- ----------------- ------------------
<S> <C>
Goldman Sachs Annex D
Morgan Stanley Annex E
</TABLE>
Monsanto engaged Goldman Sachs and Morgan Stanley as its financial advisors
in connection with the merger based on their experience and expertise. Goldman
Sachs and Morgan Stanley are internationally recognized investment banking firms
that have substantial experience in transactions similar to the merger.
OPINION OF GOLDMAN SACHS TO MONSANTO
On December 19, 1999, Goldman Sachs delivered its oral opinion,
subsequently confirmed in writing, to Monsanto's board of directors that, as of
the date of the opinion, the exchange ratio of 1.19 shares of Monsanto common
stock for each share of Pharmacia & Upjohn common stock to be received pursuant
to the merger agreement by the holders of Pharmacia & Upjohn common stock is
fair from a financial point of view to Monsanto.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED DECEMBER 19,
1999, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX D TO
THIS DOCUMENT. THE FOLLOWING SUMMARY DESCRIBES THE MATERIAL ASSUMPTIONS MADE AND
MATERIAL MATTERS CONSIDERED IN, AND THE MATERIAL LIMITATIONS ON, GOLDMAN SACHS'
REVIEW THAT WAS UNDERTAKEN IN PROVIDING ITS OPINION. HOWEVER, IT DOES NOT
PURPORT TO BE A COMPLETE DESCRIPTION OF THE OPINION. ACCORDINGLY, THE FOLLOWING
SUMMARY OF THE OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION. MONSANTO STOCKHOLDERS ARE URGED TO, AND SHOULD, READ SUCH
OPINION IN ITS ENTIRETY.
In arriving at its opinion, Goldman Sachs reviewed and analyzed, among
other things:
- the merger agreement;
- Annual Reports to Stockholders and Annual Reports on Form 10-K of
Monsanto and of Pharmacia & Upjohn (including its predecessor) for the
five years ended December 31, 1998;
- recent interim reports to stockholders and Quarterly Reports on Form 10-Q
of Monsanto and of Pharmacia & Upjohn;
- recent other communications from Monsanto and Pharmacia & Upjohn to their
respective stockholders;
- internal financial analyses and forecasts for Monsanto and Pharmacia &
Upjohn prepared by the managements of Monsanto and Pharmacia & Upjohn;
and
- cost savings and operating synergies projected by the managements of
Monsanto and Pharmacia & Upjohn to result from the transaction
contemplated by the merger agreement.
Goldman Sachs also held discussions with members of the senior managements
of Monsanto and Pharmacia & Upjohn regarding their assessment of the strategic
rationale for, and the potential benefits of, the transaction contemplated by
the merger agreement and the past and current business
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operations, financial condition and future prospects of their respective
companies. In addition, Goldman Sachs reviewed the reported price and trading
activity for the Monsanto common stock and the Pharmacia & Upjohn common stock,
compared financial and stock market information deemed by Goldman Sachs to be
relevant for Monsanto and Pharmacia & Upjohn with similar information for other
companies deemed by Goldman Sachs to be relevant whose securities are publicly
traded, reviewed the financial terms of recent business combinations deemed by
Goldman Sachs to be relevant in the pharmaceutical industry specifically and in
other industries generally and performed such other studies and analyses as it
considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by or discussed with it and assumed
this accuracy and completeness for purposes of rendering its opinion. In that
regard, Goldman Sachs assumed, with the consent of Monsanto, that the forecasts,
including the cost savings and operating synergies estimated to result from the
transaction contemplated by the merger agreement, had been reasonably prepared
on a basis reflecting the best currently available estimates and judgments of
Monsanto and Pharmacia & Upjohn. In addition, Goldman Sachs took into account
Monsanto's expectation regarding the accounting treatment of the transaction
contemplated by the merger agreement, as well as that the consummation of the
transaction is not conditioned upon any particular accounting treatment. Goldman
Sachs also assumed that all governmental, regulatory and other consents and
approvals necessary for the consummation of the transaction contemplated by the
merger agreement will be obtained without any adverse effect on Monsanto or
Pharmacia & Upjohn or on the contemplated benefits of the transaction
contemplated by the merger agreement. In addition, Goldman Sachs did not make an
independent evaluation or appraisal of the assets and liabilities of Monsanto
and Pharmacia & Upjohn and it was not furnished with any such evaluation or
appraisal. Goldman Sachs' opinion was provided for the information and
assistance of Monsanto's board of directors in connection with its consideration
of the transaction contemplated by the merger agreement and does not constitute
a recommendation as to how any Monsanto stockholder should vote with respect to
the transaction contemplated by the merger agreement.
The following summarizes the material financial analyses used by Goldman
Sachs in connection with providing its opinion to Monsanto's board of directors.
Although the summary does not purport to be a complete description of the
analyses performed or factors considered by Goldman Sachs, it summarizes the
material analyses performed and factors considered by Goldman Sachs in providing
its opinion to the Monsanto board of directors.
(a) HISTORICAL STOCK TRADING ANALYSIS. Goldman Sachs reviewed the
historical trading prices and volumes for Monsanto common stock and Pharmacia &
Upjohn common stock for the period from December 20, 1996 to December 17, 1999.
Goldman Sachs observed that the low, high and average closing prices of shares
of Monsanto common stock for the three-year period ended December 17, 1999 were
$33.63, $62.63 and $45.19, respectively. Goldman Sachs observed that the low,
high and average closing prices of shares of Monsanto common stock for the
one-year period ended December 17, 1999 were $33.63, $50.69 and $42.84,
respectively. Goldman Sachs observed that the low, high and average closing
prices of shares of Monsanto common stock for the six-month period ended
December 17, 1999 were $33.63, $47.19 and $40.39, respectively. Monsanto common
stock closed at $41.75 per share on December 17, 1999. Goldman Sachs observed
that the low, high and average closing prices of shares of Pharmacia & Upjohn
common stock for the three-year period ended December 17, 1999 were $28.63,
$65.75 and $45.17, respectively. Goldman Sachs observed that the low, high and
average closing prices of shares of Pharmacia & Upjohn common stock for the
one-year period ended December 17, 1999 were $47.50, $65.75 and $54.99,
respectively. Goldman Sachs observed that the low, high and average closing
prices of shares of Pharmacia & Upjohn common stock for the six-month period
ended December 17, 1999 were $47.50, $60.56 and $53.63,
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respectively. Pharmacia & Upjohn common stock closed at $50.25 per share on
December 17, 1999. Goldman Sachs also described, for the time period of
approximately the past one year, three years and five years, the comparative
stock performance of the common stock of (i) Monsanto; (ii) Pharmacia & Upjohn;
(iii) a composite of life sciences companies consisting of the following
companies: Hoechst AG; Rhone-Poulenc S.A.; AstraZeneca PLC; Novartis AG; E.I. du
Pont de Nemours and Company; The Dow Chemical Company and Bayer AG and (iv) a
composite of pharmaceutical companies consisting of the following companies:
Pfizer Inc.; Bristol-Myers Squibb Company; Roche Holding AG; Warner-Lambert
Company; Schering-Plough Corporation; American Home Products Corporation;
SmithKline Beecham plc; Glaxo Wellcome plc; Eli Lilly and Company and Merck &
Co., Inc.
Goldman Sachs observed that over a one-year period ended December 17, 1999,
a three-year period ended December 17, 1999 and a five-year period ended
November 30, 1999, the closing market prices for each specified company or group
appreciated as set forth below:
<TABLE>
<CAPTION>
1 YEAR 3 YEAR 5 YEAR
TOTAL TOTAL TOTAL
APPRECIATION APPRECIATION APPRECIATION
------------ ------------ ------------
<S> <C> <C> <C>
Monsanto.......................... (0.01)% 8.5% 193.0%
Pharmacia & Upjohn................ (6.6)% 35.5% 52.4%
Life Sciences..................... (7.8)% 115.6% 362.8%
Pharmaceuticals................... 16.0 % 17.6% 107.7%
</TABLE>
Goldman Sachs also reviewed historical ratios for the exchange of Monsanto
common stock for Pharmacia & Upjohn common stock, for the period from December
20, 1996 to December 17, 1999. These ratios were based on the daily closing
prices of the Monsanto common stock and the Pharmacia & Upjohn common stock
during such period. This analysis indicated the following historical exchange
ratios, as compared to the exchange ratio of 1.19 shares of Monsanto common
stock for each share of Pharmacia & Upjohn common stock as set forth in the
merger agreement:
<TABLE>
<CAPTION>
HISTORICAL
PERIOD EXCHANGE RATIOS
- ------ ---------------
<S> <C>
Last Month............................................... 1.26
Last Three Months........................................ 1.33
Last Six Months.......................................... 1.33
Last Twelve Months....................................... 1.29
</TABLE>
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<PAGE> 66
(b) SELECTED COMPANIES ANALYSIS. Goldman Sachs reviewed market valuation
information for 18 publicly traded companies:
<TABLE>
<S> <C>
LIFE SCIENCES PHARMACEUTICALS
- - Hoechst AG - Pfizer Inc.
- - Rhone-Poulenc S.A. - Bristol-Myers Squibb Company
- - AstraZeneca PLC - Roche Holding AG
- - Novartis AG - Warner-Lambert Company
- - E.I. du Pont de Nemours and Company - Schering-Plough Corporation
- - The Dow Chemical Company - American Home Products Corporation
- - Bayer AG - SmithKline Beecham plc
- Glaxo Wellcome plc
- Eli Lilly and Company
- Pharmacia & Upjohn
- Merck & Co., Inc.
</TABLE>
These 18 comparison companies were chosen because they are publicly-traded
companies with operations that for purposes of analysis may be considered
similar to Monsanto and/or Pharmacia & Upjohn. Generally, the companies listed
as life sciences companies are those companies that apply common forms of
science and technology to agriculture, nutrition and health, while the companies
listed as pharmaceutical companies are those companies that focus on research
and development relating to, and the manufacture and sale of, pharmaceutical and
healthcare products. Goldman Sachs calculated and compared the price-to-earnings
per share multiples of Monsanto, Pharmacia & Upjohn and the comparison companies
for the calendar years 1999, 2000, and 2001. The multiples of Monsanto were
calculated using the per share price of Monsanto common stock as of December 17,
1999 ($41.75). The multiples of Pharmacia & Upjohn were calculated using the per
share price of Pharmacia & Upjohn common stock as of December 17, 1999 ($50.25).
The multiples and ratios for Monsanto, Pharmacia & Upjohn and each of the
comparison companies were based on the most recent publicly available
information. (In the case of the Monsanto cash-adjusted price-to-earnings per
share multiple, certain Monsanto management estimates were used.) The estimates
of 1999, 2000 and 2001 earnings per share were based on the latest median
estimates provided by I/B/E/S International Inc., a data service that monitors
and publishes a compilation of earnings estimates produced by selected research
analysts on publicly-traded companies.
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<PAGE> 67
The following table lists the low, median and high price-to-earnings per
share multiples for the comparison companies, as compared to the
price-to-earnings per share multiples for Monsanto and Pharmacia & Upjohn.
Price-to-earnings per share multiples are presented based on 1999, 2000 and 2001
earnings estimates.
PRICE-TO-EARNINGS PER SHARE MULTIPLES OF COMPARISON COMPANIES
<TABLE>
<CAPTION>
1999E 2000E 2001E
----- ----- -----
<S> <C> <C> <C>
LIFE SCIENCES
Low..................................................... 20.6x 19.4x 16.3x
Median................................................ 24.9x 23.0x 20.5x
High.................................................. 31.2x 27.0x 24.6x
PHARMACEUTICALS
Low................................................... 25.3x 22.7x 20.0x
Median................................................ 30.3x 26.8x 23.4x
High.................................................. 42.6x 35.5x 30.3x
OVERALL LIFE SCIENCES AND PHARMACEUTICALS MEDIAN........ 28.7x 25.1x 22.1x
</TABLE>
PRICE-TO-EARNINGS PER SHARE MULTIPLES OF MONSANTO AND PHARMACIA & UPJOHN
<TABLE>
<CAPTION>
1999E 2000E 2001E
----- ----- -----
<S> <C> <C> <C>
MONSANTO................................................ 43.0x 33.4x 27.8x
MONSANTO (CASH-ADJUSTED)................................ 28.2x 22.5x 19.8x
PHARMACIA & UPJOHN...................................... 27.9x 24.8x 21.6x
</TABLE>
Goldman Sachs also considered the five-year earnings per share growth rate
estimates provided by I/B/E/S International Inc. for the comparison companies.
The following table lists the low, median and high five-year earnings per share
growth rate estimates for the comparison companies as compared to the growth
rates for Monsanto and Pharmacia & Upjohn.
FIVE-YEAR EARNINGS PER SHARE GROWTH RATES FOR COMPARISON COMPANIES
<TABLE>
<S> <C>
LIFE SCIENCES
Low......................................................... 5%
Median.................................................... 10%
High...................................................... 17%
PHARMACEUTICALS
Low....................................................... 9%
Median.................................................... 13%
High...................................................... 19%
MONSANTO.................................................... 20%
PHARMACIA & UPJOHN.......................................... 13%
</TABLE>
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<PAGE> 68
(c) PRO FORMA MERGER ANALYSIS. Goldman Sachs performed a pro forma
analysis of the financial impact of the merger on Monsanto (excluding the impact
of restructuring charges, if any). Using earnings estimates for Monsanto and
Pharmacia & Upjohn supplied to Goldman Sachs by Monsanto management, Goldman
Sachs compared the earnings per share of Monsanto common stock, on a stand-alone
basis, with the earnings per share of the common stock of the combined company
on a pro forma basis. In its pro forma analysis, Goldman Sachs considered the
effect of both the closing and the failure to close of Monsanto's acquisition of
the Delta and Pine Land Company. On December 20, 1999, Monsanto withdrew its
Hart-Scott-Rodino filing relating to the proposed acquisition of Delta and Pine
Land Company. The analyses described below assume that Monsanto will not acquire
Delta and Pine Land Company. In its pro forma analysis, Goldman Sachs also
considered the effect of both a pooling and a purchase accounting treatment of
the transaction contemplated by the merger agreement. Based on Monsanto and
Pharmacia & Upjohn management estimates of the cost savings and operating
synergies to be realized from the merger ($600 million phased in over three
years), based on a Monsanto pro forma ownership of 50.8% of the combined company
and based on an assumption that the transaction contemplated by the merger
agreement receives pooling accounting treatment, Goldman Sachs observed that the
merger would be significantly accretive to earnings in 2000, 2001 and 2002.
(d) CONTRIBUTION ANALYSIS. Goldman Sachs reviewed certain historical and
estimated future operating and financial information for Monsanto and Pharmacia
& Upjohn supplied to Goldman Sachs by Monsanto management and, based on an
implied ownership by the Monsanto stockholders of 50.8% of the equity of the
combined company, the relative contribution of Monsanto and Pharmacia & Upjohn
to the combined company. The information that Goldman Sachs reviewed included:
- sales;
- operating income;
- net income;
- cash adjusted net income;
- equity market value; and
- enterprise value.
CONTRIBUTION OF MONSANTO TO THE COMBINED COMPANY
<TABLE>
<CAPTION>
MONSANTO
--------
<S> <C>
Equity Market Value......................................... 50.6%
Enterprise Value............................................ 54.2%
</TABLE>
<TABLE>
<CAPTION>
OPERATING CASH ADJUSTED
YEAR SALES INCOME NET INCOME NET INCOME
- ---- ----- --------- ---------- -------------
<S> <C> <C> <C> <C>
1999E.................................... 56.9% 49.1% 25.5% 37.6%
2000E.................................... 58.1% 56.2% 44.6% 49.7%
2001E.................................... 58.9% 57.5% 46.7% 50.1%
2002E.................................... 58.7% 53.6% 48.4% 51.0%
</TABLE>
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<PAGE> 69
(e) DISCOUNTED CASH FLOW ANALYSIS. Goldman Sachs performed a discounted
cash flow analysis under the following scenario using the projections supplied
to Goldman Sachs by Monsanto management for Monsanto and Pharmacia & Upjohn. A
discounted cash flow analysis is an analysis of the present value of projected
cash flows and terminal value using discount rates and earnings before interest,
taxes and depreciation (EBITDA) multiples for the year that is used as the
terminal reference point. Goldman Sachs calculated the terminal values of
Monsanto in the year 2004 based on a range of 12.0 x EBITDA to 16.0 x EBITDA,
and such terminal values were then discounted to present value using discount
rates of 8.0%, 10.0% and 12.0%. Goldman Sachs calculated the terminal values of
Pharmacia & Upjohn in the year 2004 based on a range of 14.0 x EBITDA to 18.0 x
EBITDA, and such terminal values were then discounted to present value using
discount rates of 8.0%, 10.0% and 12.0%. The terminal value is the value of cash
flow that can reasonably be expected to extend beyond the horizon of
projections. This analysis showed a value per Monsanto common share as follows:
<TABLE>
<CAPTION>
TRAILING EBITDA 8% DISCOUNT 10% DISCOUNT 12% DISCOUNT
TERMINAL VALUE MULTIPLE RATE RATE RATE
- ----------------------- ----------- ------------ ------------
<S> <C> <C> <C>
12.0x....................................... $42.93 $38.43 $34.39
14.0x....................................... $51.02 $45.81 $41.14
16.0x....................................... $59.12 $53.20 $47.89
</TABLE>
This analysis showed a value per Pharmacia & Upjohn common share as
follows:
<TABLE>
<CAPTION>
TRAILING EBITDA 8% DISCOUNT 10% DISCOUNT 12% DISCOUNT
TERMINAL VALUE MULTIPLE RATE RATE RATE
- ----------------------- ----------- ------------ ------------
<S> <C> <C> <C>
14.0x....................................... $62.13 $56.70 $51.81
16.0x....................................... $70.14 $64.00 $58.49
18.0x....................................... $78.15 $71.30 $65.16
</TABLE>
(f) COMPARISON OF SELECTED PHARMACEUTICAL TRANSACTIONS. Goldman Sachs
reviewed and considered publicly available information that it deemed relevant
relating to selected transactions involving pharmaceutical companies. These
transactions were selected because the companies involved possessed general
business, operating and financial characteristics representative of companies in
the pharmaceutical industry in which Monsanto and Pharmacia & Upjohn operate.
(g) PRESENT VALUE OF THEORETICAL FUTURE SHARE PRICE. Using estimates of
Monsanto and Pharmacia & Upjohn supplied by Monsanto to Goldman Sachs, Goldman
Sachs performed an analysis of the present value of the potential future prices
per share of Monsanto on a stand-alone basis and on a combined basis with
Pharmacia & Upjohn over the period 2000-2003. Goldman Sachs calculated the
present value of Monsanto common stock based on 2000-2004 estimated cash
earnings per share (assuming its current dividend amount) by applying forward
price-to-cash earnings per
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<PAGE> 70
share multiples of 23.8 x, 25.8 x and 27.8 x and a 12% discount rate. This
analysis indicated the following ranges of present values per share of Monsanto
common stock on a stand-alone basis:
<TABLE>
<CAPTION>
RANGES OF
PRESENT VALUE
TO MONSANTO ON
A STAND-ALONE
BASIS AT 12%
DISCOUNT RATE
--------------
<S> <C> <C>
Forward Cash P/E 23.8 x.................................. $41.75-$46.74
25.8 x.................................. $45.25-$50.62
27.8 x.................................. $48.75-$54.50
</TABLE>
Assuming an implied ownership by the Monsanto stockholders of 50.8% of the
equity of the combined company and assuming aggregate dividends equal to the
combined current dividends of Monsanto and Pharmacia & Upjohn, Goldman Sachs
calculated the present value of Monsanto common stock based on 2000-2004
estimated cash earnings per share by applying weighted average forward
price-to-cash earnings per share multiples of 23.0 x, 25.0 x and 27.0 x and a
12% discount rate. This analysis indicated the following ranges of present
values per share of Monsanto common stock on a combined basis, after giving
effect to the estimated cost savings and operating synergies expected to be
realized from the merger:
<TABLE>
<CAPTION>
RANGES OF
PRESENT VALUE
TO MONSANTO ON
A COMBINED
COMPANY BASIS
AT 12%
DISCOUNT RATE
--------------
<S> <C> <C>
Weighted-Average Forward Cash P/E 23.0 x......................... $42.99-$50.77
25.0 x......................... $46.73-$55.01
27.0 x......................... $50.46-$59.24
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its opinion, Goldman Sachs
considered the results of all of its analyses as a whole. No company or
transaction (other than the merger) used in the analyses referred to above is
identical to Monsanto or Pharmacia & Upjohn or the merger. In performing its
analysis, Goldman Sachs made numerous assumptions with respect to industry
performance and general business and economic conditions, many of which are
beyond the control of Monsanto and Pharmacia & Upjohn.
Goldman Sachs prepared each of the analyses described above solely for the
purposes of providing its opinion to the Monsanto board. The analyses do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by these analyses. These
analyses are inherently subject to uncertainty because they are based upon
numerous factors or events beyond the control of Monsanto or Pharmacia & Upjohn
or their advisors.
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<PAGE> 71
As described above, Goldman Sachs' opinion to the Monsanto board was one of
many factors the Monsanto board considered in making its determination to
approve the merger agreement and the merger.
As part of Goldman Sachs' investment banking business, Goldman Sachs is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Goldman
Sachs is familiar with Monsanto having acted as its financial advisor from time
to time, including having acted as: (i) co-lead managing underwriter in
connection with the issuance of 22,500,000 shares of Monsanto common stock and
$700 million principal amount of 6.5% Adjustable Conversion-Rate Equity Security
Units in November 1998; (ii) financial advisor in connection with the purchase
by Monsanto in December 1998 of all the outstanding shares of capital stock of
Dekalb Genetics Corporation not then owned by Monsanto; and (iii) co-lead
managing underwriter in connection with the issuance of various notes and bonds
of varying maturities and interest rates in December 1998. Goldman Sachs also
has acted as Monsanto's financial advisor in connection with, and has
participated in some of the negotiations leading to, the merger agreement.
Goldman Sachs has also provided certain investment banking services to Pharmacia
& Upjohn from time to time, including having acted as its financial advisor in
connection with its acquisition of SUGEN, Inc. in August 1999 and as its agent
on its stock repurchase program instituted in August, 1999. Goldman Sachs may
provide investment banking services to Pharmacia & Upjohn and its affiliates in
the future. Goldman Sachs provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of Monsanto, Pharmacia & Upjohn and their respective affiliates for
its own account and for the accounts of customers.
Pursuant to the terms of its engagement letter with Goldman Sachs, Monsanto
has agreed to pay customary fees, portions of which are payable upon
announcement of the merger agreement, approval by Monsanto stockholders and
consummation of the merger. Monsanto has also agreed to reimburse Goldman Sachs
for its reasonable out-of-pocket expenses, including attorneys' fees, and to
indemnify Goldman Sachs and related persons against various liabilities in
connection with its engagement, including some liabilities under the federal
securities laws.
OPINION OF MORGAN STANLEY TO MONSANTO
In October 1999, Monsanto formally retained Morgan Stanley to act as its
financial advisor in connection with the potential combination with Pharmacia &
Upjohn. At the December 19, 1999 meeting of Monsanto's board of directors,
Morgan Stanley rendered to Monsanto's board of directors an oral opinion,
subsequently confirmed in writing, that, as of such date and based upon and
subject to the various considerations set forth in its opinion, the exchange
ratio of 1.19 shares of Monsanto common stock for each share of Pharmacia &
Upjohn common stock to be received pursuant to the merger agreement was fair
from a financial point of view to Monsanto.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED DECEMBER 19,
1999, WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW
UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION, IS ATTACHED TO THIS
DOCUMENT AS ANNEX E AND IS INCORPORATED HEREIN BY REFERENCE. MONSANTO
STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION CAREFULLY AND IN ITS
ENTIRETY. MORGAN STANLEY'S OPINION ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE
RATIO TO MONSANTO FROM A FINANCIAL POINT OF VIEW AS OF THE DATE OF THE OPINION.
MORGAN STANLEY'S OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY MONSANTO STOCKHOLDER AS TO
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<PAGE> 72
HOW TO VOTE WITH RESPECT TO THE MERGER. THE SUMMARY OF THE OPINION OF MORGAN
STANLEY SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of Monsanto and Pharmacia & Upjohn;
- reviewed certain internal financial statements and other financial and
operating data concerning Monsanto prepared by the management of
Monsanto;
- reviewed certain internal financial statements and other financial and
operating data concerning Pharmacia & Upjohn prepared by Pharmacia &
Upjohn management and discussed the financial condition and the prospects
of Pharmacia & Upjohn with the management of Pharmacia & Upjohn;
- discussed the past and current operations and financial condition and the
prospects of Monsanto with Monsanto management;
- reviewed information relating to certain strategic, financial and
operational benefits anticipated from the merger, prepared by the
management of Monsanto and Pharmacia & Upjohn;
- reviewed the reported prices and trading activity for Monsanto common
stock and Pharmacia & Upjohn common stock;
- compared the financial performance of Monsanto and Pharmacia & Upjohn and
the prices and trading activity of Monsanto common stock and Pharmacia &
Upjohn common stock with that of certain other comparable publicly-traded
companies and their securities;
- reviewed estimated cost synergies provided by Monsanto management;
- reviewed the financial terms, to the extent publicly available, of
certain comparable merger transactions;
- participated in certain discussions among representatives of Monsanto and
Pharmacia & Upjohn and certain other parties and their financial and
legal advisors;
- reviewed the draft of the merger agreement dated December 19, 1999 and
related documents; and
- performed such other analyses as Morgan Stanley deemed appropriate.
Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by it for the purposes of
its opinion. With respect to the financial projections, including information
relating to certain strategic, financial and operational benefits anticipated
from the merger, Morgan Stanley assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
future financial performance of Monsanto. In addition, Morgan Stanley assumed
that the merger will be consummated in accordance with the terms set forth in
the merger agreement including, among other things, that the merger shall
qualify as a reorganization within the meaning of Section 386(a) of the Internal
Revenue Code of 1986 as amended. Morgan Stanley did not make any independent
valuation or appraisal of the assets or liabilities of Monsanto, nor had it been
furnished with any such appraisals. Morgan Stanley's opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to it as of, the date of its opinion.
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<PAGE> 73
The following is a brief description of the material analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion letter. These summaries of financial analyses include
information presented in tabular format. In order to understand the financial
analysis used by Morgan Stanley, 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.
COMPARABLE COMPANY ANALYSIS. Morgan Stanley performed an analysis
examining Monsanto's common stock price trading performance relative to
Pharmacia & Upjohn and the following group of U.S. pharmaceutical companies (the
"U.S. Pharmaceuticals").
- Merck & Co. Inc.
- Pfizer Inc.
- Bristol-Myers Squibb Co.
- Johnson & Johnson
- Eli Lilly & Company
- Abbott Laboratories
- Schering-Plough Corp.
- Warner-Lambert Co.
- American Home Products Co.
- Amgen Inc.
Morgan Stanley compared certain publicly available financial and operating
data, projections of future financial performance and market statistics (based
upon closing stock prices on December 17, 1999) of Monsanto, Pharmacia & Upjohn
and the U.S. Pharmaceuticals. Morgan Stanley calculated the trading multiples of
Monsanto, Pharmacia & Upjohn and the U.S. Pharmaceuticals based on 1999 and 2000
earnings per share estimates and five-year earnings growth rate estimates by
Institutional Brokers Estimate System ("I/B/E/S") and the closing stock price of
each company as of December 17, 1999.
<TABLE>
<CAPTION>
PHARMACIA & MEDIAN OF U.S.
AS OF DECEMBER 17, 1999 MONSANTO UPJOHN PHARMACEUTICALS
- ----------------------- -------- ----------- ---------------
<S> <C> <C> <C>
1999 P/E................................ 43.0x 27.9x 30.3x
2000 P/E................................ 33.4 24.8 26.4
2000 P/E/Growth......................... 1.7 1.9 1.9
</TABLE>
Morgan Stanley performed an analysis of the common stock price trading
valuation of the following group of U.S. Life Science Companies (the "U.S. Life
Sciences") and European Life Science Companies (the "European Life Sciences").
<TABLE>
<S> <C>
U.S. LIFE SCIENCE COMPANIES
- - E I Du Pont De Nemours & Co. - Dow Chemical Co./Union Carbide Corp
EUROPEAN LIFE SCIENCE COMPANIES
- - Bayer AG - AstraZeneca
- - Schering AG - BASF AG
</TABLE>
Morgan Stanley compared certain publicly available financial and operating
data, projections of future financial performance and market statistics (based
upon closing stock prices on December 17, 1999) on the U.S. Life Sciences and
the European Life Sciences. Morgan Stanley calculated the trading multiples of
the U.S. Life Sciences and the European Life Sciences based on publicly
available 1999 and 2000 EBITDA research estimates and the aggregate value
(defined as market capitalization as of December 17, 1999 plus net debt as of
September 30, 1999) of each company.
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<PAGE> 74
<TABLE>
<CAPTION>
MEDIAN OF
EUROPEAN MEDIAN OF U.S.
AS OF DECEMBER 17, 1999 LIFE SCIENCES LIFE SCIENCES
- ----------------------- ------------- --------------
<S> <C> <C>
Aggregate Value/1999E EBITDA....................... 9.1x 11.7x
Aggregate Value/2000E EBITDA....................... 8.6 9.8
</TABLE>
No company used in the stock price performance comparison or comparable
company analysis is identical to Monsanto or Pharmacia & Upjohn. In evaluating
the stock price performance comparison and the selected comparable company
analysis, Morgan Stanley made judgments and assumptions with regard to industry
performance, business, economic, market and financial conditions and other
matters, many of which are beyond the control of Monsanto and Pharmacia &
Upjohn, such as the impact of competition on Monsanto or Pharmacia & Upjohn and
the industry, industry growth and the absence of material adverse change in the
financial condition and prospects of Monsanto or Pharmacia & Upjohn or the
industry or in the financial market.
COMPARATIVE STOCK PRICE PERFORMANCE. As part of its analysis, Morgan
Stanley reviewed the stock price performance of Monsanto common stock and
Pharmacia & Upjohn common stock and compared this performance with the S&P 500
Index as well as the U.S. Pharmaceuticals.
Morgan Stanley observed that over the two-year period from December 17,
1997 to December 17, 1999, the closing market prices for each specified company
or group appreciated as set forth below:
<TABLE>
<CAPTION>
% TOTAL APPRECIATION
--------------------
<S> <C>
Monsanto.................................................... (2.9)%
Pharmacia & Upjohn.......................................... 40.3%
U.S. Pharmaceuticals (equity market capitalization-weighted
index).................................................... 34.8%
S&P 500 Index (equity market capitalization-weighted
index).................................................... 47.2%
</TABLE>
Morgan Stanley observed that from November 2, 1999 to December 17, 1999,
the closing market prices for each specified company or group appreciated as set
forth below:
<TABLE>
<CAPTION>
% TOTAL APPRECIATION
--------------------
<S> <C>
Monsanto.................................................... 10.2%
Pharmacia & Upjohn.......................................... (7.3)%
U.S. Pharmaceuticals (equity market capitalization-weighted
index).................................................... (9.2)%
S&P 500 Index (equity market capitalization-weighted
index).................................................... 5.4%
</TABLE>
HISTORICAL PUBLIC MARKET TRADING VALUE. Morgan Stanley reviewed the
closing prices and trading volumes of Monsanto common stock from December 17,
1997 to December 17, 1999. Morgan Stanley observed that the low and high closing
prices of shares of Monsanto common stock for the 2 year period ended December
17, 1999 were $33.63 and $62.63, respectively. Morgan Stanley observed that the
low and high closing prices of shares of Monsanto common stock for the 1 year
period ended December 17, 1999 were $33.63 and $50.69, respectively. Morgan
Stanley observed that the low and high closing prices of shares of Monsanto
common stock for the 6 month period ended December 17, 1999 were $33.63 and
$47.19, respectively. Monsanto common stock closed at $41.75 per share on
December 17, 1999. Morgan Stanley also observed that the low and high closing
prices of shares of Pharmacia & Upjohn common stock for the 2 year period ended
December 17, 1999 were $34.75 and $65.75, respectively. Morgan Stanley also
observed that the low and high closing
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<PAGE> 75
prices of shares of Pharmacia & Upjohn common stock for the 1 year period ended
December 17, 1999 were $47.50 and $65.75, respectively. Morgan Stanley observed
that the low and high closing prices of shares of Pharmacia & Upjohn common
stock for the 6 month period ended December 17, 1999 were $47.50 and $60.56,
respectively.
RELATIVE CONTRIBUTION ANALYSIS. Morgan Stanley compared the pro forma
contribution with respect to several financial measures of each of Monsanto and
Pharmacia & Upjohn, based on Morgan Stanley published research estimates, to the
resultant combined company assuming completion of the merger. Morgan Stanley
then compared these statistics to the pro forma ownership by Monsanto
stockholders of the common stock of the combined company, implied by the
exchange ratio, of approximately 50.8%. The results in terms of equity market
value as of December 17, 1999, aggregate value (defined as equity market value
plus net debt as of September 30, 1999), sales, EBIT and net income are set
forth below:
<TABLE>
<CAPTION>
CONTRIBUTION PHARMACIA &
PERCENTAGE MONSANTO UPJOHN
- ------------ -------- -----------
<S> <C> <C>
Equity Market Value..................................... 50.6% 49.4%
Aggregate Value......................................... 55.8 44.2
</TABLE>
<TABLE>
<CAPTION>
FY 1998 FY 1999E FY 2000E
---------------------- ---------------------- ----------------------
CONTRIBUTION PHARMACIA & PHARMACIA & PHARMACIA &
PERCENTAGE MONSANTO UPJOHN MONSANTO UPJOHN MONSANTO UPJOHN
- ------------ -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales................ 52.9% 47.1% 56.4% 43.6% 57.6% 42.4%
EBIT................. 40.2 59.8 50.3 49.7 52.8 47.2
Net Income........... 21.4 78.6 34.8 65.2 43.1 56.9
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed a discounted cash
flow analysis of Monsanto. A discounted cash flow analysis involves an analysis
of the present value of projected cash flows and a terminal value using discount
rates and terminal year multiples. Morgan Stanley analyzed Monsanto's business
based on certain publicly available research analysts' estimates for the period
beginning January 1, 2000 and ending December 31, 2004, which Monsanto
management viewed as being representative of their internal forecasts. For
purposes of this analysis, Morgan Stanley did not take into account any
potential merger-related cost savings. Morgan Stanley estimated the Monsanto
pharmaceutical business discounted cash flow value by utilizing discount rates
ranging from 11.0% to 13.0% and terminal forward net income multiples ranging
from 26.0x to 32.0x. Morgan Stanley estimated the Monsanto agriculture business
discounted cash flow value by utilizing discount rates ranging from 10.5% to
11.5% and terminal EBITDA multiples ranging from 9.0x to 11.0x. This analysis
yielded a range of per share values for Monsanto common stock of approximately
$41.00 to $53.00.
Morgan Stanley also performed a discounted cash flow analysis of Pharmacia
& Upjohn's business. Morgan Stanley analyzed Pharmacia & Upjohn's business based
on certain publicly available research analysts estimates for the period
beginning January 1, 2000 and ending December 31, 2004, which Pharmacia & Upjohn
management viewed as being representative of their internal forecasts. For
purposes of this analysis, Morgan Stanley did not take into account any
potential merger related cost savings. Morgan Stanley estimated the Pharmacia &
Upjohn common stock discounted cash flow value by utilizing discount rates
ranging from 11.0% to 13.0% and terminal forward net income multiples ranging
from 22.0x to 24.0x. This analysis yielded a range of per share values for
Pharmacia & Upjohn common stock of approximately $53.00 to $72.00.
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HISTORICAL EXCHANGE RATIO ANALYSIS. Morgan Stanley compared the exchange
ratio of 1.19 pursuant to the merger agreement to the ratio of the closing
market prices of Monsanto common stock and Pharmacia & Upjohn common stock on
December 17, 1999. Morgan Stanley also compared this ratio to selected average
historical ratios of the closing market prices of Pharmacia & Upjohn common
stock to Monsanto common stock over various periods ending December 17, 1999.
Morgan Stanley then calculated Monsanto's pro forma ownership represented by
these exchange ratios. The results of this analysis are set forth below:
<TABLE>
<CAPTION>
PERIOD ENDED AVERAGE MARKET IMPLIED MONSANTO
DECEMBER 17, 1999 PRICE RATIO OWNERSHIP
- ----------------- -------------- -----------------
<S> <C> <C>
Prior 24 Months................................. 1.0989 52.85%
Prior 12 Months................................. 1.2899 48.84%
Prior 6 Months.................................. 1.3313 48.05%
Prior 3 Months.................................. 1.3321 48.04%
Prior 1 Month................................... 1.2572 49.48%
December 17, 1999............................... 1.2036 50.57%
</TABLE>
COMPARABLE TRANSACTION ANALYSIS. Morgan Stanley reviewed the terms of
certain transactions, including corporate governance provisions, which it deemed
to be comparable to the proposed transaction and compared these terms to the
terms proposed in the merger agreement. Based on this review, Morgan Stanley
concluded that the terms of the proposed transaction were generally consistent
with the terms of the comparable transactions reviewed, including corporate
governance provisions.
MONSANTO PRO FORMA MERGER ANALYSIS. Morgan Stanley analyzed the pro forma
impact of the combination on the projected earnings per share of the combined
company, both before and after any potential merger related cost savings, and
compared such analysis with the earnings per share estimates for Monsanto for
the calendar years 2000, 2001 and 2002. For the purposes of this analysis,
Morgan Stanley utilized earnings per share estimates as reported by I/B/E/S as
of December 17, 1999. Based on this analysis, Morgan Stanley observed that,
assuming the merger was treated as a pooling of interests transaction for
accounting purposes, the merger would be accretive in all three calendar years
to earnings before taking into account any potential merger-related cost
synergies and excluding the effect of special restructuring charges. Morgan
Stanley observed that after taking into account $600 million in synergies phased
in over three years, the merger would be significantly accretive to earnings in
all three calendar years, excluding the effect of special restructuring charges.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it.
Furthermore, Morgan Stanley believes that selecting any portion of its
analyses, without considering all analyses, would create an incomplete view of
the process underlying its opinion. In addition, Morgan Stanley may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuation resulting from any particular analysis described should not
be taken to be Morgan Stanley's view of the actual value of Monsanto or
Pharmacia & Upjohn. In performing its analyses, Morgan Stanley made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Monsanto
and Pharmacia & Upjohn. Any estimates contained in Morgan Stanley's analyses are
not necessarily indicative of future results or actual values, which may be
significantly
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more or less favorable than those suggested by such estimates. The analyses
performed were prepared solely as part of Morgan Stanley's analyses of the
fairness of the exchange ratio from a financial point of view to Monsanto and
were conducted in connection with the delivery of Morgan Stanley's opinion to
Monsanto's board of directors. The analyses do not purport to be appraisals or
to reflect the prices at which the shares of common stock of the combined
company might actually trade. The terms of the Merger were determined through
arm's-length negotiations between Monsanto and Pharmacia & Upjohn and were
approved by Monsanto's board of directors.
In addition, as described above, Morgan Stanley's opinion and presentation
to the Monsanto board of directors was one of the many factors taken into
consideration by Monsanto's board of directors in making its determination to
adopt the merger agreement. Consequently, the Morgan Stanley analyses summarized
above should not be viewed as determinative of the opinion of Monsanto's board
of directors with respect to the value of Monsanto or of whether Monsanto's
board of directors would have been willing to agree to a different
consideration.
The Monsanto board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking and financial advisory business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In addition, Morgan Stanley is
a full-service securities firm engaged in securities trading, brokerage and
financing activities. Morgan Stanley makes a market in Monsanto shares of common
stock. In the ordinary course of Morgan Stanley's trading and brokerage
activities, Morgan Stanley or its affiliates may at any time hold long or short
positions, and may trade or otherwise effect transactions, for its own account
or the accounts of customers, in debt or equity securities or senior loans of
Monsanto or Pharmacia & Upjohn. In the past, Morgan Stanley and its affiliates
have provided financial advisory and financing services for Monsanto and
Pharmacia & Upjohn and have received customary fees for the rendering of these
services.
Pursuant to the Morgan Stanley engagement letter, Monsanto agreed to pay a
customary transaction fee, portions of which are payable upon announcement of
the merger agreement, approval by Monsanto stockholders and consummation of the
merger. Monsanto has also agreed to reimburse Morgan Stanley for reasonable
expenses as incurred. In addition, Monsanto has also agreed to indemnify Morgan
Stanley and its affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling Morgan Stanley or any of its
affiliates against certain liabilities and expenses, including certain
liabilities under the federal securities laws, arising out of Morgan Stanley's
engagement.
OPINIONS OF FINANCIAL ADVISORS TO PHARMACIA & UPJOHN
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN LOCATION OF
FINANCIAL ADVISOR THEIR FULL OPINION
- ------------------ ------------------
<S> <C>
Bear Stearns Annex F
J.P. Morgan Annex G
</TABLE>
Pharmacia & Upjohn engaged Bear Stearns and J.P. Morgan as its financial
advisors in connection with the merger based on their experience and expertise.
Bear Stearns and J.P. Morgan are internationally recognized investment banking
firms that have substantial experience in transactions similar to the merger.
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OPINION OF BEAR STEARNS TO PHARMACIA & UPJOHN
Under a letter agreement dated as of December 18, 1999, Pharmacia & Upjohn
engaged Bear Stearns as its financial advisor in connection with a possible
combination with Monsanto. Pharmacia & Upjohn engaged Bear Stearns as its
financial advisor based on Bear Stearns' experience and expertise in
transactions similar to the merger. Bear Stearns, as part of its investment
banking business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes.
At the December 18, 1999 meeting of the Pharmacia & Upjohn board of
directors, Bear Stearns delivered its oral opinion, which was subsequently
confirmed in a written opinion dated December 19, 1999, to the effect that, as
of the date thereof and subject to the assumptions, qualifications and
limitations set forth in the written opinion, the exchange ratio of 1.19 shares
of Monsanto common stock for each share of Pharmacia & Upjohn common stock was
fair, from a financial point of view, to the stockholders of Pharmacia & Upjohn.
We have attached as Annex F to this document the full text of Bear Stearns'
written opinion and urge you to read the opinion in its entirety. The opinion
sets forth the assumptions made, some of the matters considered and
qualifications and limitations on the review undertaken by Bear Stearns and is
incorporated herein by reference. The summary of Bear Stearns' opinion set forth
below is qualified in its entirety by reference to the full text of such
opinion. In reading the discussion of the fairness opinion set forth below,
Pharmacia & Upjohn stockholders should be aware that Bear Stearns' opinion:
- was provided to the Pharmacia & Upjohn board of directors for its benefit
and use;
- did not constitute a recommendation to the board of directors of
Pharmacia & Upjohn in connection with the merger;
- does not constitute a recommendation to any Pharmacia & Upjohn
stockholder as to how to vote in connection with the merger;
- did not address Pharmacia & Upjohn's underlying business decision to
pursue the merger; and
- did not express any opinion as to the price or range of prices at which
the shares of common stock of Pharmacia & Upjohn and Monsanto would trade
subsequent to the announcement of the merger or as to the price or range
of prices at which the shares of common stock of Monsanto may trade
subsequent to the consummation of the merger.
Although Bear Stearns evaluated the fairness, from a financial point of
view, of the exchange ratio to the stockholders of Pharmacia & Upjohn, the
exchange ratio itself was determined by Pharmacia & Upjohn and Monsanto through
arms-length negotiations. Bear Stearns provided advice to Pharmacia & Upjohn
during the course of such negotiations. Pharmacia & Upjohn did not provide
specific instructions to, or place any limitations on, Bear Stearns with respect
to the procedures to be followed or factors to be considered by it in performing
its analyses or providing its opinion.
In arriving at its opinion, Bear Stearns, among other things:
- reviewed the merger agreement;
- reviewed the stock option agreements;
- reviewed each of Pharmacia & Upjohn's and Monsanto's Annual Reports to
Shareholders and Annual Reports on Form 10-K for the years ended December
31, 1996 through 1998, and
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their respective Quarterly Reports on Form 10-Q for the periods ended
March 31, 1999, June 30, 1999 and September 30, 1999;
- reviewed certain operating and financial information provided to Bear
Stearns by the senior management of Pharmacia & Upjohn relating to
Pharmacia & Upjohn's business and prospects, as well as projections for
Pharmacia & Upjohn for the fiscal years ending December 31, 1999 through
2003 prepared by analysts, which projections senior management of
Pharmacia & Upjohn informed Bear Stearns are reasonable and reflect
Pharmacia & Upjohn's best currently available estimates and judgments
(the "Pharmacia & Upjohn Projections"), as well as certain other
forward-looking information with regard to Pharmacia & Upjohn;
- reviewed certain operating and financial information provided to Bear
Stearns by the senior managements of Pharmacia & Upjohn and Monsanto
relating to Monsanto's business and prospects, including financial
projections of Monsanto for the fiscal years ending December 31, 1999
through 2004 (the "Monsanto Projections") (the Pharmacia & Upjohn
Projections and the Monsanto Projections are collectively referred to
herein as the "Projections"), as well as certain other forward-looking
information with regard to Monsanto;
- reviewed certain estimates of cost savings and other combination benefits
(collectively, the "Projected Benefits") expected to result from the
merger, jointly prepared and provided to us by the senior managements of
Pharmacia & Upjohn and Monsanto;
- met with certain members of the senior managements of Pharmacia & Upjohn
and Monsanto and Monsanto's advisors to discuss (i) the current landscape
and competitive dynamics related to the markets in which Pharmacia &
Upjohn and Monsanto operate, (ii) each company's operations, historical
financial statements, prospects and financial condition, (iii) each
company's views of the strategic, business, operational and financial
rationale for, and expected strategic benefits and other implications of,
the merger, (iv) the Pharmacia & Upjohn Projections, the Monsanto
Projections and the Projected Benefits and (v) certain other assumptions
and judgments underlying certain estimates which we deemed relevant to
our analyses;
- reviewed the historical prices, trading multiples and trading volumes of
Pharmacia & Upjohn's common stock and Monsanto's common stock;
- reviewed publicly available financial data, stock market performance data
and trading multiples of companies which Bear Stearns deemed generally
comparable to Pharmacia & Upjohn and Monsanto or otherwise relevant to
its analyses;
- reviewed the terms, to the extent publicly available, of recent merger
and acquisition transactions which Bear Stearns deemed generally
comparable to the merger or otherwise relevant to its analyses; and
- conducted such other studies, analyses, inquiries and investigations as
Bear Stearns deemed appropriate.
In preparing its opinion, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information, including without limitation the Projections and the
Projected Benefits, provided to Bear Stearns. With respect to the Projections
and the Projected Benefits, Bear Stearns assumed they are reasonable and reflect
the best currently available estimates and judgments of the senior managements
of Pharmacia & Upjohn and Monsanto as to the expected future performance of
Pharmacia & Upjohn and Monsanto, respectively. Bear Stearns did not assume any
responsibility for the independent verification of any such information or
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of the Projections and Projected Benefits provided to it. Finally, Bear Stearns
assumed that there are no facts that would make the information, Projections and
Projected Benefits provided to it incomplete or misleading.
In arriving at its opinion, Bear Stearns did not perform or obtain any
independent appraisal of the assets or liabilities of Pharmacia & Upjohn and
Monsanto, nor was it furnished with any such appraisals. In rendering its
opinion, Bear Stearns analyzed the merger as a strategic business combination
not involving a sale of control of either Pharmacia & Upjohn or Monsanto, and
Bear Stearns did not solicit, nor was it asked to solicit, third party
acquisition interest in Pharmacia & Upjohn. Bear Stearns assumed that the merger
will (i) qualify as a tax-free "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code and (ii) be consummated without any
regulatory limitations, restrictions, conditions, amendments or modifications
that collectively would have a material adverse effect on the combined company
after the merger. Bear Stearns' opinion was necessarily based on economic,
market and other conditions, and the information made available to Bear Stearns
as of the date of the opinion. Bear Stearns understands that the merger is
expected to be treated as a pooling-of-interests for accounting purposes but
that such treatment is not a condition to consummation of the merger.
The following is a brief summary of the material valuation, financial and
comparative analyses considered by Bear Stearns in connection with the rendering
of its opinion.
In performing its analyses, Bear Stearns made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Bear Stearns, Pharmacia & Upjohn and Monsanto. Any estimates contained in the
analyses performed by Bear Stearns are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, estimates of the value of businesses
or securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities might actually be sold. Accordingly, such analyses
and estimates are inherently subject to substantial uncertainty. In addition, as
described above, Bear Stearns' opinion was among several factors taken into
consideration by the Pharmacia & Upjohn board of directors in making its
determination to approve the merger and the merger agreement.
Relative Contribution Analysis. Bear Stearns calculated the relative
contribution by each of Pharmacia & Upjohn and Monsanto to the combined company
with respect to equity market capitalization and various income statement
categories of the pro forma combined company, including 1999 estimated, 2000
estimated and 2001 estimated net income and cash net income (which is calculated
by adding goodwill amortization to net income). Bear Stearns did so in order to
compare Pharmacia & Upjohn's relative contribution to the combined company on
these measurements to Pharmacia & Upjohn's pro forma ownership of the combined
company taking into account each company's outstanding options and warrants on
common stock treated under the treasury stock method and other convertible
securities into common stock. Bear Stearns analyzed Pharmacia & Upjohn's share
of the combined equity based on (i) the exchange ratio; (ii) the closing prices
of Pharmacia & Upjohn's common stock and Monsanto's common stock of $54.25 and
$40.50, respectively, as of December 15, 1999 and (iii) an average of the
closing prices of Pharmacia & Upjohn's common stock and Monsanto's common stock
over the 20 trading days up to and including December 15, 1999. Bear Stearns
observed Pharmacia & Upjohn's share of the combined equity value would be 49.2%
at the exchange ratio based on the closing prices of Pharmacia & Upjohn's common
stock and Monsanto's common stock of $54.25 and $40.50, respectively, as of
December 15, 1999. Bear Stearns did not take into account any of the Projected
Benefits in the analysis presented
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below. Bear Stearns noted the pro forma ownership percentage based on the
exchange ratio was consistent with Pharmacia & Upjohn's contribution of the
measurements set forth below:
<TABLE>
<CAPTION>
RELATIVE CONTRIBUTION PERCENTAGE
-------------------------------------------------------------------------
MARKET VALUE OF EQUITY NET INCOME (GAAP) CASH NET INCOME
------------------------- --------------------- ---------------------
AT AS OF 20 DAY
DEAL 12/15/99 AVERAGE 1999E 2000E 2001E 1999E 2000E 2001E
---- -------- ------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pharmacia & Upjohn................. 49.2% 52.2% 50.6% 68.9% 56.5% 56.0% 57.5% 51.1% 52.2%
Monsanto........................... 50.8% 47.9% 49.4% 31.1% 43.5% 44.0% 42.5% 48.9% 47.8%
</TABLE>
Historical Exchange Ratio Analysis. Bear Stearns reviewed the historical
closing stock prices of Pharmacia & Upjohn's common stock and Monsanto's common
stock during the period from December 16, 1998 through December 15, 1999 and the
implied historical exchange ratios determined by dividing the price per share of
Pharmacia & Upjohn's common stock by the price per share of Monsanto's common
stock over such period. Bear Stearns did so in order to analyze whether the
exchange ratio was consistent with historical implied exchange ratios. Bear
Stearns noted the exchange ratio was consistent with the historical implied
market exchange ratios in the periods examined. The following table shows the
implied exchange ratio as of December 15, 1999 as well as the average, high and
low implied historical exchange ratios for various periods leading up to
December 15, 1999.
<TABLE>
<CAPTION>
HISTORICAL EXCHANGE RATIO
-------------------------
TIME PERIOD AVERAGE HIGH LOW
- ----------- ------- ----- -----
<S> <C> <C> <C>
As of December 15, 1999................................ 1.340 NA NA
One week............................................... 1.255 1.342 1.210
Two weeks.............................................. 1.238 1.342 1.195
Three weeks............................................ 1.254 1.342 1.195
Four weeks............................................. 1.256 1.342 1.195
Five weeks............................................. 1.264 1.342 1.195
Six weeks.............................................. 1.272 1.353 1.195
Seven weeks............................................ 1.289 1.438 1.195
Eight weeks............................................ 1.375 1.438 1.195
Three months........................................... 1.331 1.518 1.195
Six months............................................. 1.328 1.518 1.145
One year............................................... 1.283 1.518 1.093
</TABLE>
Selected Comparable Company Analysis. Bear Stearns compared certain
operating, financial, trading and valuation information for Pharmacia & Upjohn
and Monsanto to certain publicly available operating, financial, trading and
valuation information for twelve selected companies, which in Bear Stearns'
judgment, were reasonably comparable to Pharmacia & Upjohn and Monsanto for
purposes of this analysis. These companies were:
<TABLE>
<S> <C> <C>
- - American Home Products - Glaxo Wellcome Plc - Roche Holdings Limited
Company - Merck & Co., Inc. - Schering-Plough
- - AstraZeneca Plc - Novartis AG Corporation
- - Bristol-Myers Squibb - Pfizer Inc. - Smithkline Beecham Plc
Company - Warner-Lambert Company
- - Eli Lilly & Co.
</TABLE>
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Bear Stearns utilized the earnings forecasts for these companies from
publicly available data from First Call and selected Wall Street equity research
reports. Bear Stearns' analysis was based on closing stock prices as of December
15, 1999. Bear Stearns noted that the closing prices of Pharmacia & Upjohn's
common stock and Monsanto's common stock on December 15, 1999 of $54.25 and
$40.50, respectively, represented multiples within the range of multiples for
the comparable companies. A summary of the projected multiples of equity value
to net income based on estimates of net income and cash net income for calendar
years 2000 and 2001 is set forth below:
<TABLE>
<CAPTION>
EQUITY VALUE/ EQUITY VALUE/
NET INCOME CASH NET INCOME
----------------------------- -----------------------------
2000E 2001E 2000E 2001E
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Pharmacia & Upjohn........ 26.7x 23.1x 21.5x 18.7x
Monsanto.................. 34.6x 25.2x 19.5x 16.1x
Range of multiples for
comparable companies.... 21.8x - 36.1x 19.5x - 30.5x 18.6x - 35.3x 16.3x - 29.7x
Mean for comparable
companies............... 27.4x 23.8x 25.7x 22.6x
Median for comparable
companies............... 27.3x 23.4x 22.2x 19.4x
</TABLE>
Bear Stearns also noted that none of the comparable companies are identical
to Pharmacia & Upjohn, Monsanto, or the combined company and, accordingly, any
analysis of comparable companies necessarily involved complex consideration and
judgements concerning differences in financial and operating characteristics and
other factors that would necessarily affect the relative trading value of
Pharmacia & Upjohn and Monsanto versus the companies to which Pharmacia & Upjohn
and Monsanto were being compared.
Discounted Cash Flow Analysis. Bear Stearns performed a discounted cash
flow analysis of both Pharmacia & Upjohn and Monsanto. A discounted cash flow
analysis involves an analysis of the present value of projected after-tax cash
flows and a terminal value using discount rates and terminal cash flow perpetual
growth rates as indicated below. After-tax cash flows were calculated as
after-tax earnings before interest and amortization plus depreciation less
changes in working capital and capital expenditures.
Bear Stearns noted the discount rates used in the discounted cash flow
analysis of Pharmacia & Upjohn and Monsanto reflect each company's weighted
average cost of capital. The weighted average cost of capital represents the
cost of capital for each of Pharmacia & Upjohn and Monsanto based on the
relative proportion of debt and equity employed by each company. The range of
perpetual growth rates employed in the Pharmacia & Upjohn and Monsanto
discounted cash flow analysis reflects certain assumptions of Pharmacia &
Upjohn's and Monsanto's cash flow growth in perpetuity.
Pharmacia & Upjohn: Bear Stearns performed a discounted cash flow analysis
on the after-tax cash flows of Pharmacia & Upjohn. Bear Stearns analyzed the
business using a forecast of after-tax cash flows for the five year period
beginning January 1, 2000 and ending December 31, 2004. Bear Stearns relied on
the Pharmacia & Upjohn Projections for the period beginning January 1, 2000 and
ending December 31, 2003. Based on discussions with senior executives of
Pharmacia & Upjohn, the Pharmacia & Upjohn Projections were assumed by Bear
Stearns as being representative of the future prospects of Pharmacia & Upjohn.
In order to calculate 2004 after-tax cash flows, Bear Stearns estimated 2004
earnings before interest, taxes and amortization ("EBITA") by growing 2003 EBITA
at the same growth rate that was calculated from 2002 to 2003. Bear Stearns then
reconciled EBITA
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to after-tax cash flows by subtracting taxes, working capital and capital
expenditures and adding depreciation to 2004 EBITA. Depreciation and working
capital were held constant from 2003 to 2004 and capital expenditures was
assumed to equal 2004 depreciation. Bear Stearns then estimated the enterprise
value (calculated as equity value plus net debt) of Pharmacia & Upjohn by using
discount rates of 10.0% to 11.5% and perpetual growth rates of cash flow of 6.0%
to 6.5%. This analysis yielded a range of enterprise values for Pharmacia &
Upjohn of approximately $25 billion to $35 billion. Bear Stearns concluded that
the enterprise value of Pharmacia & Upjohn calculated as of December 15, 1999,
of $29 billion was in the range of values indicated in the discounted cash flow
analysis.
Monsanto: Bear Stearns performed a discounted cash flow analysis on the
after-tax cash flows of Monsanto. Bear Stearns analyzed the after-tax cash flows
for the five-year period beginning January 1, 2000 and ending December 31, 2004
based on the Monsanto Projections. Based on discussions with senior executives
of Monsanto, the Monsanto Projections were assumed by Bear Stearns as being
representative of the future prospects of Monsanto. Bear Stearns then estimated
the enterprise value of Monsanto by using discount rates of 10.0% to 11.0% and
perpetual growth rates of cash flow of 5.5% to 6.0%. This analysis yielded a
range of enterprise values for Monsanto of approximately $30 billion to $40
billion. Bear Stearns concluded that the enterprise value of Monsanto calculated
as of December 15, 1999, of $32 billion was in the range of values indicated in
the discounted cash flow analysis.
Sum-of-the Parts Analysis. Bear Stearns performed a sum-of-the parts
analysis of Monsanto. A sum-of-the parts analysis involves a separate valuation
of each of Monsanto's core businesses, pharmaceutical ("Rx") and agricultural
chemicals ("AgChem"). In valuing each of Monsanto's core businesses, Bear
Stearns relied primarily on discounted cash flow analysis and a multiple
analysis in which Bear Stearns applied a range of multiples to projected Rx and
AgChem revenues, operating income, operating cash flow and net income.
These analyses yielded a range of enterprise values for Rx of approximately
$17 billion to $22 billion and AgChem of approximately $12 billion to $17
billion. Bear Stearns concluded that the enterprise value of Monsanto calculated
as of December 15, 1999, of $32 billion was in the range of values calculated by
Bear Stearns in the sum-of-the parts analysis. The multiples for AgChem used in
the sum-of-the parts analysis were arrived at after a review of the comparable
companies set forth below:
- Ciba Specialty Chemical Company
- Clariant Limited
- E.I. Du Pont de Nemours and Company
- - Ecolab Inc.
- - International Flavors & Fragrances Inc.
- - Rohm and Haas Company
For both Rx and AgChem, market position, growth prospects and profitability
were a few of the many factors used in comparing the Monsanto assets to the
comparable companies and other publicly traded comparable companies.
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Precedent Merger of Equals Transactions. Bear Stearns analyzed the merger
as a strategic business combination not involving a sale of control of either
party and, accordingly, reviewed and analyzed the terms, to the extent publicly
available, of 24 major announced or completed merger of equals transactions in
various industries where each combining company had equal representation on the
combined company's board of directors and where the stockholders of neither
combining company owned greater than 65% of the combined company's common
shares. The precedent merger of equals transactions are set forth below:
- American Home Products/Warner-Lambert
- Associated Banc Corp./First Financial
- Banc One/First Chicago NBD
- Bell Atlantic/GTE
- Bell Atlantic/NYNEX
- CUC International/HFS
- Daimler-Benz/Chrysler
- Dean Witter Discover/Morgan Stanley
- First Data/First Financial Management
- Martin Marietta/Lockheed
- McKesson/HBO
- NBD Bancorp/First Chicago
- Norwest Corp./Wells Fargo
- Ocean Energy/United Meridian
- Pfizer Inc./Warner-Lambert
- Pharmacia/Upjohn
- Promus Hotel/Doubletree
- Society/KeyCorp
- Southern National/BB&T Financial
- Teleglobe/Excel Communications
- Travelers Group/Citicorp
- Vodafone Group/AirTouch
- Wellfleet Comm./SynOptics Comm.
- Zions Bancorp/First Security
For each of the precedent merger of equals transactions Bear Stearns
reviewed and analyzed the stock price premium/(discount) from each of the
combining company's perspective based on the exchange ratio of the precedent
merger of equals transactions versus (i) the implied market exchange ratio one
day prior to announcement of the transaction and (ii) the implied market
exchange ratio based on the average stock price for the 20 trading days prior to
the announcement of the transaction. Bear Stearns also reviewed the pro forma
ownership of the combined company by each combining company's stockholders, each
combining company's representation on the board of directors of the combined
company, the senior management responsibilities in the combined company and the
corporate headquarters location of the combined company.
Bear Stearns' analysis indicated the exchange ratios for the precedent
merger of equals transactions were generally within a reasonably narrow band
around the exchange ratio implied by recent pre-announcement stock prices (both
using stock prices one day prior to announcement and over the 20 trading days
prior to the announcement). The following table presents the premium/ (discount)
contemplated in the merger and contemplated in the precedent merger of equals
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transactions, from the perspective of the stockholders of the first-named
company for the prior day to announcement and 20 trading day average closing
prices:
PREMIUM/(DISCOUNT) BASED ON CLOSING PRICE
<TABLE>
<CAPTION>
PRIOR DAY TO 20 DAY
ANNOUNCEMENT AVERAGE
---------------- ---------------
<S> <C> <C>
Pharmacia & Upjohn/Monsanto................. (4.1)% (11.0)%
Monsanto/Pharmacia & Upjohn................. 9.2% 5.6%
Precedent Merger of Equals Transactions
Range of Discounts..................... (1.2)% - (16.1)% (1.0)% - (8.4)%
Range of Premiums...................... 1.8% - 55.1% 0.4% - 48.8%
Median................................. 7.9% 8.1%
</TABLE>
Bear Stearns noted the magnitude of the premiums and discounts for the one
day prior and 20 day average each being less than 10% in 13 and 20% in 17 of the
24 precedent merger of equals transactions. Transactions with premiums over 10%
included many contested and/or cross-border transactions.
Bear Stearns noted that none of the precedent merger of equals transactions
were identical to the merger of Pharmacia & Upjohn and Monsanto and,
accordingly, any analysis of the precedent merger of equals transactions
necessarily involved complex considerations and judgments concerning differences
in industry dynamics, stock market valuation parameters, financial and operating
characteristics and various other factors that would necessarily affect the
exchange ratio in the merger as compared to the exchange ratios for the
precedent merger of equals transactions.
Illustrative Valuation Analysis of Estimated Benefits. Bear Stearns
performed an analysis of the reported cost savings and other combination
benefits to be realized by the combined entities from eleven announced
comparable merger transactions on a basis of total combined company revenues and
revenues related to similar businesses.
Bear Stearns noted that the estimated annual pre-tax benefit of
approximately $600 million, which was provided to Bear Stearns by the senior
managements of Pharmacia & Upjohn and Monsanto, represents approximately 3.4% of
projected pro forma combined 1999 revenues and 5.2% of projected pro forma
combined 1999 pharmaceutical revenues. These percentages are below the means for
the announced comparable merger transactions of 5.3% and 6.7%, respectively.
Bear Stearns also performed an illustrative valuation of the Projected
Benefits based on the hypothetical capitalized value of estimated incremental
net income assuming (i) a range of 2000E P/E multiples of 20.0x to 31.4x
including 26.6x, the market multiple for Pharmacia & Upjohn as of December 15,
1999; 31.4x, the market multiple for Monsanto as of December 15, 1999 and 28.7x,
the blended market multiple for Pharmacia & Upjohn and Monsanto as of December
15, 1999 (calculated as the income-weighted average of the respective
stand-alone market multiples of Pharmacia & Upjohn and Monsanto), (ii) annual
pre-tax Projected Benefits of $200 million to $600 million (excluding one-time
costs to achieve such Projected Benefits) and (iii) a tax rate of
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35.0%. The following table shows the calculated hypothetical capitalized values
of the Projected Benefits resulting from this analysis:
HYPOTHETICAL CAPITALIZED VALUE OF PROJECTED BENEFITS
<TABLE>
<CAPTION>
ANNUAL PRE-TAX PROJECTED BENEFITS
--------------------------------------------
$200 MILLION $400 MILLION $600 MILLION
------------ ------------ ------------
<S> <C> <C> <C>
2000E P/E Multiple Used:
Illustrative Capitalization Rate
(20.0x)................................ $2.6B $5.2B $ 7.8B
Pharmacia & Upjohn (26.6x)............. $3.5B $6.9B $10.4B
Blended (28.7x)........................ $3.7B $7.5B $11.2B
Monsanto (31.4x)....................... $4.1B $8.2B $12.3B
</TABLE>
Bear Stearns also performed an illustrative valuation of the Projected
Benefits based on the hypothetical net present value of incremental cash flows
assuming (i) a range of discount rates of 10% to 12%, (ii) annual pre-tax
Projected Benefits of $150 million, $400 million and $600 million in 2000, 2001
and 2002, respectively, (iii) estimated one-time costs of $600 million in 2000
that are necessary to achieve the Projected Benefits, (iv) a terminal growth
rate of 3.0%, 5.0% and 7.0% and (v) a tax rate of 35.0%. The following table
shows the hypothetical net present value of Projected Benefits across the range
of assumed discount rates:
HYPOTHETICAL NET PRESENT VALUE OF PROJECTED BENEFITS
<TABLE>
<CAPTION>
TERMINAL GROWTH RATE
--------------------
<S> <C> <C> <C>
Discount Rate.............................................. 3.0% 5.0% 7.0%
- --------------- ---- ---- ----
10.0%.................................................... $4.3B $5.8B $9.4B
11.0%.................................................... $3.7B $4.8B $6.9B
12.0%.................................................... $3.2B $4.0B $5.4B
</TABLE>
Pro Forma Merger Analysis. Bear Stearns reviewed and analyzed certain pro
forma financial impacts of the merger on holders of Pharmacia & Upjohn and
Monsanto common stock based on the following:
- the exchange ratio;
- the Projections;
- an assumption for analytical purposes that the combination of Pharmacia &
Upjohn and Monsanto would realize Projected Benefits on a pre-tax basis
of approximately $150 million, $400 million, and $600 million in 2000,
2001 and 2002, respectively, and an assumption for analytical purposes
that there would be no financial statement impact of potential
restructuring charges or other one-time items associated with the merger;
- pooling-of-interests accounting treatment for the merger; and
- an assumption for analytic purposes that the merger had been consummated
on January 1, 2000.
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Bear Stearns analyzed the potential pro forma effects of the merger on
Pharmacia & Upjohn's and Monsanto's projected earnings per share as derived
through Generally Accepted Accounting Principles ("GAAP EPS") and projected cash
earnings per share ("Cash EPS") which is calculated by adding amortization of
goodwill per share to GAAP EPS. Bear Stearns performed such analysis since Wall
Street analysts and investors use projected GAAP EPS and Cash EPS as valuation
benchmarks, along with other valuation benchmarks. This analysis indicated that,
with the Projected Benefits, the merger would be accretive to Pharmacia &
Upjohn's GAAP EPS by 2002 while being immediately accretive to Pharmacia &
Upjohn's Cash EPS. The actual results achieved by the combined company may vary
from projected results and the variations may be material.
Other Analyses. Bear Stearns conducted such other analyses as it deemed
necessary, including reviewing historical and projected financial and operating
data for both Pharmacia & Upjohn and Monsanto and pro forma balance sheet data
for the combined company, analyzing selected Wall Street equity research reports
on, and earnings and other estimates for, each of Pharmacia & Upjohn and
Monsanto and various of their business segments, reviewing the relative stock
price performance of Pharmacia & Upjohn and Monsanto versus various stock market
indices, comparing the coverage universe of the research analysts who monitor
each of Pharmacia & Upjohn and Monsanto, reviewing and comparing certain
financial data and valuation parameters for each of Pharmacia & Upjohn and
Monsanto and various of their business segments and reviewing available
information regarding the institutional holdings of Pharmacia & Upjohn's common
stock and Monsanto's common stock.
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of these methods to the
particular circumstances involved. Such an opinion is therefore not readily
susceptible to partial analysis or summary description, and taking portions of
the analyses set out above, without considering the analysis as a whole, would,
in the view of Bear Stearns, create an incomplete and misleading picture of the
processes underlying the analyses considered in rendering the Bear Stearns
opinion. Bear Stearns did not form an opinion as to whether any individual
analysis or factor (positive or negative), considered in isolation, supported or
failed to support the Bear Stearns opinion. In arriving at its opinion, Bear
Stearns considered the results of its analyses and did not attribute particular
weight to any one analysis or factor. The analyses performed by Bear Stearns,
particularly those based on estimates and projections, are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Such analyses were
prepared solely as part of Bear Stearns' analyses of the fairness, from a
financial point of view, of the exchange ratio to the stockholders of Pharmacia
& Upjohn.
Pursuant to the terms of its engagement letter with Bear Stearns, Pharmacia
& Upjohn has agreed to pay Bear Stearns customary fees, a portion of which
became payable upon the delivery of the Bear Stearns opinion, a portion of which
will become payable upon a favorable stockholder vote with respect to the merger
and a portion of which will become payable upon consummation of the merger or a
similar business combination between Pharmacia & Upjohn and Monsanto. In
addition, Pharmacia & Upjohn has agreed to reimburse Bear Stearns for all
reasonable out-of-pocket expenses incurred by Bear Stearns in connection with
its engagement and the merger, including reasonable fees and disbursements of
its legal counsel. Pharmacia & Upjohn has also agreed to indemnify Bear Stearns
against certain liabilities in connection with its engagement, including certain
liabilities under the federal security laws.
Bear Stearns has been previously engaged by Pharmacia & Upjohn to provide
certain investment banking and financial advisory services for which it received
customary compensation. In the ordinary course of business, Bear Stearns may
actively trade the equity and debt securities of Pharmacia & Upjohn and/or
Monsanto for its own account and for the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
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<PAGE> 88
OPINION OF J.P. MORGAN TO PHARMACIA & UPJOHN
Pursuant to an engagement letter dated November 16, 1999, Pharmacia &
Upjohn retained J.P. Morgan as its financial advisor in connection with the
proposed merger with Monsanto. At the meeting of Pharmacia & Upjohn's board of
directors on December 18, 1999, J.P. Morgan gave its oral opinion, subsequently
confirmed in a written opinion dated December 19, 1999, to the board of
directors that, as of that date and based upon and subject to the various
considerations set forth in the opinion, the consideration to be received by
Pharmacia & Upjohn's common stockholders in the proposed merger was fair from a
financial point of view to such stockholders. Pharmacia & Upjohn's board of
directors did not limit J.P. Morgan in any way in the investigations it made or
the procedures it followed in giving its opinion.
We have attached as Annex G to this document the full text of J.P. Morgan's
written opinion. This opinion sets forth the assumptions made, matters
considered and limits on the review undertaken. We incorporate J.P. Morgan's
opinion into this document by reference and urge you to read the opinion in its
entirety. J.P. Morgan addressed its opinion to the Pharmacia & Upjohn board. The
opinion addresses only the consideration to be paid in the merger and is not a
recommendation to any Pharmacia & Upjohn stockholder as to how that stockholder
should vote at Pharmacia & Upjohn's annual meeting.
In arriving at its opinion, J.P. Morgan reviewed:
- the merger agreement;
- the stock option agreements;
- the audited financial statements of Pharmacia & Upjohn and Monsanto for
the fiscal year ended December 31, 1997 and the fiscal year ended
December 31, 1998;
- the unaudited financial statements of Pharmacia & Upjohn and Monsanto for
the periods ended March 31, 1999, June 30, 1999 and September 30, 1999;
- current and historical market prices of Pharmacia & Upjohn's and
Monsanto's common stock;
- various sources of publicly available information concerning the business
of Pharmacia & Upjohn and Monsanto and of several other companies engaged
in businesses comparable to those of Pharmacia & Upjohn and Monsanto, and
the reported market prices for other companies' securities deemed
comparable;
- various publicly available agreements with respect to outstanding
indebtedness or obligations of the Company and Monsanto;
- the potential proforma impact of the merger on the earnings per share of
Pharmacia & Upjohn's common stock;
- the terms of various transactions involving companies comparable to
Monsanto and Pharmacia & Upjohn and the consideration received for those
companies;
- the terms of other business combinations that J.P. Morgan deemed
relevant; and
- various internal financial analyses and forecasts prepared by Pharmacia &
Upjohn and Monsanto and their respective managements including potential
cost savings and operating synergies, as well as projections prepared by
equity research analysts for the fiscal years ending December 31, 1999
through 2004
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J.P. Morgan also held discussions with several members of the management of
Pharmacia & Upjohn and Monsanto on numerous aspects of the merger, the past and
current business operations of Pharmacia & Upjohn and Monsanto, the financial
condition and future prospects and operations of Pharmacia & Upjohn and
Monsanto, the effects of the merger on the financial condition and future
prospects of Pharmacia & Upjohn and Monsanto, and other matters that J.P. Morgan
believed necessary or appropriate to its inquiry. In addition, J.P. Morgan
reviewed other financial studies and analyses and considered such other
information that it deemed appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all financial and other information that was
publicly available or that was furnished to it by Pharmacia & Upjohn and
Monsanto or otherwise reviewed by J.P. Morgan from third party sources. J.P.
Morgan has not assumed responsibility or liability for that information or its
accuracy. J.P. Morgan has not conducted any valuation or appraisal of any assets
or liabilities, nor have any valuations or appraisals been provided to J.P.
Morgan. J.P. Morgan has assumed that the merger will have the tax consequences
described in discussions with, and materials furnished to J.P. Morgan by,
representatives of Pharmacia & Upjohn, and that the parties will complete the
other transactions contemplated by the merger agreement as described in that
agreement. J.P. Morgan also understood that Pharmacia & Upjohn and Monsanto
intend to treat the merger as a pooling of interests for accounting purposes,
but that such treatment is not a condition to closing the merger. J.P. Morgan
relied as to all legal matters relevant to rendering its opinion upon the advice
of counsel.
J.P. Morgan relied upon forecasts provided by Monsanto for both the
pharmaceutical and agricultural chemical businesses, as well as forecasts from
projections developed by equity research analysts. These projections were based
on numerous variables and assumptions that are inherently uncertain and may be
beyond the control of J.P. Morgan, including, but not limited to, factors
related to general economic and competitive conditions and prevailing interest
rates. Accordingly, actual results could vary significantly from those set forth
in the projections.
J.P. Morgan relied upon equity research analyst forecasts, which reflect
Pharmacia & Upjohn's management's best current estimates and judgements as to
the expected future results of operations and financial condition of Pharmacia &
Upjohn. These projections were based on numerous variables and assumptions that
are inherently uncertain and may be beyond the control of J.P. Morgan,
including, but not limited to, factors related to general economic and
competitive conditions and prevailing interest rates. Accordingly, actual
results could vary significantly from those set forth in the projections.
As is customary in the rendering of fairness opinions, J.P. Morgan based
its opinion on economic, market and other conditions as in effect on, and the
information made available to J.P. Morgan as of, December 16, 1999. Subsequent
developments may affect J.P. Morgan's opinion, and J.P. Morgan does not have any
obligation to update, revise, or reaffirm its opinion. J.P. Morgan expressed no
opinion as to the price at which Pharmacia & Upjohn's or Monsanto's common stock
will trade at any future time.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses that J.P. Morgan
utilized in providing its opinion. We have presented some of the summaries of
financial analyses in tabular format. In order to understand the financial
analyses used by J.P. Morgan more fully, you should read the tables together
with the text of each summary. The tables alone do not constitute a complete
description of J.P. Morgan's financial analyses.
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DISCOUNTED CASH FLOW ANALYSIS. J.P. Morgan conducted a discounted cash
flow analysis to determine the fully diluted firm value (defined as equity plus
debt less cash) for Monsanto and Pharmacia & Upjohn by valuing the present value
of projected unlevered free cash flows adjusted to reflect debt and cash
position as of September 30, 1999. J.P. Morgan conducted a discounted cash flow
analysis for Monsanto's primary businesses, pharmaceuticals and agricultural
chemicals. In conducting this analysis, J.P. Morgan calculated the debt-free
free cash flows expected to be generated during fiscal years 1999 through 2004,
for the pharmaceuticals and agricultural chemicals businesses, respectively,
based upon financial projections provided by Monsanto, as well projections
developed by equity research analysts.
J.P. Morgan also calculated a range of values for Monsanto at the
conclusion of the forecast period ending in 2004. In calculating this range of
terminal values for Monsanto, J.P. Morgan applied a terminal value sales growth
ranging from 5.0% to 7.0% for the pharmaceutical business, and a terminal value
sales growth rate ranging from 4.0% to 5.0% for the agricultural chemicals
business. J.P. Morgan then discounted Monsanto's free cash flows, assuming no
debt obligations, and the range of these terminal values to present values using
a range of discount rates from 9.5% to 11.5%, and 10.0% to 10.5%, for the
pharmaceutical and agricultural chemical businesses, respectively. J.P. Morgan
selected these discount rates based upon an analysis of the cost of debt and
equity capital of Monsanto appropriately weighted between debt and equity to
reflect the assumed optimal debt and equity capitalizations of the company. J.P.
Morgan then adjusted the present value of these debt-free free cash flows and
the range of terminal values as of December 31, 1999 by reflecting Monsanto's
debt and cash position as of its most recent unaudited financial statements of
September 30, 1999.
The discounted cash flow analyses performed indicated a range of firm
values of between $35 billion and $42 billion for Monsanto on a stand-alone
basis (i.e., without synergies). Including Monsanto's 50% share of the total
$600 million of expected annual synergies phased in over three years, J.P.
Morgan derived a range of firm values between $37.5 billion and $44.5 billion.
J.P. Morgan also performed a discounted cash flow analysis of Pharmacia &
Upjohn's business. J.P. Morgan analyzed Pharmacia & Upjohn's business using a
forecast during fiscal years 2000 through 2004, based on estimates published by
securities research analysts. Based upon discussions with senior executives of
Pharmacia & Upjohn, these analysts' projections were viewed by J.P. Morgan as
being representative of the future prospects of Pharmacia & Upjohn. J.P. Morgan
estimated the Pharmacia & Upjohn discounted cash flow by using a discount rate
from 9.5% to 11.5% and a terminal value growth rate from 5.0% to 7.0%. This
stand-alone analysis yielded a range of firm values between $26 billion and $33
billion. Including Pharmacia & Upjohn's 50% share of total $600 million of
expected annual synergies phased in over three years, J.P. Morgan derived a
range of firm values between $28.5 billion and $35.5 billion.
PUBLIC TRADING MULTIPLES. Using publicly available information, J.P.
Morgan compared selected financial data of Monsanto and Pharmacia & Upjohn with
similar data for selected publicly traded companies engaged in businesses that
J.P. Morgan judged to be reasonably comparable to both companies. No company
used in the peer group comparison is identical to Monsanto or Pharmacia &
Upjohn. In evaluating the peer group companies, J.P. Morgan made judgements and
assumptions with regard to industry performance, business, economic, market and
financial considerations. Purely mathematical analysis such as determining the
average or median, is not in itself a meaningful method of using peer group
data.
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The purpose of this analysis was to provide information regarding the
fairness of the proposed merger consideration based upon a comparison of
specific financial information of Monsanto and Pharmacia & Upjohn with several
comparable public companies. These companies were:
PHARMACEUTICALS
- Abbott Laboratories
- American Home Products
- Amgen
- Bristol-Myers Squibb
- Eli Lilly
- Genentech
- Glaxo-Wellcome
- Johnson & Johnson
- Merck
- Monsanto
- Pfizer
- Pharmacia & Upjohn
- Sanofi-Synthelabo
- Schering-Plough
- Warner-Lambert
AGRICULTURAL AND SPECIALTY CHEMICALS
- Bush Boake Allen
- Cambrex
- DuPont
- Ecolab
- International Flavors and Fragrances
- MacDermid
- Pioneer Hi-Bred (prior to acquisition by DuPont)
- Rohm & Haas
- Spartech
- Valspar
J.P. Morgan selected these companies because they engage in businesses
reasonably comparable to those of Monsanto and Pharmacia & Upjohn. For each
comparable company, J.P. Morgan measured publicly available financial
performance through the twelve months ended September 30, 1999, as well as
financial projections by the equity analysts covering each comparable company.
Analyses of the Pharmaceutical comparable companies, which exclude the high
and low multiples, showed a range of multiples of equity value to 2000 Earnings
between 22.9x and 41.1x. The analysis also showed a multiple of firm value to
2000 Sales ranging from 4.0x to 11.8x and a 2000 EBITDA multiple ranging from
13.8x to 24.0x.
An analysis of the Agricultural Chemical comparable companies showed a
range of multiples of equity value to 2000 Earnings between 14.6x and 22.1x. The
analysis also showed a multiple of firm value to 2000 EBITDA multiple ranging
from 7.4x to 13.6x.
J.P. Morgan then selected an appropriate multiple range for each of
Monsanto's two businesses. J.P. Morgan then applied these multiples to each
businesses' respective estimated Sales, EBITDA and earnings, yielding an implied
standalone firm value for all of Monsanto ranging from $30 billion to $36
billion.
J.P. Morgan derived a firm value of $30 billion to $38 billion for
Pharmacia & Upjohn based on the above sample of pharmaceutical companies and the
associated trading multiples.
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SELECTED TRANSACTION ANALYSIS. Using publicly available information, J.P.
Morgan examined the following transactions:
PHARMACEUTICALS
- Pfizer's pending acquisition offer for Warner-Lambert
- Abbott's offer to acquire Alza
- Shire's offer to acquire Roberts
- DuPont de Nemours' acquisition of DuPont-Merck Pharmaceuticals
- Roche Holding's acquisition of Corange
AGRICULTURAL AND SPECIALTY CHEMICALS
- Bayer's acquisition of Crompton & Knowles -- Gustafson (50%)
- BASF's acquisition of Sandoz's North American AgroChemical business
- DuPont's acquisition of Pioneer Hi-Bred
- Zeneca's acquisition of Ishara Sangyo Kaisha
- Novartis' acquisition of Merck's AgroChemical business
- Suez Lyonnaise's acquisition of Nalco
- Rohm & Haas' acquisition of Morton
- Hercules' acquisition of BetzDearborn
- DSM's acquisition of Gist Brocades
- DuPont's acquisition of PTI
- ICI's acquisition of Unilever Specialty Chemicals
- Roche's acquisition of Tastemaker
J.P. Morgan selected these transactions because of their similarity to the
proposed merger. However, J.P. Morgan placed less emphasis on the transaction
comparables as a valuation metric when determining the fairness of this
transaction because each of the comparable transactions incorporated a change of
control premium associated with an acquisition. By contrast, this merger is
structured as a merger-of-equals.
Analyses of the Pharmaceutical comparable transactions showed a range of
multiples of equity value to Last Twelve Months Earnings prior to the
transaction between 34.8x and 59.8x. The analysis also showed a multiple of firm
value to Last Twelve Months Sales prior to the transaction multiple ranging from
2.8x to 13.0x and a Last Twelve Months EBITDA prior to the transaction multiple
ranging from 20.5x to 34.1x.
An analysis of the Agricultural Chemical comparable transactions showed a
range of multiples of firm value to Last Twelve Months Sales prior to the
transaction between 1.4x and 4.6x. The analysis also showed a multiple of firm
value to Last Twelve Months EBITDA prior to the transaction multiple ranging
from 8.0x to 14.7x.
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J.P. Morgan then selected an appropriate multiple range for each of
Monsanto's two businesses. J.P. Morgan then applied these multiples to each
businesses' respective estimated Sales, EBITDA and earnings, yielding an implied
standalone firm value for all of Monsanto ranging from $30 billion to $37
billion.
J.P. Morgan derived a firm value of $34 billion to $40 billion for
Pharmacia & Upjohn based on the above transaction multiples.
CONTRIBUTION ANALYSIS. J.P. Morgan analyzed the Pharmacia & Upjohn
stockholder pro forma ownership level implied by the pro forma contribution by
each of Pharmacia & Upjohn and Monsanto to the earnings of the combined company,
assuming completion of the merger. The purpose of this analysis was to assess
the fairness of the proposed merger consideration based on specific historical
and estimated future operating and financial information comparing the
contribution of Pharmacia & Upjohn and Monsanto to the combined company versus
the percentage of the combined company that each company's stockholders would
hold upon completion of the merger.
The following tables set forth the contribution levels suggested by the
selected financial performance benchmarks, as compared to the pro forma fully
diluted ownership of the Pharmacia & Upjohn stockholders after the merger of
49.2%. Cash net income is calculated by adding the amortization of existing
goodwill to GAAP net income.
<TABLE>
<CAPTION>
PHARMACIA &
UPJOHN MONSANTO
----------- --------
<S> <C> <C>
1999E Net income (GAAP)................................. 68.9% 31.1%
2000E Net income (GAAP)................................. 56.5% 43.5%
2001E Net income (GAAP)................................. 56.0% 44.0%
1999E Cash net income................................... 57.5% 42.5%
2000E Cash net income................................... 51.1% 48.9%
2001E Cash net income................................... 52.2% 47.8%
</TABLE>
PRO FORMA MERGER ANALYSIS. J.P. Morgan prepared a pro forma analysis of
the financial impact of the merger. In conducting the analysis, J.P. Morgan
assumed, among other things:
- pooling of interests accounting treatment;
- a merger exchange ratio of 1.19;
- estimates of cost savings and operating synergies resulting from the
merger, as provided by Pharmacia and Upjohn's and Monsanto's management;
and
- projected earnings estimated for Monsanto and Pharmacia & Upjohn based on
equity research analysts' estimates using both GAAP EPS estimates and
estimated Cash EPS.
J.P. Morgan evaluated the potential pro forma impact of the merger on the
earnings per share of Pharmacia & Upjohn's common stock. The analysis showed,
assuming $600 million in synergies phased in over three years, that the merger
should be accretive to Pharmacia & Upjohn's GAAP EPS by 2002 and immediately
accretive to Pharmacia & Upjohn's Cash EPS. The results of the pro forma merger
analysis are not necessarily indicative of future operating results or financial
position. The actual results achieved by the combined company may vary from
projected results and the variations may be material.
EXCHANGE RATIO ANALYSIS. J.P. Morgan reviewed the ratios of the closing
prices of Pharmacia & Upjohn common stock divided by the corresponding prices of
the Monsanto common stock over various periods during the two-year period ending
December 15, 1999. The following table presents the average implied exchange
ratio for the periods covered.
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<TABLE>
<CAPTION>
LAST 30 LAST 90 LAST 180 LAST
TRADING DAYS TRADING DAYS TRADING DAYS 1 YEAR
--------------- --------------- ---------------- ------
<S> <C> <C> <C> <C>
Exchange Ratio............ 1.272 1.307 1.309 1.283
</TABLE>
This summary does not purport to be a complete description of the analyses
or data presented by J.P. Morgan. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. J.P. Morgan believes that one must consider its opinion,
this summary and its analyses as a whole. Selecting portions of this summary and
these analyses, without considering the analyses as a whole, would create an
incomplete view of the processes underlying the analyses and opinion. In
arriving at its opinion, J.P. Morgan considered the results of all of the
analyses as a whole. No single factor or analysis was determinative of J.P.
Morgan's fairness determination. Rather, the totality of the factors considered
and analyses performed operated collectively to support its determination. J.P.
Morgan based the analyses on assumptions that it deemed reasonable, including
assumptions concerning general business and economic conditions which impact the
companies' growth rates, labor costs and price competition and industry-specific
factors similar to those set forth under the heading "Risk Factors" on pages
I-15 through I-19 of this document. This summary sets forth under the
description of each analysis the other principal assumptions upon which J.P.
Morgan based that analysis. J.P. Morgan's analyses are not necessarily
indicative of actual values or actual future results that either company or the
combined company might achieve, which values may be higher or lower than those
indicated. Analyses based upon forecasts of future results are inherently
uncertain, as they are subject to numerous factors or events beyond the control
of the parties and their advisors. Accordingly, these forecasts and analyses are
not necessarily indicative of actual future results, which may be significantly
more or less favorable than suggested by those analyses. Therefore, none of
Pharmacia & Upjohn, Monsanto, J.P. Morgan or any other person assumes
responsibility if future results are materially different from those forecasted.
Moreover, J.P. Morgan's analyses are not and do not purport to be appraisals or
otherwise reflective of the prices at which businesses actually could be bought
or sold.
As a part of its investment banking business, J.P. Morgan and its
affiliates are continually engaged in the valuation of businesses and their
securities for mergers and acquisitions, investments for passive and control
purposes, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. Pharmacia & Upjohn selected J.P. Morgan to deliver a
fairness opinion to the Pharmacia & Upjohn board on the basis of its experience
and familiarity with Pharmacia & Upjohn.
Pharmacia & Upjohn has agreed to pay J.P. Morgan customary fees, portions
of which are payable upon the public announcement of the merger agreement, upon
stockholder approval of the merger agreement, and upon consummation of the
merger. In addition, Pharmacia & Upjohn has also agreed to reimburse J.P. Morgan
for the reasonable fees and disbursements of counsel incurred in connection with
delivering its opinion, and will indemnify J.P. Morgan against various
liabilities, including liabilities arising under the federal securities laws.
J.P. Morgan has acted as a financial advisor to Pharmacia & Upjohn with
respect to other contemplated transactions. In addition, an affiliate of J.P.
Morgan has a credit relationship with Pharmacia & Upjohn, and J.P. Morgan has
served as a co-lead for Pharmacia & Upjohn's secondary equity offering. In
addition, an affiliate of J.P. Morgan has from time to time had a credit
relationship with Monsanto and J.P. Morgan has assisted Monsanto on debt
financings, investment banking advisory services, as well as a series of tax
structured private placements. In the ordinary course of their businesses, J.P.
Morgan and its affiliates may actively trade the debt and equity securities of
Pharmacia & Upjohn or Monsanto for their own account or for the accounts of
customers and, accordingly, they may at any time hold long or short positions in
such securities.
I-89
<PAGE> 95
CHAPTER TWO
FINANCIAL INFORMATION
MARKET PRICE AND DIVIDEND INFORMATION
Monsanto's common stock and Pharmacia & Upjohn's common stock are listed on
the NYSE under the symbols "MTC" and "PNU", respectively. In addition, Swedish
Depositary Shares, each representing one share of Pharmacia & Upjohn common
stock, are traded on the Stockholm Stock Exchange under the symbol "PH&U." The
following table shows, for the calendar quarters indicated, based on published
financial sources, the high and low last reported closing prices per share of
each company's common stock as reported on the New York Stock Exchange Composite
Transaction Tape and the cash dividends per share of each of Monsanto and
Pharmacia & Upjohn common stock. In addition, the table shows, for the calendar
quarters indicated, the corresponding prices of Pharmacia & Upjohn's Swedish
Depositary Shares on the Stockholm Stock Exchange.
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN
COMMON STOCK
MONSANTO COMMON STOCK* ----------------------------------------------------
---------------------------- STOCKHOLM
NYSE NYSE STOCK EXCHANGE
---------------------------- ---------------------------- --------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND HIGH LOW
------- ------- -------- ------- ------- -------- -------- --------
(SEK PER SWEDISH
DEPOSITARY SHARE)**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
First Quarter........ $42.250 $34.750 $0.15 $41.125 $35.750 $0.27 301.5 263.5
Second Quarter....... 46.500 37.000 0.16 36.875 27.500 0.27 284.0 219.0
Third Quarter........ 52.313 36.375 0.16 38.625 33.938 0.27 304.5 266.5
Fourth Quarter***.... 45.750 38.000 0.03 37.500 28.875 0.27 292.0 230.5
1998
First Quarter........ 53.063 38.313 0.03 45.875 33.750 0.27 351.0 272.5
Second Quarter....... 60.375 51.313 0.03 46.688 38.250 0.27 367.0 301.0
Third Quarter........ 63.938 50.500 0.03 51.688 40.438 0.27 407.5 334.0
Fourth Quarter....... 55.875 33.750 0.03 57.250 44.875 0.27 454.0 357.0
1999
First Quarter........ 50.750 37.375 0.03 63.813 51.875 0.27 528.0 418.0
Second Quarter....... 50.125 38.250 0.03 66.375 51.563 0.27 543.0 441.5
Third Quarter........ 45.438 32.750 0.03 59.563 46.375 0.27 504.0 394.0
Fourth Quarter....... 47.500 33.563 0.03 60.688 43.500 0.27 501.0 381.5
2000
First Quarter
(through --,
2000).............. -- -- -- -- -- -- -- --
</TABLE>
- -------------------------
* Stock prices and dividend amounts are not restated to reflect the spinoff of
Monsanto's chemical business on September 1, 1997.
II-1
<PAGE> 96
** On --, 2000, 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 --.
*** In the fourth quarter of 1997, following the spinoff of Monsanto's chemical
business, the Monsanto board of directors reevaluated Monsanto's dividend
policy and reduced the quarterly dividend on Monsanto common stock from
$0.16 per share to $0.03 per share.
On December 17, 1999, the last full trading day prior to the announcement
of the signing of the merger agreement, the last reported closing prices per
share of Monsanto and Pharmacia & Upjohn common stock were $41.75 and $50.25,
respectively. The market value for a share of Pharmacia & Upjohn common stock
calculated on an equivalent per share basis as if the merger had been completed
on December 17, 1999, would have been $49.68, which is the per share closing
price of the Monsanto common stock on that day multiplied by the exchange ratio
for the merger. On --, 2000, the most recent practicable date prior to the
mailing of this document, the last reported closing prices per share of Monsanto
and Pharmacia & Upjohn common stock were $-- and $--, respectively. STOCKHOLDERS
ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO MAKING ANY DECISION WITH
RESPECT TO THE MERGER.
The merger agreement allows each of Monsanto and Pharmacia & Upjohn to
continue to pay dividends in a manner consistent with its past practice.
Pharmacia & Upjohn's current quarterly dividend is $0.27 per share of Pharmacia
& Upjohn common stock, or $1.08 per share on an annual basis. Monsanto's current
quarterly dividend is $.03 per share of Monsanto common stock, or $0.12 per
share on an annual basis. The combined company's dividend policy will be set by
its board of directors. One alternative that the combined company's board of
directors could pursue is to set an initial dividend rate approximately equal to
the average of Monsanto's and Pharmacia's current dividend rates, so that the
aggregate amount of dividends paid by the combined company is approximately the
same as the aggregate amount of dividends paid by Monsanto and Pharmacia &
Upjohn. The amount of dividends will depend on a number of factors, including
the combined company's financial condition, capital requirements, results of
operations, future business prospects and other factors that the company's board
of directors may deem relevant.
II-2
<PAGE> 97
MONSANTO COMPANY
SELECTED FINANCIAL DATA
The table below shows summary selected historical financial information for
Monsanto as of and for the years ended December 31, 1998, 1997, 1996, 1995 and
1994 and has been prepared using the audited consolidated financial statements
of Monsanto. The information as of and for the nine months ended September 30,
1999 has been prepared using the unaudited condensed consolidated financial
statements of Monsanto. This information is only a summary, and you should read
it in conjunction with Monsanto's historical financial statement 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 V-1.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED AT DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------
1999 1998(1) 1997(2) 1996(3) 1995(4) 1994(5)
------------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net Sales......................... $ 6,804 $ 7,237 $ 6,058 $4,862 $4,165 $3,639
Income (Loss) from Continuing
Operations...................... 457 (131) 149 279 386 350
Income (Loss) from Discontinued
Operations(6)................... 69 (119) 321 106 353 272
Net Income (Loss)(7).............. 506 (250) 470 385 739 622
PER SHARE INFORMATION:
Income (Loss) from Continuing
Operations -- Basic............. $ 0.72 $ (0.22) $ 0.26 $ 0.48 $ 0.68 $ 0.61
Net Income (Loss) -- Basic........ 0.80 (0.41) 0.80 0.66 1.30 1.09
Income (Loss) from Continuing
Operations -- Diluted........... $ 0.70 $ (0.22) $ 0.24 $ 0.47 $ 0.67 $ 0.63
Net Income (Loss) -- Diluted...... 0.78 (0.41) 0.77 0.64 1.27 1.06
Dividends per share(8)............ $ 0.090 $ 0.120 $ 0.500 $0.588 $0.540 $0.494
YEAR-END FINANCIAL POSITION:
Total Assets...................... $15,983 $16,385 $10,517 $8,619 $8,008 $6,537
Long-Term Debt.................... 5,961 6,259 1,979 1,608 1,667 1,405
Shareowners' Equity............... 5,243 4,986 4,104 3,690 3,732 2,948
</TABLE>
- -------------------------
(1) Loss from continuing operations for 1998 included $610 million, or $1.01 per
share, for restructuring and special charges, write-offs for acquired
in-process research and development (R&D), and charges for the cancellation
of DEKALB stock options.
(2) Income from continuing operations for 1997 included $404 million, or $0.66
per share, for the write-off of acquired in-process R&D.
II-3
<PAGE> 98
(3) Income from continuing operations for 1996 included restructuring and other
unusual charges of $226 million, or $0.38 per share, associated with the
closure or rationalization of certain facilities, asset write-offs, and work
force reductions.
(4) Income from continuing operations for 1995 included restructuring expenses
and other unusual items of $63 million, $0.11 per share.
(5) Income from continuing operations for 1994 included a net aftertax gain for
restructuring and other unusual items of $20 million, or $0.03 per share.
(6) Includes the operations of the styrenics plastics business, chemicals
businesses, and the alginates business prior to their disposition in 1995,
1997 and 1999, respectively. The operations of the artificial sweeteners and
biogums businesses have also been included for all periods presented as a
result of management's decision during 1999 to exit these businesses.
(7) Net Income for the nine months ended September 30, 1999 included a $20
million loss for a cumulative effect of a change in accounting principle.
(8) The quarterly common stock dividend was reduced from $0.16 per share to
$0.03 per share in the first quarter of 1997.
II-4
<PAGE> 99
PHARMACIA & UPJOHN, INC.
SELECTED FINANCIAL DATA
The table below shows selected historical financial information for
Pharmacia & Upjohn. The historical financial information as of and for the years
ended December 31, 1998, 1997, 1996, 1995 and 1994 has been prepared using the
audited consolidated financial statements of Pharmacia & Upjohn. The information
as of and for the nine months ended September 30, 1999 and 1998 has been
prepared using the unaudited condensed consolidated financial statements of
Pharmacia & Upjohn. 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 V-1.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1999(2) 1998(2) 1998(2) 1997(2) 1996(2) 1995(2) 1994(2)
------- ------- ------- ------- ------- ------- -------
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales................................. $ 5,310 $ 4,909 $ 6,758 $ 6,586 $ 7,176 $ 6,949 $ 6,704
Income from Continuing
Operations........................... 589 509 631 258 550 733 824
Income from Discontinued
Operations........................... 2
Net Income.............................. 589 509 631 258 550 733 826
PER SHARE INFORMATION:
Income from Continuing
Operations -- Basic.................. $ 1.12 $ 0.97 $ 1.20 $ 0.48 $ 1.04 $ 1.41 $ 1.60
Net Income -- Basic..................... 1.12 0.97 1.20 0.48 1.04 1.41 1.60
Income from Continuing Operations --
Diluted.............................. $ 1.09 $ 0.95 $ 1.17 $ 0.48 $ 1.03 $ 1.39 $ 1.57
Net Income -- Diluted................... 1.09 0.95 1.17 0.48 1.03 1.39 1.57
Dividends declared per share(3)......... $ 0.81 $ 0.81 $ 1.08 $ 1.08 $ 1.08 $ 0.27 --
YEAR-END FINANCIAL POSITION:
Total Assets............................ $10,458 $10,308 $10,343 $10,457 $11,259 $11,536 $10,984
Long-Term Debt(1)....................... 339 565 513 651 823 870 953
Shareowners' Equity..................... 5,548 5,659 5,596 5,578 6,313 6,446 5,637
</TABLE>
- -------------------------
(1) Includes guarantee of ESOP debt. See Note 11 to the audited annual
consolidated financial statements incorporated by reference herein.
(2) Consolidated amounts for all periods presented have been restated
retroactively for the effects of the August 1999 merger with SUGEN, Inc.,
which was accounted for as a pooling of interests.
(3) Separate dividend information for Pharmacia AB and The Upjohn Company prior
to the November 1995 merger date has not been presented because this
information would not be meaningful.
II-5
<PAGE> 100
MONSANTO COMPANY AND PHARMACIA & UPJOHN, INC.
COMPARATIVE PER SHARE DATA
(UNAUDITED)
Set forth below are the net income, cash dividends and book value per
common share data separately for Monsanto and Pharmacia & Upjohn on a historical
basis, for the combined company on a pro forma combined basis and on a pro forma
combined basis per Pharmacia & Upjohn equivalent share. The exchange ratio for
the business combination is 1.19 shares of common stock of the combined company
for each share of Pharmacia & Upjohn common stock.
The pro forma data for the combined company was derived by combining the
historical consolidated financial information of Monsanto and Pharmacia & Upjohn
using the pooling of interests method of accounting for business combinations as
described under "Unaudited Pro Forma Condensed Combined Financial Information"
beginning on page II-8.
The Pharmacia & Upjohn equivalent share pro forma information shows the
effect of the merger from the perspective of an owner of Pharmacia & Upjohn
common stock. The information was computed by multiplying the combined company's
pro forma per share information by the exchange ratio of 1.19.
You should read the information below together with our historical
financial statements and related notes contained in the annual reports and other
information that we have filed with the SEC and incorporated by reference. See
"Where You Can Find More Information" on page V-1. The unaudited pro forma
combined data below is for illustrative purposes only. The companies may have
performed differently had they always been combined. You should not rely on this
information as being indicative of the historical results that would have been
achieved had the companies always been combined or the future results that the
combined company will experience after the merger.
<TABLE>
<CAPTION>
AS OF AND FOR
THE NINE
MONTHS ENDED AS OF AND FOR THE YEAR
SEPTEMBER 30, ENDED DECEMBER 31,
------------- ----------------------
1999 1998 1998 1997 1996
----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
MONSANTO HISTORICAL PER COMMON SHARE DATA:
Basic earnings per share -- continuing
operations................................. $0.72 $0.47 $(0.22) $0.26 $0.48
Diluted earnings per share -- continuing
operations............................ 0.70 0.45 (0.22) 0.24 0.47
Dividends per common share............... 0.09 0.09 0.12 0.50 0.59
Book value per common share.............. 8.26 -- 7.93 -- --
PHARMACIA & UPJOHN HISTORICAL PER COMMON
SHARE DATA:
Basic earnings per share -- continuing
operations............................ $1.12 $0.97 $1.20 $0.48 $1.04
Diluted earnings per share -- continuing
operations............................ 1.09 0.95 1.17 0.48 1.03
</TABLE>
II-6
<PAGE> 101
<TABLE>
<CAPTION>
AS OF AND FOR
THE NINE
MONTHS ENDED AS OF AND FOR THE YEAR
SEPTEMBER 30, ENDED DECEMBER 31,
------------- ----------------------
1999 1998 1998 1997 1996
----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Dividends per common share................. 0.81 0.81 1.08 1.08 1.08
Book value per common share.............. 10.71 -- 10.81 -- --
UNAUDITED PRO FORMA COMBINED
Basic earnings per share -- continuing
operations............................ $0.83 $0.64 $0.40 $0.33 $0.68
Diluted earnings per share -- continuing
operations............................ 0.81 0.62 0.39 0.32 0.67
Dividends per common share(1)............
Book value per common share.............. 8.56 -- 8.43 -- --
UNAUDITED PRO FORMA COMBINED PER PHARMACIA
& UPJOHN EQUIVALENT SHARE:
Basic earnings per share -- continuing
operations............................ $0.99 $0.76 $0.48 $0.39 $0.81
Diluted earnings per share -- continuing
operations............................ 0.96 0.74 0.46 0.38 0.80
Dividends per common share(1)............
Book value per common share.............. 10.19 -- 10.03 -- --
</TABLE>
- ---------------
(1) Monsanto's current quarterly dividend is $0.03 per share of common stock
($0.12 per share annualized) and is subject to future approval and
declaration of the board of directors of Monsanto. Pharmacia & Upjohn's
current quarterly dividend is $0.27 per share of common stock ($1.08 per
share annualized) and is subject to future approval and declaration by the
board of directors of Pharmacia & Upjohn. The combined company's dividend
policy will be set by its board of directors. One alternative that the
combined company's board of directors could pursue is to set an initial
dividend rate approximately equal to the average of Monsanto's and
Pharmacia's current dividend rates, so that the aggregate amount of
dividends paid by the combined company is approximately the same as the
aggregate amount of dividends paid by Monsanto and Pharmacia & Upjohn. The
amount of dividends will depend on a number of factors, including the
combined company's financial condition, capital requirements, results of
operations, future business prospects and other factors that the company's
board of directors may deem relevant.
II-7
<PAGE> 102
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The following information has been provided to aid you in your analysis of
the financial aspects of the merger. This information was derived from the
audited consolidated financial statements of each of Monsanto and Pharmacia &
Upjohn for the years 1996 through 1998 and the unaudited consolidated condensed
financial statements of each of Monsanto and Pharmacia & Upjohn for the nine
months ended September 30, 1999. The information is only a summary and should be
read together with the historical financial statements and related notes
contained in the annual reports and quarterly reports and other information that
we have filed with the SEC and incorporated by reference.
POOLING OF INTERESTS ACCOUNTING TREATMENT
The merger is expected to be accounted for as a "pooling of interests."
This means that, for accounting and financial reporting purposes, the companies
will be treated as if they had always been combined. We have presented unaudited
pro forma condensed combined financial information that reflects the pooling of
interests method of accounting to provide a picture of what the businesses might
have looked like had they always been combined. The pro forma condensed combined
statements of income and pro forma condensed combined statement of financial
position were prepared by combining the historical amounts of each company. The
companies may have performed differently had they always been combined. You
should not rely on the unaudited pro forma condensed combined financial
information as being indicative of the historical results that would have
occurred or the future results that will occur after the merger.
PERIODS COVERED
The following unaudited pro forma combined condensed statement of financial
position as of September 30, 1999, is presented as if the merger had occurred on
September 30, 1999. The unaudited pro forma combined condensed statements of
income for the nine months ended September 30, 1999, and for the years ended
December 31, 1998, 1997 and 1996, are presented as if the companies had always
been merged.
II-8
<PAGE> 103
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
PHARMACIA & PRO FORMA PRO FORMA
MONSANTO UPJOHN ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales........................... $6,804 $5,310 $12,114
Costs, Expenses and Other:
Cost of Goods Sold................ 2,450 1,421 3,871
Selling, General and
Administrative Expenses........ 2,107 2,019 4,126
Research and Development.......... 1,008 1,050 2,058
Amortization of Intangible
Assets......................... 259 68 327
Restructuring, Merger and Special
Charges........................ 10 32 42
Interest Expense.................. 287 41 328
Interest Income................... (30) (54) (84)
Other (Income) Expense, net....... 13 (111) (98)
------ ------ -------
Income from Continuing Operations
Before Income Taxes............... 700 844 1,544
Income Tax Expense.................. 243 255 498
------ ------ -------
Income from Continuing Operations... $ 457 $ 589 $ 1,046
====== ====== =======
Earnings from continuing operations
per common share:
Basic............................. $ 0.72 $ 1.12 $ 0.83
Diluted........................... $ 0.70 $ 1.09 $ 0.81
Weighted average shares outstanding:
Basic............................. 632.6 517.2 98.3 1,248.1
Diluted........................... 648.6 534.5 101.6 1,284.7
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
II-9
<PAGE> 104
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (LOSS)
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
PHARMACIA & PRO FORMA PRO FORMA
MONSANTO UPJOHN ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales........................... $7,237 $6,758 $13,995
Costs, Expenses and Other:
Cost of Goods Sold................ 2,912 2,031 4,943
Selling, General and
Administrative Expenses........ 2,129 2,552 4,681
Research and Development.......... 1,308 1,234 2,542
Acquired In-Process Research and
Development.................... 402 0 402
Amortization and Adjustment of
Intangible Assets.............. 286 98 384
Restructuring, Merger and Special
Charges........................ 153 92 245
Interest Expense.................. 210 26 236
Interest Income................... (47) (92) (139)
Other Income, net................. (31) (160) (191)
------ ------ -------
Income (Loss) from Continuing
Operations Before Income Taxes.... (85) 977 892
Income Tax Expense.................. 46 346 392
------ ------ -------
Income (Loss) from Continuing
Operations........................ $ (131) $ 631 $ 500
====== ====== =======
Earnings (loss) from continuing
operations per common share:
Basic............................. $(0.22) $ 1.20 $ 0.40
Diluted........................... $(0.22) $ 1.17 $ 0.39
Weighted average shares outstanding:
Basic............................. 603.5 517.5 98.4 1,219.4
Diluted........................... 603.5 534.0 129.6 1,267.1
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
II-10
<PAGE> 105
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
PHARMACIA & PRO FORMA PRO FORMA
MONSANTO UPJOHN ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales........................... $6,058 $6,586 $12,644
Costs, Expenses and Other:
Cost of Goods Sold................ 2,382 2,047 4,429
Selling, General and
Administrative Expenses........ 1,745 2,642 4,387
Research and Development.......... 1,049 1,246 2,295
Acquired In-Process Research and
Development.................... 633 0 633
Amortization of Intangible
Assets......................... 121 107 228
Restructuring, Merger and Special
Charges........................ 0 316 316
Interest Expense.................. 135 33 168
Interest Income................... (45) (113) (158)
Other Income, net................. (89) (127) (216)
------- -------- --------
Income from Continuing Operations
Before Income Taxes............... 127 435 562
Income Tax Expense (Benefit)........ (22) 177 155
------- -------- --------
Income from Continuing Operations... $ 149 $ 258 $ 407
------- -------- --------
------- -------- --------
Earnings from continuing operations
per common share:
Basic............................. $ 0.26 $ 0.48 $ 0.33
Diluted........................... $ 0.24 $ 0.48 $ 0.32
Weighted average shares outstanding:
Basic............................. 590.2 516.0 98.0 1,204.2
Diluted........................... 610.5 529.9 105.1 1,245.5
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
II-11
<PAGE> 106
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
PHARMACIA & PRO FORMA PRO FORMA
MONSANTO UPJOHN ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales......................... $ 4,862 $ 7,176 $ 12,038
Costs, Expenses and Other:
Cost of Goods Sold.............. 1,953 2,116 4,069
Selling, General and
Administrative Expenses...... 1,540 2,453 3,993
Research and Development........ 657 1,283 1,940
Amortization and Adjustment of
Intangible Assets............ 98 119 217
Restructuring, Merger and
Special Charges.............. 312 585 897
Interest Expense................ 83 56 139
Interest Income................. (51) (161) (212)
Other Income, net............... (86) (93) $ 8(g)(2) (171)
------- ------- ------ --------
Income from Continuing Operations
Before Income Taxes............. 356 818 (8) 1,166
Income Tax Expense................ 77 268 345
------- ------- ------ --------
Income from Continuing
Operations...................... $ 279 $ 550 $ (8) $ 821
======= ======= ====== ========
Earnings from continuing
operations per common share:
Basic........................... $ 0.48 $ 1.04 $ 0.68
Diluted......................... $ 0.47 $ 1.03 $ 0.67
Weighted average shares
outstanding:
Basic........................... 581.2 515.1 97.9 1,194.2
Diluted......................... 598.9 530.5 100.2 1,229.6
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
II-12
<PAGE> 107
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION
SEPTEMBER 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
----------------------- ----------- ---------
PHARMACIA &
MONSANTO UPJOHN
-------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 84 $ 1,245 $ 1,329
Short-term investments........................ -- 137 137
Receivables................................... 2,791 1,420 4,211
Inventories................................... 1,598 1,118 2,716
Other current assets.......................... 1,174 776 1,950
------- ------- --------
Total current assets............................ 5,647 4,696 10,343
Net property, plant and equipment............... 3,050 3,278 6,328
Intangible assets, net of accumulated
amortization.................................. 4,645 1,176 5,821
Other assets.................................... 1,055 1,308 $ 26(d) 2,389
Net assets of discontinued operations........... 1,586 0 1,586
------- ------- -------- --------
Total assets........................... $15,983 $10,458 $ 26 $ 26,467
======= ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt............................... $ 915 $ 1,056 $ 1,971
Accounts payable.............................. 472 333 805
Accrued liabilities........................... 2,168 1,857 $ 110(d) 4,135
------- ------- -------- --------
Total current liabilities....................... 3,555 3,246 110 6,911
Long-term debt.................................. 5,961 339 6,300
Other liabilities............................... 1,224 1,325 2,549
------- ------- -------- --------
Total liabilities...................... 10,740 4,910 110 15,760
------- ------- -------- --------
Shareholders' equity:
Preferred stock (Monsanto).................... 0 0 273(g)(3) 273
Preferred stock (Pharmacia & Upjohn).......... 0 273 (273)(g)(3) 0
Common stock issued........................... 1,694 5 1,231(g)(l) 2,930
Additional contributed capital................ 1,467 1,492 (1,170)(g)(l) 1,789
Treasury stock................................ (2,449) (9) 9(g)(l) (2,449)
Retained earnings............................. 5,101 5,501 (154)(d) 10,448
Reserve for ESOP debt retirement.............. (91) (247) (338)
Accumulated other comprehensive loss.......... (479) (1,467) (1,946)
------- ------- -------- --------
Total shareholders' equity............. 5,243 5,548 (84) 10,707
------- ------- -------- --------
Total liabilities and shareholders'
equity............................... $15,983 $10,458 $ 26 $ 26,467
======= ======= ======== ========
</TABLE>
II-13
<PAGE> 108
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(a) Basis of Presentation
The unaudited pro forma condensed combined statements of income (loss) are
based on the unaudited consolidated condensed financial statements of each of
Monsanto and Pharmacia & Upjohn for the nine months ended September 30, 1999,
and the audited consolidated financial statements of each of Monsanto and
Pharmacia & Upjohn for the years ended December 31, 1998, 1997 and 1996. The
unaudited pro forma condensed combined statement of financial position is based
on the unaudited consolidated condensed financial statements of each of Monsanto
and Pharmacia & Upjohn at September 30, 1999. In the opinion of Monsanto and
Pharmacia & Upjohn management, all adjustments and/or disclosures necessary for
a fair presentation of the pro forma data have been made. These unaudited pro
forma combined condensed financial statements are presented for illustrative
purposes only and are not necessarily indicative of the operating results or the
financial position that would have been achieved had the merger been consummated
as of the dates indicated or of the results that may be obtained in the future.
(b) Accounting Policies and Financial Statement Classifications
The accounting policies of Monsanto and Pharmacia & Upjohn are
substantially comparable, except for their accounting policies for the sale of
stock by a subsidiary as described in "Other Pro Forma Adjustments". Certain
revenues, costs and other deductions in the consolidated statements of earnings
of Pharmacia & Upjohn have been reclassified to conform to the line item
presentation in the pro forma condensed combined statements of income (loss).
Certain assets and liabilities in the consolidated statements of financial
position of Monsanto and Pharmacia & Upjohn have been reclassified to conform to
the line item presentation in the pro forma condensed combined statement of
financial position.
(c) Pro Forma Earnings Per Share
The pro forma combined basic earnings per share is based on income from
continuing operations less preferred stock dividends ($10 million for the nine
months ended September 30, 1999, and $13 million for each of the years ended
December 31, 1998, 1997 and 1996, respectively) and the weighted average number
of outstanding common shares. Diluted income per share includes the dilutive
effect of incentive stock options, convertible perpetual preferred stock and
certain convertible debt securities. The weighted average number of outstanding
common shares has been adjusted to reflect the exchange ratio of 1.19 shares of
Monsanto common stock for each share of Pharmacia & Upjohn common stock.
(d) Merger-Related Expenses
A one-time charge for direct incremental merger-related transaction costs
will be recorded in the quarter in which the merger is consummated. The direct
incremental merger-related transaction costs consist principally of charges
related to investment banking fees, professional services, registration and
other regulatory costs (approximately $110 million) and stock compensation
arrangements (approximately $70 million before tax). The charges for stock
compensation arrangements consist of accounting charges related to certain
Monsanto stock options which were granted with exercise prices above
II-14
<PAGE> 109
the fair market value of Monsanto common stock on the date such options were
granted (the "premium options"). Pursuant to the terms of the premium options,
at consummation of the merger, the exercise price of such premium option will be
reduced to equal the fair market value on the date of grant.
(e) Integration-Related Expenses
Monsanto and Pharmacia & Upjohn expect to incur pre-tax charges to
operations, currently estimated to be between $500 and $800 million, to reflect
costs associated with combining the operations of the two companies. These costs
will be recorded subsequent to consummation of the merger. These amounts are
preliminary estimates and are therefore subject to change. Additional
unanticipated expenses may be incurred in the integration of the businesses of
Monsanto and Pharmacia & Upjohn. Although Monsanto and Pharmacia & Upjohn expect
that the elimination of duplicative expenses as well as the realization of other
efficiencies related to the integration of the businesses may result in cost
savings, no assurance can be given that these benefits will be achieved in the
near term or at all. The unaudited pro forma condensed combined financial
statements reflect neither the impact of these charges nor the benefits from the
expected synergies.
(f) Agricultural Initial Public Offering
Monsanto and Pharmacia & Upjohn have announced an intention to reorganize
the Monsanto agricultural business, as a subsidiary of the combined company and
sell up to 19.9% of this subsidiary by means of an initial public offering. The
agricultural business would become a separate legal entity, with a stand-alone
board of directors and its own publicly traded stock upon completion of the
intended initial public offering.
At the time of the initial public offering for a minority interest in the
agricultural business, any difference between the fair market value (expressed
as the offering price) and the net book value of the minority interest at the
time of the offering will be recorded as an adjustment to stockholders' equity.
No price for the intended offering has been established. Subsequent to an
offering, the combined company would reflect a minority interest in the equity
of a consolidated subsidiary on its statement of financial position and a
minority interest in the earnings of a consolidated subsidiary on its statement
of income.
(g) Other Pro Forma Adjustments
(1) A pro forma adjustment has been made to reflect the assumed issuance of
approximately 618 million shares of Monsanto common stock in exchange for all of
the outstanding Pharmacia & Upjohn common stock (based on the exchange ratio of
1.19). The actual number of shares of Monsanto common stock to be issued in
connection with the merger will be based on the number of shares of Pharmacia &
Upjohn common stock issued and outstanding at the effective time.
(2) In 1996, Pharmacia & Upjohn recorded a gain of $8 million on the
issuance of new shares by one of its subsidiaries in an initial public offering.
The accounting policy of Monsanto for this type of transaction requires that the
resulting gain be recorded as a credit to shareowners' equity rather than as
income. Therefore, the pro forma condensed combined statement of income for the
year ended December 31, 1996, has been adjusted to conform accounting policies
and eliminate the gain that was recorded by Pharmacia & Upjohn.
II-15
<PAGE> 110
(3) Under the merger agreement, each outstanding share of Pharmacia &
Upjohn convertible perpetual preferred stock will be converted into the right to
receive one share of convertible perpetual preferred stock of Monsanto. The
terms of the Monsanto convertible perpetual preferred stock are substantially
identical to the terms of the Pharmacia & Upjohn convertible perpetual preferred
stock.
II-16
<PAGE> 111
CHAPTER THREE
INFORMATION ABOUT THE MEETINGS AND
VOTING RELATED TO THE MERGER
The Monsanto board of directors is using this document to solicit proxies
from the holders of Monsanto common stock for use at the Monsanto meeting. The
Pharmacia & Upjohn board of directors is also using this document to solicit
proxies from the holders of Pharmacia & Upjohn common stock and convertible
preferred stock for use at the Pharmacia & Upjohn meeting. We are first mailing
this document and accompanying forms of proxies to Monsanto and Pharmacia &
Upjohn stockholders on or about --, 2000.
MATTERS RELATING TO THE MEETINGS
TIME AND PLACE
<TABLE>
<CAPTION>
MONSANTO MEETING PHARMACIA & UPJOHN MEETING
---------------- --------------------------
<S> <C>
[Day], [Date], 2000 [Day], [Date], 2000
[Time], Local Time [Time], Local Time
[Location] [Location]
[Address] [Address]
[City, State] [City, State]
</TABLE>
PURPOSE OF MEETING IS TO VOTE ON THE FOLLOWING ITEMS
<TABLE>
<CAPTION>
MONSANTO MEETING PHARMACIA & UPJOHN MEETING
---------------- --------------------------
<S> <C>
1. A proposal to approve the issuance of 1. A proposal to approve and adopt the
common stock and convertible perpetual merger agreement.
preferred stock in the merger.
2. Such other matters as may properly come
2. A proposal to amend the Monsanto charter before the Pharmacia & Upjohn meeting,
to effect (a) the change of Monsanto's including the approval of any
name to Pharmacia Corporation, (b) the adjournment of the meeting.
increase in the number of authorized
shares of common stock from one billion
to three billion shares, (c) the
elimination of the current prohibition
on preferred stock having more than one
vote per share and (d) the change of the
par value of authorized preferred stock
from no par value to $0.01 par value per
share.
3. Such other matters as may properly come
before the Monsanto meeting, including
the approval of any adjournment of the
meeting.
</TABLE>
III-1
<PAGE> 112
RECORD DATE
<TABLE>
<CAPTION>
MONSANTO MEETING PHARMACIA & UPJOHN MEETING
---------------- --------------------------
<S> <C>
Holders of record of Monsanto common stock Holders of record of Pharmacia & Upjohn
at the close of business on -- 2000, will common stock and Pharmacia & Upjohn
be entitled to vote. convertible perpetual preferred stock at
the close of business on --, 2000, will be
entitled to vote.
</TABLE>
OUTSTANDING SHARES HELD ON RECORD DATE
<TABLE>
<CAPTION>
MONSANTO MEETING PHARMACIA & UPJOHN MEETING
---------------- --------------------------
<S> <C>
As of --, 2000, there were approximately -- As of --, 2000, there were approximately --
outstanding shares of Monsanto common outstanding shares of Pharmacia & Upjohn
stock. common stock and approximately --
outstanding shares of Pharmacia & Upjohn
convertible perpetual preferred stock.
</TABLE>
SHARES ENTITLED TO VOTE
<TABLE>
<CAPTION>
MONSANTO MEETING PHARMACIA & UPJOHN MEETING
---------------- --------------------------
<S> <C>
Each share of Monsanto common stock that Each share of Pharmacia & Upjohn common
you own as of the record date entitles you stock that you own as of the record date
to one vote. entitles you to one vote. Each share of
Pharmacia & Upjohn convertible perpetual
Shares held by Monsanto in its treasury preferred stock entitles the trustee of
will not be voted. Pharmacia & Upjohn's employee stock
ownership plan to 1,450 votes. The trustee
of the Pharmacia & Upjohn employee stock
ownership plan is required to vote
allocated shares of the convertible
perpetual preferred shares in accordance
with instructions it receives from the
participants in the plan.
Shares held by Pharmacia & Upjohn in its
treasury will not be voted.
</TABLE>
QUORUM REQUIREMENT
<TABLE>
<CAPTION>
MONSANTO MEETING PHARMACIA & UPJOHN MEETING
---------------- --------------------------
<S> <C>
A quorum of stockholders is necessary to A quorum of stockholders is necessary to
hold a valid meeting. hold a valid meeting.
The presence in person or by proxy at the The presence in person or by proxy at the
meeting of holders of a majority of the meeting of holders of a majority of the
shares of Monsanto common stock entitled to shares of Pharmacia & Upjohn entitled to
vote at the meeting is a quorum. vote at the meeting is a quorum.
Abstentions count as present for Abstentions count as present for
establishing a quorum. Shares held by establishing a quorum. Shares held by
Monsanto in its treasury and broker
"non-votes"
</TABLE>
III-2
<PAGE> 113
<TABLE>
<CAPTION>
MONSANTO MEETING PHARMACIA & UPJOHN MEETING
---------------- --------------------------
<S> <C>
do not count toward a quorum. Pharmacia & Upjohn in its treasury and
broker "non-votes" do not count toward a
A broker non-vote occurs on a proposal when quorum.
a broker is not permitted to vote on that
proposal without instruction from the A broker non-vote occurs on a proposal when
beneficial owner of the shares and no a broker is not permitted to vote on that
instruction is given. proposal without instruction from the
beneficial owner of the shares and no
instruction is given.
</TABLE>
SHARES BENEFICIALLY OWNED BY MONSANTO AND PHARMACIA & UPJOHN DIRECTORS AND
EXECUTIVE OFFICERS AS OF --, 2000
<TABLE>
<CAPTION>
MONSANTO MEETING PHARMACIA & UPJOHN MEETING
---------------- --------------------------
<S> <C>
Monsanto directors and executive officers Pharmacia & Upjohn directors and executive
beneficially own -- shares of Monsanto officers beneficially own -- shares of
common stock, including exercisable Pharmacia & Upjohn common stock, including
options. These shares represent in total exercisable options. These shares represent
less than 1% of the shares of Monsanto in total less than 1% of the shares of
common stock outstanding as of --, 2000. Pharmacia & Upjohn common stock outstanding
These individuals have indicated that they as of --, 2000.
intend to vote in favor of the Monsanto These individuals have indicated that they
proposals. intend to vote in favor of the Pharmacia &
Upjohn proposal.
</TABLE>
VOTE NECESSARY TO APPROVE MONSANTO AND PHARMACIA & UPJOHN PROPOSALS
VOTE NECESSARY TO APPROVE PROPOSALS
<TABLE>
<CAPTION>
MONSANTO PHARMACIA & UPJOHN
-------- ------------------
<S> <C>
Approval of the issuance of common stock Adoption of the merger agreement requires
and convertible perpetual preferred stock the affirmative vote of the holders of a
in the merger requires the affirmative vote majority of the total votes entitled to be
of the holders of a majority of the shares cast by holders of Pharmacia & Upjohn
present in person or represented by proxy common stock and Pharmacia & Upjohn
at the meeting. Approval of the Monsanto convertible preferred stock, voting as a
charter amendments requires the affirmative single class. Abstentions and broker
vote of the holders of a majority of the non-votes will have the same effect as
outstanding shares of Monsanto common votes against adoption of the merger
stock. Abstentions will be treated as agreement.
shares present and entitled to vote, and
will have the same effect as a vote against
the issuance of shares of common stock and
convertible perpetual preferred stock.
Broker non-votes are not counted for the
purpose of determining the number of shares
present in person or by proxy on a voting
matter and have no effect on the outcome of
the vote on the issuance of shares of
common stock and convertible perpetual
preferred stock. Abstentions and broker
non-votes will have the same effect as
votes against the Monsanto charter
amendments.
</TABLE>
III-3
<PAGE> 114
VOTING BY PROXY
VOTING YOUR PROXY. You may vote in person at your meeting or by proxy. We
recommend you vote by proxy even if you plan to attend your meeting. You can
always change your vote at the meeting.
Voting instructions are included on your proxy card. If you properly give
your proxy and submit it to us in time to vote, one of the individuals named as
your proxy will vote your shares as you have directed. You may vote for or
against the proposal submitted at your meeting or abstain from voting.
HOW TO VOTE BY PROXY
BY TELEPHONE OR INTERNET*
<TABLE>
<CAPTION>
MONSANTO PHARMACIA & UPJOHN
-------- ------------------
<S> <C>
Call toll-free 1-877-PRX-VOTE (1-877-779- Call toll-free 1-888-221-0693 and follow
8683) or, if outside the U.S., call the instructions. You will need to give the
1-201-536-8073 and follow the instructions. personal identification number contained on
You will need to give the personal your proxy card.
identification number contained on your
proxy card.
Or, go to www.eproxy.com/mtc and follow the Pharmacia & Upjohn does not offer voting by
instructions. You will need to give the Internet.
personal identification number contained on
your proxy card.
</TABLE>
IN WRITING
<TABLE>
<CAPTION>
MONSANTO PHARMACIA & UPJOHN
-------- ------------------
<S> <C>
Complete, sign, date and return your proxy Complete, sign, date and return your proxy
card in the enclosed envelope. card in the enclosed envelope.
</TABLE>
- ---------------
* If you hold shares through a broker or other custodian, please follow the
voting instructions for the voting form used by that firm.
VOTING BY MONSANTO PLAN PARTICIPANTS. If you are a participant in the
Monsanto Dividend Reinvestment Plan, your proxy will also serve as an
instruction to vote the shares held for your account under that plan in the
manner indicated on the proxy. If your proxy is not received, the shares held in
your account in the Dividend Reinvestment Plan will not be voted.
If you are a participant in the Monsanto Savings and Investment Plan or the
Solutia Inc. Savings and Investment Plan, your proxy card will also serve as a
voting instruction card for the trustee of that plan with respect to the shares
held in your account. The plan provides that the trustee will vote unallocated
and uninstructed shares of Monsanto common stock in the same proportion as it
votes the shares with respect to which it has received instructions. The trustee
will always exercise its voting obligations consistent with its fiduciary duties
under the Employee Retirement and Income Security Act of 1974 and other legal
requirements.
III-4
<PAGE> 115
VOTING BY PHARMACIA & UPJOHN PLAN PARTICIPANTS. If you are a participant
in the Pharmacia & Upjohn Employee Savings Plan, your proxy card will also serve
as a voting instruction card for the trustee of the plan with respect to the
shares held in your account. The trustee will vote the shares held in the plan
for which voting instructions are not received in the same proportion as the
shares for which voting instructions are received. However, the trustee will
always exercise voting obligations consistent with its fiduciary duties under
the Employee Retirement Income Security Act of 1974 and other legal
requirements.
If you submit your proxy but do not make specific choices, your proxy will
follow your board's recommendations and vote your shares for their
recommendations.
MONSANTO'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
ISSUANCE OF COMMON STOCK AND PREFERRED STOCK IN THE MERGER, AND THAT YOU VOTE
FOR THE MONSANTO CHARTER AMENDMENTS, BOTH TO FACILITATE THE MERGER.
PHARMACIA & UPJOHN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR ADOPTION OF THE MERGER.
REVOKING YOUR PROXY. You may revoke your proxy before it is voted by:
- submitting a new proxy with a later date, including a proxy given by
telephone or, if you are a Monsanto stockholder, via the Internet,
- notifying your company's Secretary in writing before the meeting that you
have revoked your proxy, or
- voting in person at the meeting.
VOTING IN PERSON. If you plan to attend a meeting and wish to vote in
person, we will give you a ballot at the meeting. However, if your shares are
held in the name of your broker, bank or other nominee, you must bring an
account statement or letter from the nominee indicating that you are the
beneficial owner of the shares on --, 2000, the record date for voting.
PEOPLE WITH DISABILITIES. We can provide reasonable assistance to help you
participate in the meeting if you tell us about your disability and your plan to
attend. Please call or write the Secretary of your company at least two weeks
before your meeting at the number or address under "Summary -- The Companies" on
page I-3.
CONFIDENTIAL VOTING. Independent inspectors count the votes. Your
individual vote is kept confidential from us unless special circumstances exist.
For example, a copy of your proxy card will be sent to us if you write comments
on the card.
PROXY SOLICITATION. We will pay our own costs of soliciting proxies.
In addition to this mailing, Monsanto and Pharmacia & Upjohn employees may
solicit proxies personally, electronically or by telephone. Monsanto is paying
Georgeson Shareholder Communications Inc. a customary fee, plus expenses to
assist with the solicitation. Pharmacia & Upjohn is paying D.F. King & Co. and
Innisfree M&A Inc. customary fees, plus expenses, to assist with the
solicitation.
III-5
<PAGE> 116
The extent to which these proxy soliciting efforts will be necessary
depends upon how promptly proxies are submitted. You should send in your proxy
by mail, or telephone or, if you are a Monsanto stockholder, Internet, without
delay. We will also reimburse brokers and other nominees for their expenses in
sending these materials to you and getting your voting instructions.
DO NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARDS. THE EXCHANGE
AGENT WILL MAIL TRANSMITTAL FORMS WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES FOR PHARMACIA & UPJOHN COMMON STOCK AND CONVERTIBLE PERPETUAL
PREFERRED STOCK TO FORMER PHARMACIA & UPJOHN STOCKHOLDERS AS SOON AS PRACTICABLE
AFTER THE COMPLETION OF THE MERGER.
OTHER BUSINESS; ADJOURNMENTS
We are not currently aware of any other business to be acted upon at either
meeting. If, however, other matters are properly brought before either meeting,
or any adjourned meeting, your proxies will have discretion to vote or act on
those matters according to their best judgment, including to adjourn the
meeting.
Adjournments may be made for the purpose of, among other things, soliciting
additional proxies. Any adjournment may be made from time to time by approval of
the holders of shares representing a majority of the votes present in person or
by proxy at the meeting, whether or not a quorum exists, without further notice
other than by an announcement made at the meeting. Neither of us currently
intends to seek an adjournment of our meeting.
III-6
<PAGE> 117
CHAPTER FOUR
CERTAIN LEGAL INFORMATION
Monsanto and Pharmacia & Upjohn have agreed in the merger agreement that,
subject to Monsanto stockholder approval of the charter amendments, the Monsanto
charter and bylaws will be amended at the effective time of the merger to
reflect the governance arrangements agreed to by Monsanto and Pharmacia &
Upjohn, all as summarized in the chart below. See "The Merger" on page I-21.
Copies of the Pharmacia & Upjohn charter and bylaws and the Monsanto charter and
bylaws, in each case as in effect on the date of this joint proxy
statement/prospectus, will be sent to Monsanto or Pharmacia & Upjohn
stockholders upon request. See "Where You Can Find More Information" on page
V-1. The summary contained in the following chart is not intended to be complete
and is qualified by reference to Delaware law, the Pharmacia & Upjohn charter
and bylaws and the Monsanto charter and bylaws, in each case as in effect on the
date of this joint proxy statement/prospectus.
SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF PHARMACIA & UPJOHN AND
MONSANTO STOCKHOLDERS AND RIGHTS THOSE STOCKHOLDERS WILL HAVE AS PHARMACIA
CORPORATION STOCKHOLDERS FOLLOWING THE MERGER
AUTHORIZED CAPITAL STOCK
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN STOCKHOLDER RIGHTS MONSANTO STOCKHOLDER RIGHTS
------------------------------------- ---------------------------
<S> <C>
The authorized capital stock of Pharmacia & The authorized capital stock of Monsanto
Upjohn consists of 1.5 billion shares of consists of 1 billion shares of common
common stock and 100 million shares of stock and 10 million shares of preferred
preferred stock, including 7,500 shares of stock, including 700,000 shares of Series A
Series A Convertible Perpetual Preferred Junior Participating Preferred Stock.
Stock. If the merger is completed, the authorized
As of the date of this document no shares capital stock of the combined company will
of any series of Pharmacia & Upjohn consist of 3 billion shares of common stock
preferred stock are outstanding, other than and 10 million shares of preferred stock,
- -- shares of Series A Convertible Perpetual including 1,500,000 shares of Series A
Preferred Stock. Junior Participating Preferred Stock and --
shares of Series B Convertible Perpetual
Preferred Stock.
As of the date of this document, no shares
of any series of Monsanto preferred stock
are outstanding. It is anticipated that
approximately -- shares of Series B
Convertible Perpetual Preferred Stock will
be issued in the merger.
</TABLE>
IV-1
<PAGE> 118
NUMBER OF DIRECTORS
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN STOCKHOLDER RIGHTS MONSANTO STOCKHOLDER RIGHTS
------------------------------------- ---------------------------
<S> <C>
The Pharmacia & Upjohn board of directors The Monsanto board of directors currently
currently consists of 12 directors. consists of 10 directors.
Until the annual meeting of stockholders in If the merger is completed, the size of the
2001: Monsanto board of directors will be
- - the chairman of the board and the increased from 10 to 20. The Monsanto board
president and chief executive officer may of directors will initially consist of
not both be citizens of the United States Monsanto's current directors and 10 current
or Canada and may not both be nationals directors of Pharmacia & Upjohn designated
of EU member states or Sweden, by Pharmacia & Upjohn.
- - the chairman of the board and the If the merger is completed, Monsanto's
president and chief executive officer may bylaws will be amended to provide that only
not be the same person unless approved by persons nominated by the nominations
80% of the directors and committee of the Monsanto board of
- - one-half of the directors must be directors or by a stockholder in accordance
citizens of the United States or Canada with the procedures specified in the bylaws
and one-half must be nationals from EU will be eligible to be elected as a
member states or Sweden. director.
</TABLE>
CLASSIFICATION OF BOARD OF DIRECTORS
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN STOCKHOLDER RIGHTS MONSANTO STOCKHOLDER RIGHTS
------------------------------------- ---------------------------
<S> <C>
The Pharmacia & Upjohn board of directors The Monsanto board of directors is divided
is divided into three classes, with each into three classes, with each class serving
class serving a staggered three-year term. a staggered three-year term.
</TABLE>
REMOVAL OF DIRECTORS
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN STOCKHOLDER RIGHTS MONSANTO STOCKHOLDER RIGHTS
------------------------------------- ---------------------------
<S> <C>
Any or all of the directors may be removed Directors may be removed from office for
for due cause by vote of the holders of a cause by the affirmative vote of holders of
majority of the shares entitled to vote. at least 80% of the voting power of all
Proper notice of any intended removal is voting stock, voting together as a single
required. class.
</TABLE>
STOCKHOLDER ACTION BY WRITTEN CONSENT
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN STOCKHOLDER RIGHTS MONSANTO STOCKHOLDER RIGHTS
------------------------------------- ---------------------------
<S> <C>
Pharmacia & Upjohn stockholders may not act Monsanto stockholders may not act by
by written consent in lieu of a meeting of written consent in lieu of a meeting of
stockholders. stockholders.
</TABLE>
IV-2
<PAGE> 119
CALLING OF SPECIAL MEETINGS OF STOCKHOLDERS
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN STOCKHOLDER RIGHTS MONSANTO STOCKHOLDER RIGHTS
------------------------------------- ---------------------------
<S> <C>
The Pharmacia & Upjohn charter provides The Monsanto bylaws provide that a special
that only the chief executive officer, the meeting of stockholders may be called only
chairman of the board or a majority of the by the chairman of the board, the president
directors may call a special meeting of or pursuant to a resolution of the board of
stockholders. directors. If the merger is completed, the
bylaws of the combined company will be
amended to provide that a special meeting
may be called only by the chairman of the
board, the chief executive officer or
pursuant to a resolution of the board of
directors.
</TABLE>
AMENDMENT OF CHARTER AND BYLAWS
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN STOCKHOLDER RIGHTS MONSANTO STOCKHOLDER RIGHTS
------------------------------------- ---------------------------
<S> <C>
Pharmacia & Upjohn's charter may be amended Monsanto's charter may be amended if the
if the change is proposed by the board of change is proposed by the board and
directors and approved by the holders of a approved by the holders of a majority of
majority of the outstanding shares, the outstanding shares, provided that (1)
provided that the approval of the board of directors and
- - any change in (a) the name of the the affirmative vote of holders of at least
corporation or (b) the provisions of the 80% of Monsanto's voting stock, voting
charter relating to certain business together as a single class, are required to
combinations must be approved by 80% of make any change relating to (a) the number
all the directors and 66 2/3% of the of directors constituting the board of
stockholders; directors, (b) the classification of the
- - any change in classification of the board board of directors, (c) the removal of
must be approved by 80% of all the directors, (d) procedures for filing
directors; and vacancies on the board of directors and (e)
- - any change in the charter that alters the the prohibitions on stockholder action by
powers, preferences, or special rights of written consent; and (2) the affirmative
the Series A Convertible Perpetual vote of holders of at least 66 2/3% of the
Preferred Stock so as to affect them outstanding shares of Monsanto's Series A
adversely must be approved by 66 2/3% of Preferred Stock, voting together as a
the holders of that preferred stock. single class, is required to materially
The Pharmacia & Upjohn bylaws may be adversely change the rights of the Series A
amended by the holders of a majority of the Preferred Stock.
shares entitled to vote or by a majority of The Monsanto bylaws may be amended by the
the directors, except that a vote of 80% of affirmative vote of at least 80% of
all the directors is required to change the Monsanto's voting stock, voting together as
provisions of the bylaws relating to (a) a single class. However, the bylaws may
the location of the global corporate also be amended by the affirmative vote of
management center or operational a majority of the entire board of
headquarters, (b) the number, directors.
qualifications and terms of office of
directors, (c) the qualifications of the
chairman of the board and the president and
chief executive officer, (d) the status of
the chairman of the board as a
non-executive chairman, (e) the
</TABLE>
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<TABLE>
<CAPTION>
PHARMACIA & UPJOHN STOCKHOLDER RIGHTS MONSANTO STOCKHOLDER RIGHTS
------------------------------------- ---------------------------
<S> <C>
composition and chairmanship of board
committees, (f) certain arrangements
relating to dividend payments, (g) the use
of all reasonable efforts to maintain a
Swedish Depositary Share program, (h) the
requirement that communications to
stockholders be made in both the English
and Swedish languages, and (i) the location
of the annual meeting of stockholders
alternating between the United States and
Sweden unless, solely in the case of (i),
the number of Swedish stockholders falls
below 5% of the total number of
stockholders or Swedish stockholders cease
to beneficially own at least 5% of the
voting stock. A vote of 80% of all the
directors is required to change the
provisions of the bylaws summarized in this
paragraph.
</TABLE>
STOCKHOLDER RIGHTS PLAN
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN STOCKHOLDER RIGHTS MONSANTO STOCKHOLDER RIGHTS
------------------------------------- ---------------------------
<S> <C>
Pharmacia & Upjohn has entered into a Monsanto entered into a Rights Agreement,
Stockholder Protection Rights Agreement, dated as of January 26, 1990, as amended as
dated as of March 4, 1997, with Harris of May 31, 1998, with First Chicago Trust
Trust and Savings Bank, as Rights Agent, Company of New York as successor to the
pursuant to which Pharmacia & Upjohn has First National Bank of Boston, as Rights
issued rights, exercisable only upon the Agent, pursuant to which Monsanto issued
occurrence of certain events, to purchase rights, exercisable only upon the
its Series A Junior Participating Preferred occurrence of certain events, to purchase
Stock. its Series A Junior Participating Preferred
The rights have no effect upon the Stock. The rights expire on February 5,
consummation of the merger and stock option 2000. On December 19, 1999, Monsanto
agreements. entered into a substantially similar rights
agreement with EquiServe Trust Company N.A.
providing for the issuance of substantially
similar rights upon the expiration of the
existing rights. See "Description of
Monsanto Capital Stock -- Description of
Rights."
The rights have no effect upon the
consummation of the merger and the stock
option agreements.
</TABLE>
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<PAGE> 121
DESCRIPTION OF MONSANTO CAPITAL STOCK
GENERAL
The authorized capital stock of Monsanto consists of one billion shares of
Monsanto common stock, par value $2 per share, of which, as of January 26, 2000,
there were 636,525,885 shares issued and outstanding and 10 million shares of
preferred stock, no par value per share, none of which, as of January 26, 2000,
were outstanding and 700,000 shares of which, as of January 26, 2000, have been
designated Series A Junior Participating Preferred Stock and reserved for
issuance upon the exercise of the rights distributed to the holders of Monsanto
common stock pursuant to the rights agreement described below under "Description
of Rights." All of the outstanding shares of the capital stock of Monsanto are
duly authorized, validly issued, fully paid and nonassessable, and no class is
entitled to preemptive rights. As of January 26, 2000, except for Monsanto's
Series A Junior Participating Preferred Stock purchase rights, Monsanto's 6.50%
Adjustable Conversion-rate Equity Security Units, options to acquire
approximately 99.2 million shares of Monsanto common stock pursuant to Monsanto
stock option plans and the option granted to Pharmacia & Upjohn to purchase up
to 94,774,810 shares of Monsanto common stock described under "Stock Option
Agreements" on page I-56, there were no outstanding subscriptions, options,
warrants, rights, contracts or other arrangements or commitments obligating
Monsanto to issue any shares of its capital stock or any securities convertible
into or exchangeable for shares of its capital stock. The following summary
description of the capital stock of Monsanto does not purport to be complete and
is qualified in its entirety by reference to Monsanto's Restated Certificate of
Incorporation, including the certificate of designations relating to the Series
A Junior Participating Preferred Stock, and to the Delaware General Corporation
Law.
MONSANTO COMMON STOCK
Subject to the rights of holders of any outstanding Monsanto preferred
stock, the holders of outstanding shares of Monsanto common stock are entitled
to share ratably in dividends declared out of assets legally available therefor
at such time and in such amounts as the Monsanto board of directors may from
time to time lawfully determine.
Each holder of Monsanto common stock is entitled to one vote for each share
held and, except as otherwise provided by law or by the Monsanto board of
directors with respect to any series of Monsanto preferred stock, the holders of
Monsanto common stock will exclusively possess all voting power. Holders of
Monsanto common stock are not entitled to accumulate votes for the election of
directors. The Monsanto common stock is not entitled to conversion or preemptive
rights and is not subject to redemption or assessment. Subject to the rights of
holders of any outstanding Monsanto preferred stock, upon liquidation,
dissolution or winding up of Monsanto, any assets legally available for
distribution to stockowners as such are to be distributed ratably among the
holders of the Monsanto common stock at that time outstanding.
The Monsanto common stock is listed on the New York Stock Exchange under
the symbol "MTC".
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MONSANTO PREFERRED STOCK
GENERAL
The Monsanto board of directors has the authority to issue Monsanto
preferred stock in one or more series with such distinctive serial designations,
at such price or prices and for such other consideration as may be fixed by the
Monsanto board of directors. Monsanto preferred stock of all series shall be in
all respects entitled to the same preferences, rights and privileges and subject
to the same qualifications, limitations and restrictions; provided, however,
that different series of Monsanto preferred stock may vary with respect to,
among other things, dividend rates, conversion rights, voting rights, redemption
rights, liquidation preferences and the number of shares constituting each such
series as shall be determined and fixed by resolution or resolutions of the
Monsanto board of directors providing for the issuance of such series, without
any further vote or action by the stockholders of Monsanto. All the shares of
any one series will be alike in every particular. Monsanto's charter currently
provides that no share of any series of preferred stock may be entitled to more
than one vote, although Monsanto proposes to eliminate this restriction as
described in "Chapter III -- Information about the Meetings and Voting Related
to the Merger." The ability of the Monsanto board of directors to issue Monsanto
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of Monsanto. As of
the date of this joint proxy statement/prospectus, no shares of Monsanto
preferred stock are issued and outstanding and 700,000 shares have been
designated as Series A Junior Participating Preferred Stock and reserved for
issuance as described below under "Description of Rights." In connection with
the merger, the number of shares of Monsanto preferred stock designated as
Series A Junior Participating Preferred Stock will be increased to 1,500,000.
NEW CONVERTIBLE PERPETUAL PREFERRED STOCK
Designation and Amount. The convertible perpetual preferred stock for
which Pharmacia & Upjohn's convertible perpetual preferred stock will be
exchangeable will have a par value of $.01 per share and a stated value and a
liquidation preference of $40,300.00 per share, plus accrued and unpaid
dividends. The authorized number of shares of the preferred stock will be 7,500.
The terms of the new preferred stock are essentially the same as those of the
Pharmacia & Upjohn preferred stock issued to the trustee of Pharmacia & Upjohn's
employee stock ownership trust except that the conversion ratio for the new
preferred stock will be changed to reflect the exchange ratio of 1.19 shares of
Monsanto common stock to be exchanged for each share of Monsanto common stock.
Rank. With respect to dividend rights and rights on liquidation,
dissolution and winding-up, the new preferred stock will rank senior to all
classes of stock of the combined company except those classes of preferred stock
expressly designated as ranking senior or on a parity with the new preferred
stock.
Dividends. The holders of new preferred stock will be entitled to receive,
when, as and if declared by the board of directors of the combined company out
of funds legally available therefor, cash dividends in an amount per share not
to exceed $2,518.75 per annum, payable quarterly in arrears. No interest shall
accrue on accumulated but unpaid dividends. Holders of shares of new preferred
stock will not be entitled to any other dividends.
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<PAGE> 123
Redemption. Upon the giving of specified notice, the combined company, at
its option, will be entitled to redeem any or all shares of new preferred stock,
at a redemption price of $40,300.00 per share, plus an amount equal to all
accrued and unpaid dividends thereon to and including the date of redemption.
The combined company must redeem all shares of new preferred stock at the
redemption price in the event that Pharmacia & Upjohn's employee stock ownership
trust is terminated or Pharmacia & Upjohn's employee stock ownership plan is
terminated or eliminated from employee stock ownership trust in accordance with
the terms of the trust, plus an amount equal to all accrued and unpaid dividends
thereon to and including the date of redemption.
In addition, the combined company must redeem the new preferred stock at
the redemption price plus accrued and unpaid dividends thereon to the date fixed
for redemption if the following events occur: (i) when and to the extent
necessary for such holder to make any payments of principal, interest or premium
due and payable under the promissory note from the trustee of the employee stock
ownership plan to the combined company or any indebtedness, expenses or costs
incurred by the holder for the benefit of the plan, or (ii) in the event that
the plan is not initially determined by the Internal Revenue Service to be
qualified.
In lieu of paying the redemption price in cash, the combined company will
be entitled, at its sole option, to make payment of the redemption price in
shares of common stock of the combined company, or in a combination of common
stock and cash.
Conversion Rights. The holders of shares of new preferred stock will have
the right, at their option, to convert any or all of such shares into shares of
common stock of the combined company initially at a conversion price equal to
$23.3555 per share of common stock, with each share of new preferred stock being
valued at $40,300 for such purpose. The conversion price will be subject to
antidilution adjustments.
Voting Rights. Each share of new preferred stock has voting rights equal
to the number of shares of common stock of the combined company into which such
new preferred stock could be converted on the record date for determining the
stockholders entitled to vote, voting together with the holders of shares of new
common stock as one class.
The vote of at least 66 2/3% of the outstanding new preferred stock, voting
separately as a series, will be required to adopt any alteration, amendment or
repeal of any provision of the combined company's certificate of incorporation,
if such amendment, alteration or repeal would alter or change the powers,
preferences or special rights of the new preferred stock so as to affect them
adversely.
Liquidation Rights. Upon any voluntary or involuntary liquidation,
dissolution or winding-up of the combined company, the holders of new preferred
stock will be entitled to receive liquidating distributions in the amount of
$40,300 per share, plus an amount equal to all accrued and unpaid dividends
thereon to the date fixed for distribution, before any distribution or payment
is made to holders of common stock of the combined company or on any other class
of the company stock ranking junior to the new preferred stock.
Consolidation, Merger. In the event the combined company consummates any
consolidation or merger or similar business combination, pursuant to which the
common stock of the combined company is exchanged solely for or changed,
reclassified or
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converted solely into stock of any successor or resulting corporation that
constitutes "qualifying employer securities" with respect to a holder of new
preferred stock within the meaning of the Internal Revenue Code and the Employee
Retirement Income Security Act, the new preferred stock of such holder will be
assumed by and will become preferred stock of such successor or resulting
corporation, having in respect of such corporation the same powers, preferences
and relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions that the new preferred stock had
immediately prior to such transaction.
In the event the combined company consummates any business combination of
the type described in the preceding paragraph pursuant to which the common stock
of the combined company is exchanged for consideration that does not constitute
"qualifying employer securities", the outstanding shares of new preferred stock
will be automatically converted into the number of shares of common stock of the
combined company into which such shares of new preferred stock could have been
converted at such time.
Certain Potential Antitakeover Effects of the New Preferred
Stock. Although the issuance of shares of new preferred stock in connection
with the merger is not intended as an antitakeover device, it should be noted
that such issuance, and the issuance of common stock of the combined company or
other securities into which the new preferred stock is convertible or
exchangeable, may have certain antitakeover effects. It may discourage or render
more difficult a merger, tender offer or proxy contest involving the combined
company or deter a third party from seeking to acquire control of the combined
company.
A form of the Certificate of Designations for Monsanto Series B Convertible
Perpetual Preferred Stock is included as Annex J to this document.
DESCRIPTION OF RIGHTS
In January 1990, pursuant to a Rights Agreement, dated as of January 26,
1990 between Monsanto and First Chicago Trust Company as successor to the First
National Bank of Boston, as Rights Agent, the Monsanto board of directors
declared a dividend of one Monsanto Series A Junior Participating Preferred
Stock Purchase Right on each then-outstanding share of Monsanto common stock.
The rights expire on February 5, 2000. On December 19, 1999, the Monsanto board
of directors approved a rights agreement with EquiServe Trust Company N.A., as
Rights Agent, providing for rights substantially similar to those under the
Monsanto rights agreement upon the expiration of the existing Monsanto rights
agreement. If a person or group acquires beneficial ownership of 20% or more, or
announces a tender offer that would result in beneficial ownership of 20% or
more, of the outstanding Monsanto common stock, the rights become exercisable,
and the owner will be entitled to purchase one one-thousandth of a share of
Monsanto Series A Junior Participating Preferred Stock for $250. If Monsanto is
acquired in a business combination transaction while the rights are outstanding,
the holder will be entitled to purchase, for $250, common shares of the
acquiring company having a market value of $500. In addition, if a person or
group acquires beneficial ownership of 20% or more of the outstanding Monsanto
common stock, the holder (other than such person or members of such group), will
be entitled to purchase, for $250, a number of shares of Monsanto common stock
having a market value of $500. Furthermore, at any time after a person or group
acquires beneficial ownership of 20% or more (but less than 50%) of the
outstanding Monsanto common stock, the Monsanto board of directors may, at its
option, exchange one share of Monsanto common stock for each outstanding right
(other than rights held by
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<PAGE> 125
the acquiring person or group, which become void). At any time prior to the
acquisition of such a 20% position, Monsanto can redeem each right for $0.001.
The Monsanto board of directors also is authorized to reduce the aforementioned
20% thresholds to not less than 10%. The rights expire on February 5, 2010.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Monsanto common stock is EquiServe
Trust Company, N.A.
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION OF PHARMACIA & UPJOHN
COMMON
STOCK
It is a condition to the consummation of the merger that the shares of
Monsanto common stock to be issued in the merger be approved for listing on the
New York Stock Exchange, subject to official notice of issuance. If the merger
is completed, Pharmacia & Upjohn common stock will cease to be listed on any
stock exchange.
LEGAL MATTERS
The validity of the Monsanto common stock and convertible perpetual
preferred stock to be issued to Pharmacia & Upjohn stockholders in the merger
will be passed upon by counsel to Monsanto. It is a condition to the completion
of the merger that Monsanto and Pharmacia & Upjohn receive opinions from their
respective counsel that the merger will qualify as a tax-free reorganization.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Monsanto at December 31, 1998 and
1997 and for each of the three years in the period ending December 31, 1998
incorporated into this joint proxy statement/prospectus by reference to
Monsanto's Annual Report on Form 10-K/A for the year ended December 31, 1998
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The consolidated financial statements of DEKALB Genetics Corporation and
subsidiaries incorporated in this joint proxy statement/prospectus by reference
to Monsanto's Current Report on Forms 8-K/A filed on February 8, 1999 and
January 25, 2000 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The consolidated financial statements of Pharmacia & Upjohn incorporated in
this joint proxy statement/prospectus by reference to Pharmacia & Upjohn's
Current Report on Form 8-K filed on January 25, 2000, 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.
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With respect to the unaudited financial information of Pharmacia & Upjohn
for the three-month, six-month and nine-month periods ended March 31, 1999, June
30, 1999, and September 30, 1999, respectively, incorporated by reference in
this joint 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 reports dated April
27, 1999, July 23, 1999, and October 26, 1999, respectively, incorporated by
reference herein state 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 that 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 Section 7 and 11
of the Act.
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<PAGE> 127
CHAPTER FIVE
ADDITIONAL INFORMATION FOR STOCKHOLDERS
FUTURE STOCKHOLDER PROPOSALS
MONSANTO
The deadline for receipt of a proposal to be considered for inclusion in
Monsanto's proxy statement for the 2000 annual meeting has passed. The deadline
for notice of a proposal for which a stockholder will conduct his or her own
solicitation has also passed.
PHARMACIA & UPJOHN
Pharmacia & Upjohn will hold an annual meeting in the year 2000 only if the
merger has not already been completed. If such meeting is held, the deadline for
receipt of a proposal to be considered for inclusion in Pharmacia & Upjohn's
proxy statement for the 2000 annual meeting has already passed. The deadline for
notice of a proposal for which a stockholder will conduct his or her own
solicitation is February 20, 2000. Any such notice of a proposal should be
directed to the attention of the Secretary, Pharmacia & Upjohn, Inc., 100 Route
206 North, Peapack, New Jersey 07977.
WHERE YOU CAN FIND MORE INFORMATION
Monsanto and Pharmacia & Upjohn file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
http://www.sec.gov.
Monsanto filed a registration statement on Form S-4 to register with the
SEC the Monsanto common stock and Monsanto preferred stock to be issued to
Pharmacia & Upjohn stockholders in the merger. This document is a part of that
registration statement and constitutes a prospectus of Monsanto in addition to
being a proxy statement of Monsanto and Pharmacia & Upjohn for their respective
meetings. As allowed by SEC rules, this document does not contain all the
information you can find in the registration statement or the exhibits to the
registration statement.
The SEC allows us to "incorporate by reference" information into this
document, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this document, except for any
information superseded by information in, or incorporated by reference in, this
document. This document incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about our companies and their finances.
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<TABLE>
<CAPTION>
MONSANTO SEC FILINGS
(FILE NO. 1-2516) PERIOD
-------------------- ------
<S> <C>
Annual Report on Form 10-K, as Fiscal Year ended December 31, 1998
amended by Form 10-K/A filed on
January 21, 2000
Quarterly Reports on Form 10-Q, as Quarters ended March 31, 1999, June
amended by Forms 10-Q/A filed on 30, 1999, and September 30, 1999
January 21, 2000
Current Reports on Form 8-K Filed on December 8, 1998, as amended
by Form 8-K/A filed on January 25,
2000, February 8, 1999, March 1,
1999, May 4, 1999, December 21, 1999,
December 22, 1999, December 29, 1999,
December 30, 1999, January 11, 2000
and January 25, 2000
Proxy Statement on Schedule 14A Filed on March 15, 1999
The description of Monsanto common Dated April 16, 1953
stock set forth in the Registration
Statement on Form 8-A
The description of Monsanto's Filed on December 30, 1999
preferred share purchase rights
associated with Monsanto common
stock set forth in the Registration
Statement on Form 8-A
</TABLE>
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN SEC FILINGS
(FILE NO. 001-11557) PERIOD
------------------------------ ------
<S> <C>
Annual Report on Form 10-K Fiscal Year ended December 31, 1998
Quarterly Report on Form 10-Q Quarters ended March 31, 1999, June
30, 1999 and September 30, 1999
Current Reports on Form 8-K Filed on July 1, 1999, July 30, 1999,
August 17, 1999, September 8, 1999,
December 20, 1999, December 22, 1999,
December 29, 1999, January 10, 2000
and January 25, 2000
Proxy Statement on Schedule 14A Filed on March 17, 1999
The description of Pharmacia & Upjohn Filed on October 24, 1995
common stock set forth in the
Registration Statement on Form 8-A
</TABLE>
We are also incorporating by reference additional documents that we file
with the SEC between the date of this document and the date of the meetings.
Monsanto has supplied all information contained or incorporated by
reference in this document relating to Monsanto and Pharmacia & Upjohn has
supplied all such information relating to Pharmacia & Upjohn.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
Documents
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incorporated by reference are available from us without charge, excluding all
exhibits unless we have specifically incorporated by reference an exhibit in
this document. Stockholders may obtain documents incorporated by reference in
this document by requesting them in writing or by telephone from the Secretary
of the appropriate company at the following address:
<TABLE>
<S> <C>
MONSANTO COMPANY PHARMACIA & UPJOHN, INC.
800 NORTH LINDBERGH BLVD. 100 ROUTE 206 NORTH
ST. LOUIS, MISSOURI 63167 PEAPACK, NJ 07977
(314) 694-1000 (888) 768-5501
</TABLE>
If you would like to request documents from us, please do so by --, 2000 to
receive them before the meetings.
You can also get more information by visiting Monsanto's web site at
www.monsanto.com and Pharmacia & Upjohn's web site at www.pnu.com. Web site
materials are not part of this document.
The forward-looking information included in the press releases dated
December 19, 1999 and December 22, 1999 and the analyst presentations dated
December 19, 1999 and December 22, 1999 which are included in the Monsanto
Current Reports on Form 8-K filed on December 21, 1999 and December 22, 1999 and
in the Pharmacia & Upjohn Current Reports on Form 8-K filed on December 20, 1999
and December 22, 1999 are based on information prepared by the managements of
Monsanto and Pharmacia & Upjohn, adjusted to give effect to the merger,
disclosed to analysts and included in press releases. The forward-looking
information is not intended to comply with the presentation and disclosure
guidelines for prospective financial information of the Securities and Exchange
Commission or the American Institute of Certified Public Accountants.
The forward-looking information included in the Monsanto Current Reports on
Form 8-K filed on December 21, 1999 and December 22, 1999 and in the Pharmacia &
Upjohn Current Reports on Form 8-K filed on December 20, 1999 and December 22,
1999, which are incorporated by reference in this document, has been prepared
by, and is the responsibility of the managements of Monsanto and Pharmacia &
Upjohn. Deloitte & Touche LLP and PricewaterhouseCoopers LLP have not examined,
compiled or performed any procedures with respect to the forward-looking
information and, accordingly, Deloitte & Touche LLP and PricewaterhouseCoopers
LLP do not express an opinion or any other form of assurance with respect
thereto and disclaim any association with, the forward-looking information. The
Deloitte & Touche LLP and PricewaterhouseCoopers LLP reports incorporated by
reference in this document relate to the historical financial information of
Monsanto and Pharmacia & Upjohn, respectively. The reports do not extend to the
forward-looking information and should not be read to do so.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT TO VOTE ON THE MONSANTO PROPOSALS AND THE PHARMACIA &
UPJOHN PROPOSAL, AS THE CASE MAY BE. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE
YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS DOCUMENT.
THIS DOCUMENT IS DATED --, 2000. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THIS DOCUMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THIS DOCUMENT TO STOCKHOLDERS NOR THE ISSUANCE OF COMMON
STOCK OR CONVERTIBLE PERPETUAL PREFERRED STOCK IN THE MERGER SHALL CREATE ANY
IMPLICATION TO THE CONTRARY.
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* * *
Monsanto and Pharmacia & Upjohn will be filing a definitive version of the
foregoing joint proxy statement/prospectus, as well as other relevant documents
concerning the merger, with the United States Securities and Exchange Commission
(the "SEC"). WE URGE INVESTORS TO READ THE DEFINITIVE JOINT PROXY STATEMENT/
PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC,
BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION. Investors may obtain
the documents free of charge at the SEC's website, www.sec.gov. In addition,
documents filed with the SEC by Monsanto will be available free of charge from
the Secretary of Monsanto at 800 North Lindbergh Blvd., St. Louis, Missouri
63167, Telephone 314-694-1000. Documents filed with the SEC by Pharmacia &
Upjohn will be available free of charge from the Corporate Secretary of
Pharmacia & Upjohn, 100 Route 206 North, Peapack, NJ 07977, Telephone
888-768-5501. READ THE DEFINITIVE JOINT PROXY STATEMENT/ PROSPECTUS CAREFULLY
BEFORE MAKING A DECISION CONCERNING THE MERGER.
Monsanto, its directors, executive officers and certain other members of
management and employees may be soliciting proxies from Monsanto stockholders in
favor of the merger. Information concerning the participants in the solicitation
is set forth in the Current Report on Form 8-K filed by Monsanto with the SEC on
January 25, 2000.
Pharmacia & Upjohn, its directors, certain executive officers, certain
other members of management and employees may solicit proxies from Pharmacia &
Upjohn stockholders in favor of the merger. Information concerning the
participants in the solicitation is included in filings under Rule 425 made by
Pharmacia & Upjohn with the SEC on January 27, 2000.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 19, 1999
AMONG
MONSANTO COMPANY,
MP SUB, INCORPORATED
AND
PHARMACIA & UPJOHN, INC.
<PAGE> 132
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Section 1.1 The Merger.................................................. A-2
Section 1.2 Closing..................................................... A-2
Section 1.3 Effective Time.............................................. A-2
Section 1.4 Effects of the Merger....................................... A-2
Section 1.5 Certificate of Incorporation................................ A-2
Section 1.6 By-Laws..................................................... A-2
Section 1.7 Officers and Directors of Surviving Corporation............. A-3
Section 1.8 Effect on Capital Stock..................................... A-3
Section 1.9 Stock Options and Other Stock Compensation.................. A-3
Section 1.10 Certain Adjustments......................................... A-5
Section 1.11 Appraisal Rights............................................ A-5
Section 1.12 Transaction Structure....................................... A-5
ARTICLE II
EXCHANGE OF CERTIFICATES
Section 2.1 Exchange Fund............................................... A-5
Section 2.2 Exchange Procedures......................................... A-6
Section 2.3 Distributions with Respect to Unexchanged Shares............ A-6
Section 2.4 No Further Ownership Rights in PNU Common Stock and PNU
Convertible Preferred Stock................................. A-7
Section 2.5 No Fractional Shares of Monsanto Common Stock............... A-7
Section 2.6 Termination of Exchange Fund................................ A-7
Section 2.7 No Liability................................................ A-8
Section 2.8 Investment of the Exchange Fund............................. A-8
Section 2.9 Lost Certificates........................................... A-8
Section 2.10 Withholding Rights.......................................... A-8
Section 2.11 Further Assurances.......................................... A-8
Section 2.12 Stock Transfer Books........................................ A-9
Section 2.13 Affiliates.................................................. A-9
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of PNU....................... A-9
(a) Organization, Standing and Power; Subsidiaries.......... A-9
(b) Capital Structure....................................... A-10
(c) Authority; No Conflicts................................. A-11
(d) Reports and Financial Statements........................ A-12
(e) Information Supplied.................................... A-13
</TABLE>
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(f) Board Approval.......................................... A-13
(g) Vote Required........................................... A-13
(h) Litigation; Compliance with Laws........................ A-14
(i) Absence of Certain Changes or Events.................... A-14
(j) Environmental Matters................................... A-14
(k) Intellectual Property................................... A-15
(l) PNU Rights Agreement.................................... A-16
(m) Brokers or Finders...................................... A-16
(n) Opinions of PNU Financial Advisors...................... A-16
(o) Accounting Matters...................................... A-16
(p) Taxes................................................... A-16
(q) Certain Contracts....................................... A-17
(r) Employee Benefits....................................... A-17
Section 3.2 Representations and Warranties of Monsanto.................. A-17
(a) Organization, Standing and Power; Subsidiaries.......... A-18
(b) Capital Structure....................................... A-18
(c) Authority; No Conflicts................................. A-19
(d) Reports and Financial Statements........................ A-21
(e) Information Supplied.................................... A-21
(f) Board Approval.......................................... A-22
(g) Vote Required........................................... A-22
(h) Litigation; Compliance with Laws........................ A-22
(i) Absence of Certain Changes or Events.................... A-23
(j) Environmental Matters................................... A-23
(k) Intellectual Property................................... A-23
(l) Monsanto Rights Agreement............................... A-23
(m) Brokers or Finders...................................... A-24
(n) Opinions of Monsanto Financial Advisors................. A-24
(o) Accounting Matters...................................... A-24
(p) Taxes................................................... A-24
(q) Certain Contracts....................................... A-24
(r) Employee Benefits....................................... A-24
Section 3.3 Representations and Warranties of Monsanto and Merger Sub... A-25
(a) Organization............................................ A-25
(b) Corporate Authorization................................. A-25
(c) Non-Contravention....................................... A-25
(d) No Business Activities.................................. A-25
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Covenants of PNU............................................ A-26
(a) Ordinary Course......................................... A-26
(b) Dividends; Changes in Share Capital..................... A-26
</TABLE>
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(c) Issuance of Securities.................................. A-27
(d) Governing Documents..................................... A-27
(e) No Acquisitions......................................... A-27
(f) No Dispositions......................................... A-27
(g) Investments; Indebtedness............................... A-28
(h) Pooling; Tax-Free Qualification......................... A-28
(i) Compensation............................................ A-28
(j) Accounting Methods; Income Tax Elections................ A-28
(k) Certain Agreements...................................... A-28
(l) PNU Rights Agreement.................................... A-29
(m) Funding of Benefits..................................... A-29
Section 4.2 Covenants of Monsanto....................................... A-29
(a) Ordinary Course......................................... A-29
(b) Dividends; Changes in Share Capital..................... A-30
(c) Issuance of Securities.................................. A-30
(d) Governing Documents..................................... A-30
(e) No Acquisitions......................................... A-30
(f) No Dispositions......................................... A-31
(g) Investments; Indebtedness............................... A-31
(h) Pooling; Tax-Free Qualification......................... A-31
(i) Compensation............................................ A-32
(j) Accounting Methods; Income Tax Elections................ A-32
(k) Certain Agreements...................................... A-32
(l) Monsanto Rights Agreement............................... A-32
(m) Funding of Benefits..................................... A-32
Section 4.3 Acquisitions................................................ A-32
Section 4.4 Governmental Filings........................................ A-33
Section 4.5 Control of Other Party's Business........................... A-33
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Preparation of Proxy Statement; Stockholders Meetings....... A-33
Section 5.2 Newco Board of Directors; Executives; Name; Headquarters;
Monsanto Agribusiness....................................... A-35
Section 5.3 Access to Information....................................... A-36
Section 5.4 Reasonable Best Efforts..................................... A-36
Section 5.5 Acquisition Proposals....................................... A-38
Section 5.6 Employee Benefits Matters................................... A-39
(a) Continuation and Comparability of Benefits.............. A-39
(b) Pre-Existing Limitations; Deductibles; Service Credit... A-40
(c) Grantor Trusts.......................................... A-40
</TABLE>
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(d) Pension Plans........................................... A-40
(e) Assumption of Employment Agreements..................... A-40
Section 5.7 Fees and Expenses........................................... A-41
Section 5.8 Directors' and Officers' Indemnification and Insurance...... A-41
Section 5.9 Public Announcements........................................ A-41
Section 5.10 Accounting Matters.......................................... A-42
Section 5.11 Listing of Shares of Monsanto Common Stock.................. A-42
Section 5.12 Dividends................................................... A-42
Section 5.13 Affiliates.................................................. A-42
Section 5.14 Section 16 Matters.......................................... A-43
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-43
(a) Stockholder Approval.................................... A-43
(b) No Injunctions or Restraints, Illegality................ A-43
(c) HSR Act................................................. A-44
(d) EU Antitrust............................................ A-44
(e) Governmental and Regulatory Approvals................... A-44
(f) NYSE Listing............................................ A-44
(g) Effectiveness of the Form S-4........................... A-44
Section 6.2 Additional Conditions to Obligations of PNU................. A-44
(a) Representations and Warranties.......................... A-44
(b) Performance of Obligations of Monsanto.................. A-45
(c) Tax Opinion............................................. A-45
(d) Monsanto Rights Agreement............................... A-45
(e) Governance.............................................. A-45
Section 6.3 Additional Conditions to Obligations of Monsanto and Merger
Sub......................................................... A-45
(a) Representations and Warranties.......................... A-45
(b) Performance of Obligations of PNU....................... A-45
(c) Tax Opinion............................................. A-46
(d) PNU Rights Agreement.................................... A-46
ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.1 Termination................................................. A-46
Section 7.2 Effect of Termination....................................... A-47
Section 7.3 Amendment................................................... A-50
Section 7.4 Extension; Waiver........................................... A-50
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations, Warranties and
Agreements.................................................. A-50
</TABLE>
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Section 8.2 Notices..................................................... A-50
Section 8.3 Interpretation.............................................. A-51
Section 8.4 Counterparts................................................ A-51
Section 8.5 Entire Agreement; No Third Party Beneficiaries.............. A-51
Section 8.6 Governing Law............................................... A-52
Section 8.7 Severability................................................ A-52
Section 8.8 Assignment.................................................. A-52
Section 8.9 Submission to Jurisdiction; Waivers......................... A-52
Section 8.10 Enforcement................................................. A-52
Section 8.11 Definitions................................................. A-53
</TABLE>
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AGREEMENT AND PLAN OF MERGER, dated as of December 19, 1999 (this
"Agreement"), among Monsanto Company, a Delaware corporation ("Monsanto"), MP
Sub, Incorporated, a Delaware corporation and a direct wholly-owned subsidiary
of Monsanto ("Merger Sub"), and Pharmacia & Upjohn, Inc., a Delaware corporation
("PNU").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Monsanto and PNU deem it advisable and
in the best interests of each corporation and its respective stockholders that
Monsanto and PNU engage in a business combination as peer firms in a merger of
equals in order to advance the long-term strategic business interests of
Monsanto and PNU;
WHEREAS, the combination of Monsanto and PNU shall be effected by the terms
of this Agreement through a merger as outlined below (the "Merger");
WHEREAS, in furtherance thereof, the respective Boards of Directors of
Monsanto and PNU have approved the Merger, upon the terms and subject to the
conditions set forth in this Agreement, pursuant to which each share of common
stock, par value $0.01 per share, of PNU ("PNU Common Stock") issued and
outstanding immediately prior to the Effective Time (as defined in Section 1.3),
other than shares owned or held directly or indirectly by Monsanto or directly
or indirectly by PNU, will be converted into the right to receive 1.19 shares of
common stock, par value $2.00 per share, of Monsanto ("Monsanto Common Stock")
as set forth in Section 1.8 and each share of Series A Convertible Perpetual
Preferred Stock, par value $0.01 per share, of PNU ("PNU Convertible Preferred
Stock") issued and outstanding immediately prior to the Effective Time will be
converted into the right to receive one share of a new series of convertible
preferred stock to be issued by Monsanto at the Effective Time and to be
designated as Series A Convertible Perpetual Preferred Stock ("Monsanto
Convertible Preferred Stock") as set forth in Section 1.8;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, (i) as a condition and inducement to Monsanto's willingness to enter
into this Agreement and the Monsanto Stock Option Agreement referred to below,
Monsanto and PNU are entering into a Stock Option Agreement dated as of the date
hereof (the "PNU Stock Option Agreement") pursuant to which PNU is granting to
Monsanto an option to purchase shares of PNU Common Stock and (ii) as a
condition and inducement to PNU's willingness to enter into this Agreement and
the PNU Stock Option Agreement, PNU and Monsanto are entering into a Stock
Option Agreement dated as of the date hereof (the "Monsanto Stock Option
Agreement", and together with the PNU Option Agreement, the "Stock Option
Agreements"), pursuant to which Monsanto is granting to PNU an option to
purchase shares of Monsanto Common Stock;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder; and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests transaction under United States
generally accepted accounting principles ("GAAP"), although such accounting
treatment is not a condition to the consummation of the Merger.
<PAGE> 138
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and in the Stock Option Agreements, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Merger Sub shall be merged with and into PNU at the Effective
Time. Following the Merger, the separate corporate existence of Merger Sub shall
cease and PNU shall continue as the surviving corporation (the "Surviving
Corporation").
SECTION 1.2 Closing. The closing of the Merger and the transactions
contemplated by this Agreement (the "Closing") will take place on the second
Business Day after the satisfaction or waiver (subject to applicable law) of the
conditions (other than conditions that, by their nature, cannot be satisfied
until the Closing Date) set forth in Article VI, unless another time or date is
agreed to in writing by the parties hereto (the actual time and date of the
Closing being referred to herein as the "Closing Date"). The Closing shall be
held at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New
York, New York, 10019, unless another place is agreed to in writing by the
parties hereto.
SECTION 1.3 Effective Time. As soon as practicable following the
satisfaction of the conditions set forth in Article VI, at the Closing the
parties shall (i) file a certificate of merger (the "Certificate of Merger") in
such form as is required by and executed in accordance with the relevant
provisions of the DGCL and (ii) make all other filings or recordings required
under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Delaware Secretary of State or at
such subsequent time as Monsanto and PNU shall agree and as shall be specified
in the Certificate of Merger (the date and time the Merger becomes effective
being the "Effective Time").
SECTION 1.4 Effects of the Merger. At and after the Effective Time, the
Merger will have the effects set forth in the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of PNU and Merger Sub shall
be vested in the Surviving Corporation, and all debts, liabilities and duties of
PNU and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.5 Certificate of Incorporation. (a) The certificate of
incorporation of PNU, as in effect immediately prior to the Effective Time,
shall be the certificate of incorporation of the Surviving Corporation, until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.6 By-Laws. (a) The by-laws of Merger Sub shall be the by-laws
of the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
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SECTION 1.7 Officers and Directors of Surviving Corporation. The officers
of PNU as of the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or otherwise
ceasing to be an officer or until their respective successors are duly elected
and qualified, as the case may be. The directors of Merger Sub as of the
Effective Time shall become the directors of the Surviving Corporation, which
individuals will serve as directors of the Surviving Corporation until the
earlier of their resignation or removal or otherwise ceasing to be a director or
until their respective successors are duly elected and qualified.
SECTION 1.8 Effect on Capital Stock. (a) At the Effective Time by virtue
of the Merger and without any action on the part of the holder thereof, each
share of PNU Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares of PNU Common Stock owned by Monsanto or
Merger Sub or held by PNU, all of which shall be canceled as provided in Section
1.8(d)) shall be converted into the right to receive 1.19 shares (the "Exchange
Ratio") of Monsanto Common Stock (together with any cash in lieu of fractional
shares of Monsanto Common Stock to be paid pursuant to Section 2.5, the "Common
Merger Consideration").
(b) At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof, each share of PNU Convertible Preferred Stock
issued and outstanding immediately prior to the Effective Time shall, except as
provided in Section 1.11 with respect to shares of PNU Convertible Preferred
Stock as to which appraisal rights have been exercised, be converted into the
right to receive one share of Monsanto Convertible Preferred Stock (the
"Preferred Merger Consideration" and together with the Common Merger
Consideration, the "Merger Consideration"). Monsanto shall take all corporate
action necessary to reserve for issuance a sufficient number of shares of
Monsanto Common Stock for delivery upon conversion of the Monsanto Convertible
Preferred Stock.
(c) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of PNU Common Stock and PNU
Convertible Preferred Stock shall cease to be outstanding and shall be canceled
and retired and shall cease to exist, and each holder of a certificate or
certificates which immediately prior to the Effective Time represented any such
shares of PNU Common Stock ("Common Certificates") or of PNU Convertible
Preferred Stock ("Preferred Certificates" and together with the Common
Certificates, the "Certificates") shall thereafter cease to have any rights with
respect to such shares of PNU Common Stock or PNU Convertible Preferred Stock,
respectively, except as provided herein or by law.
(d) Each share of PNU Common Stock issued and owned or held by Monsanto or
any of its Subsidiaries or PNU or any of its Subsidiaries at the Effective Time
shall, by virtue of the Merger, cease to be outstanding and shall be canceled
and retired and no stock of Monsanto or other consideration shall be delivered
in exchange therefor.
(e) Each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time, shall remain issued, outstanding and
unchanged as validly issued, fully paid and nonassessable shares of common stock
of the Surviving Corporation as of the Effective Time.
SECTION 1.9 Stock Options and Other Stock Compensation. (a) On or prior
to the Effective Time, PNU will take all action necessary such that each PNU
Stock Option, each PNU SAR and each PNU Deferred Share (each as defined in
Section 3.1(b)) that
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was granted pursuant to the PNU Stock Incentive Plans (as defined in Section
3.1(b)) prior to the Effective Time and which remains outstanding immediately
prior to the Effective Time shall cease to represent a right with respect to
shares of PNU Common Stock and shall be converted, at the Effective Time, into a
right, on the same terms and conditions as were applicable under the PNU Stock
Option, PNU SAR or PNU Deferred Share, as applicable (but taking into account
any changes thereto, including the acceleration thereof, provided for in the PNU
Stock Incentive Plans or in the terms of such right by reason of this Agreement
or the transactions contemplated hereby), with respect to that number of shares
of Monsanto Common Stock determined by multiplying the number of shares of PNU
Common Stock subject to such PNU Stock Option, PNU SAR or PNU Deferred Share, as
applicable, by the Exchange Ratio, rounded, if necessary, to the nearest whole
share of Monsanto Common Stock, at (in the case of a PNU Stock Option or PNU
SAR) a price per share (rounded to the nearest one-hundredth of a cent) equal to
the per-share exercise price specified in such PNU Stock Option or PNU SAR, as
applicable, divided by the Exchange Ratio; provided, however, that in the case
of any PNU Stock Option to which Section 421 of the Code applies by reason of
its qualification under Section 422 of the Code, the option price, the number of
shares subject to such option and the terms and conditions of exercise of such
option shall be determined in a manner consistent with the requirements of
Section 424(a) of the Code.
(b) As soon as practicable after the Effective Time, Monsanto shall deliver
to the holders of PNU Stock Options, PNU SARs and PNU Deferred Shares
appropriate notices setting forth such holders' rights pursuant to the PNU Stock
Incentive Plans (including that, by virtue of the Merger and pursuant to the
terms of the PNU Stock Incentive Plans, the PNU Stock Options, PNU SARs and PNU
Deferred Shares have become fully vested and exercisable) and the agreements
evidencing the grants of such PNU Stock Options, PNU SARs and PNU Deferred
Shares shall continue in effect on the same terms and conditions (subject to the
adjustments required by this Section 1.9 after giving effect to the Merger and
the terms of the PNU Stock Incentive Plans). To the extent permitted by law,
Monsanto shall comply with the terms of the PNU Stock Incentive Plans and shall
take such reasonable steps as are necessary or required by, and subject to the
provisions of, such PNU Stock Incentive Plans, to have the PNU Stock Options
which qualified as incentive stock options prior to the Effective Time continue
to qualify as incentive stock options of Monsanto after the Effective Time.
(c) Monsanto shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Monsanto Common Stock for delivery
upon exercise of PNU Stock Options, PNU SARs and PNU Deferred Shares in
accordance with this Section 1.9. Promptly after the Effective Time, Monsanto
shall file a registration statement on Form S-3 or Form S-8, as the case may be
(or any successor or other appropriate forms), with respect to the shares of
Monsanto Common Stock subject to such options, stock appreciation rights and
deferred shares and shall use commercially reasonable efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options, stock appreciation rights and deferred shares
remain outstanding. With respect to those individuals who subsequent to the
Merger will be subject to the reporting requirements under Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), where
applicable, Monsanto shall administer the PNU Stock Option Plans in a manner
consistent with the exemptions provided by Rule 16b-3 promulgated under the
Exchange Act.
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SECTION 1.10 Certain Adjustments. If, between the date of this Agreement
and the Effective Time, the outstanding PNU Common Stock or Monsanto Common
Stock shall have been changed into a different number of shares or different
class by reason of any reclassification, recapitalization, stock split, reverse
stock split, combination or exchange of shares, or a stock dividend or dividend
payable in any other securities shall be declared with a record date within such
period, or any similar event shall have occurred, the Exchange Ratio shall be
appropriately adjusted to provide to the holders of PNU Common Stock the same
economic effect as contemplated by this Agreement prior to such event.
SECTION 1.11 Appraisal Rights. Notwithstanding Section 1.8, shares of PNU
Convertible Preferred Stock outstanding immediately prior to the Effective Time
and held by a holder who has not voted in favor of the Merger or consented
thereto in writing and who has demanded appraisal for such shares of PNU
Convertible Preferred Stock in accordance with the DGCL shall not be converted
into a right to receive the Preferred Merger Consideration, unless such holder
fails to perfect or withdraws or otherwise loses his right to appraisal. If
after the Effective Time such holder fails to perfect or withdraws or loses his
right to appraisal, such shares of PNU Convertible Preferred Stock shall be
treated as if they had been converted as of the Effective Time into a right to
receive the Preferred Merger Consideration. PNU shall give Monsanto prompt
notice of any demands received by PNU for appraisal of shares of PNU Convertible
Preferred Stock, and Monsanto shall have the right to participate in all
negotiations and proceedings with respect to such demands. PNU shall not, except
with the prior written consent of Monsanto, make any payment with respect to, or
settle or offer to settle, any such demands.
SECTION 1.12 Transaction Structure. The parties may, with the approval of
their respective Boards of Directors, at any time prior to the mailing of the
Joint Proxy Statement/Prospectus (as defined in Section 5.1) change the method
of effecting the combination between Monsanto and PNU (including, without
limitation, the provisions of this Article I) if and to the extent the parties
agree in writing that such change is necessary, appropriate or desirable.
ARTICLE II
EXCHANGE OF CERTIFICATES
SECTION 2.1 Exchange Fund. Prior to the Effective Time, Monsanto shall
appoint a commercial bank or trust company reasonably acceptable to PNU having
net capital of not less than $100,000,000, or a subsidiary thereof, to act as
exchange agent hereunder for the purpose of exchanging Certificates for the
Merger Consideration (the "Exchange Agent"). At or prior to the Effective Time,
Monsanto shall deposit with the Exchange Agent, in trust for the benefit of
holders of shares of PNU Common Stock and PNU Convertible Preferred Stock,
certificates representing the Monsanto Common Stock issuable pursuant to Section
1.8 in exchange for outstanding shares of PNU Common Stock and certificates
representing the Monsanto Convertible Preferred Stock issuable pursuant to
Section 1.8 in exchange for outstanding shares of PNU Convertible Preferred
Stock. Monsanto agrees to make available to the Exchange Agent from time to time
as needed, cash sufficient to pay cash in lieu of fractional shares pursuant to
Section 2.5 and any dividends and other distributions pursuant to Section 2.3.
Any cash and certificates of
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<PAGE> 142
Monsanto Common Stock and Monsanto Convertible Preferred Stock deposited with
the Exchange Agent shall hereinafter be referred to as the "Exchange Fund".
SECTION 2.2 Exchange Procedures. As soon as reasonably practicable after
the Effective Time, Monsanto shall cause the Exchange Agent to mail to each
holder of a Certificate (i) a letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent, and which
letter shall be in customary form and have such other provisions as Monsanto may
reasonably specify and (ii) instructions for effecting the surrender of such
Certificates in exchange for the applicable Merger Consideration. Upon surrender
of a Certificate to the Exchange Agent together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor (i)
in the case of holders of Common Certificates (A) one or more shares of Monsanto
Common Stock (which shall be in uncertificated book-entry form unless a physical
certificate is requested) representing, in the aggregate, the whole number of
shares that such holder has the right to receive pursuant to Section 1.8 (after
taking into account all shares of PNU Common Stock then held by such holder),
and (B) a check in the amount equal to the cash that such holder has the right
to receive pursuant to the provisions of this Article II, including cash in lieu
of any fractional shares of Monsanto Common Stock pursuant to Section 2.5 and
dividends and other distributions pursuant to Section 2.3 and (ii) in the case
of holders of Preferred Certificates (A) one or more shares of Monsanto
Convertible Preferred Stock (which shall be in uncertificated book-entry form
unless a physical certificate is requested) representing, in the aggregate, the
number of shares that such holder has the right to receive pursuant to Section
1.8 and (B) a check in the amount equal to the cash that such holder has the
right to receive pursuant to the provisions of this Article II, including
dividends and other distributions pursuant to Section 2.3. No interest will be
paid or will accrue on any cash payable pursuant to Section 2.3 or Section 2.5.
In the event of a transfer of ownership of PNU Common Stock or PNU Convertible
Preferred Stock which is not registered in the transfer records of PNU, one or
more shares of Monsanto Common Stock or Monsanto Convertible Preferred Stock, as
the case may be, evidencing, in the aggregate, the proper number of shares of
Monsanto Common Stock or Monsanto Convertible Preferred Stock, as the case may
be, a check in the proper amount of cash in lieu of any fractional shares of
Monsanto Common Stock pursuant to Section 2.5 and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.3, may be
issued with respect to such PNU Common Stock or PNU Convertible Preferred Stock,
as the case may be, to such a transferee if the Certificate 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.
SECTION 2.3 Distributions with Respect to Unexchanged Shares. No
dividends or other distributions declared or made with respect to shares of
Monsanto Common Stock or Monsanto Convertible Preferred Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Monsanto Common Stock or Monsanto
Convertible Preferred Stock, as the case may be, that such holder would be
entitled to receive upon surrender of such Certificate and no cash payment in
lieu of fractional shares of Monsanto Common Stock shall be paid to any such
holder pursuant to Section 2.5 until such holder shall surrender such
Certificate in accordance with Section 2.2. Subject to the effect of applicable
laws, following surrender of any such Certificate, there shall be paid to such
holder of shares of Monsanto Common
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<PAGE> 143
Stock or Monsanto Convertible Preferred Stock, as the case may be, issuable in
exchange therefor, without interest, (a) promptly after the time of such
surrender, the amount of any cash payable in lieu of fractional shares of
Monsanto Common Stock to which such holder is entitled pursuant to Section 2.5
and the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Monsanto
Common Stock or such shares of Monsanto Convertible Preferred Stock, as the case
may be, and (b) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such shares of Monsanto Common Stock or Monsanto Convertible
Preferred Stock, as the case may be.
SECTION 2.4 No Further Ownership Rights in PNU Common Stock and PNU
Convertible Preferred Stock. All shares of Monsanto Common Stock and Monsanto
Convertible Preferred Stock issued and cash paid upon conversion of shares of
PNU Common Stock and PNU Convertible Preferred Stock in accordance with the
terms of Article I and this Article II (including any cash paid pursuant to
Section 2.3 or 2.5) shall be deemed to have been issued or paid in full
satisfaction of all rights pertaining to the shares of PNU Common Stock and PNU
Convertible Preferred Stock.
SECTION 2.5 No Fractional Shares of Monsanto Common Stock. (a) No
certificates or scrip or shares of Monsanto Common Stock representing fractional
shares of Monsanto Common Stock or book-entry credit of the same shall be issued
upon the surrender for exchange of Certificates and such fractional share
interests will not entitle the owner thereof to vote or to have any rights of a
shareholder of Monsanto or a holder of shares of Monsanto Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of PNU Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of Monsanto Common Stock
(after taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to the
product of (i) such fractional part of a share of Monsanto Common Stock
multiplied by (ii) the closing price for a share of Monsanto Common Stock on the
New York Stock Exchange, Inc. ("NYSE") Composite Transactions Tape (regular
session) on the date of the Effective Time, or if such date is not a Business
Day, the Business Day immediately following the date on which the Effective Time
occurs. As promptly as practicable after the determination of the amount of
cash, if any, to be paid to holders of fractional interests, the Exchange Agent
shall so notify Monsanto, and Monsanto shall deposit or cause the Surviving
Corporation to deposit such amount with the Exchange Agent and shall cause the
Exchange Agent to forward payments to such holders of fractional interests
subject to and in accordance with the terms hereof.
SECTION 2.6 Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the holders of Certificates for six months
after the Effective Time shall be delivered to Monsanto or otherwise on the
instruction of Monsanto, and any holders of the Certificates who have not
theretofore complied with this Article II shall thereafter look only to Monsanto
for the Merger Consideration with respect to the shares of PNU Common Stock or
PNU Convertible Preferred Stock, as the case may be, formerly represented
thereby to which such holders are entitled pursuant to Section 1.8 and Section
2.2, any cash in lieu of fractional shares of Monsanto Common Stock to which
such holders are entitled pursuant to Section 2.5 and any dividends or
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distributions with respect to shares of Monsanto Common Stock or Monsanto
Convertible Preferred Stock to which such holders are entitled pursuant to
Section 2.3. Any such portion of the Exchange Fund remaining unclaimed by
holders of shares of PNU Common Stock and PNU Convertible Preferred Stock five
years after the Effective Time (or such earlier date immediately prior to such
time as such amounts would otherwise escheat to or become property of any
Governmental Entity (as defined in Section 3.1(c)(iii)) shall, to the extent
permitted by law, become the property of Monsanto free and clear of any claims
or interest of any Person previously entitled thereto.
SECTION 2.7 No Liability. None of Monsanto, the Surviving Corporation or
the Exchange Agent shall be liable to any Person in respect of any Merger
Consideration from the Exchange Fund delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
SECTION 2.8 Investment of the Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by Monsanto on a daily
basis. Any interest and other income resulting from such investments shall
promptly be paid to Monsanto.
SECTION 2.9 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Monsanto, the posting by such Person of a bond in such reasonable amount as
Monsanto may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will deliver in exchange
for such lost, stolen or destroyed Certificate the applicable Merger
Consideration with respect to the shares of PNU Common Stock or PNU Convertible
Preferred Stock, as the case may be, formerly represented thereby, any cash in
lieu of fractional shares of Monsanto Common Stock, and unpaid dividends and
distributions on shares of Monsanto Common Stock or Monsanto Convertible
Preferred Stock, as the case may be, deliverable in respect thereof, pursuant to
this Agreement.
SECTION 2.10 Withholding Rights. Each of the Surviving Corporation and
Monsanto shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of PNU
Common Stock or PNU Convertible Preferred Stock such amounts as it is required
to deduct and withhold with respect to the making of such payment under the Code
and the rules and regulations promulgated thereunder, or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by the
Surviving Corporation or Monsanto, as the case may be, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the shares of PNU Common Stock or PNU Convertible Preferred Stock, as
the case may be, in respect of which such deduction and withholding was made by
the Surviving Corporation or Monsanto, as the case may be.
SECTION 2.11 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of PNU or Merger Sub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and on
behalf of PNU or Merger Sub, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any and all right,
title and interest in, to and under any of the rights, properties or assets
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
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SECTION 2.12 Stock Transfer Books. The stock transfer books of PNU shall
be closed immediately upon the Effective Time and there shall be no further
registration of transfers of shares of PNU Common Stock or PNU Convertible
Preferred Stock thereafter on the records of PNU. On or after the Effective
Time, any Certificates presented to the Exchange Agent or Monsanto for any
reason shall be converted into the Merger Consideration with respect to the
shares of PNU Common Stock or PNU Convertible Preferred Stock, as the case may
be, formerly represented thereby, any cash in lieu of fractional shares of
Monsanto Common Stock to which the holders thereof are entitled pursuant to
Section 2.5 and any dividends or other distributions to which the holders
thereof are entitled pursuant to Section 2.3.
SECTION 2.13 Affiliates. Notwithstanding anything to the contrary herein,
to the fullest extent permitted by law and pooling of interests accounting
treatment, no certificates representing shares of Monsanto Common Stock or cash
shall be delivered to a Person who may be deemed an "affiliate" of PNU in
accordance with Section 5.13 hereof for purposes of Rule 145 under the
Securities Act of 1933, as amended (the "Securities Act") or, if the Merger
qualifies for pooling of interests accounting treatment under Opinion 16 of the
Accounting Principles Board and applicable rules and regulations of the
Securities and Exchange Commission (the "SEC"), for purposes of qualifying the
Merger for pooling of interests accounting treatment until such Person has
executed and delivered a PNU Affiliate Agreement (as defined in Section 5.13(b))
pursuant to Section 5.13.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of PNU. Except as set forth in
the PNU Disclosure Schedule delivered by PNU to Monsanto prior to the execution
of this Agreement (the "PNU Disclosure Schedule") (each section of which
qualifies the correspondingly numbered representation and warranty or covenant
to the extent specified therein) PNU represents and warrants to Monsanto as
follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Each of PNU and each of its Subsidiaries (as defined in Section
8.11) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or
organization, has the requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing
or to have such power and authority would not reasonably be expected to
have a Material Adverse Effect on PNU, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the failure
so to qualify or to be in good standing would not reasonably be expected to
have a Material Adverse Effect on PNU. The copies of the certificate of
incorporation and by-laws of PNU which were previously furnished or made
available to Monsanto are true, complete and correct copies of such
documents as in effect on the date of this Agreement.
(ii) Exhibit 21 to PNU's Annual Report on Form 10-K for the year ended
December 31, 1998 includes all the Subsidiaries of PNU which as of the date
of this Agreement are Significant Subsidiaries (as defined in Rule 1-02 of
Regulation S-X of
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the SEC). All the outstanding shares of capital stock of, or other equity
interests in, each such Significant Subsidiary have been validly issued and
are fully paid and nonassessable and are owned directly or indirectly by
PNU, free and clear of all pledges, claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever (collectively
"Liens") and free of any other restriction (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). Except as set forth in the PNU SEC Reports (as
defined in Section 3.1(d)), neither PNU nor any of its Subsidiaries
directly or indirectly owns any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or
entity (other than Subsidiaries), that is or would reasonably be expected
to be material to PNU and its Subsidiaries taken as a whole.
(b) Capital Structure.
(i) As of December 16, 1999, the authorized capital stock of PNU
consisted of (A) 1,500,000,000 shares of PNU Common Stock of which
519,388,807 shares were outstanding and 8,353 shares were held in the
treasury of PNU and (B) 100,000,000 shares of Preferred Stock, par value
$0.01 per share, of which (1) 7,500 shares have been designated as Series A
Convertible Perpetual Preferred Stock, par value $0.01 per share (the "PNU
Convertible Preferred Stock"), of which 6,697.920285 (as of December 15,
1999) shares of PNU Convertible Preferred Stock were outstanding, and (2)
5,193,888 shares have been authorized as Participating Preferred Stock and
reserved for issuance upon exercise of the rights (the "PNU Rights")
distributed to the holders of PNU Common Stock pursuant to the Rights
Agreement dated as of March 4, 1997 between PNU and Harris Trust & Savings
Bank, as Rights Agent (the "PNU Rights Agreement"). As of December 16,
1999, PNU had reserved or has available 9,711,984 shares of PNU Common
Stock for issuance upon conversion of the PNU Convertible Preferred Stock.
Since December 16, 1999 to the date of this Agreement, there have been no
issuances of shares of the capital stock of PNU or any other securities of
PNU other than issuances of shares (and accompanying PNU Rights) upon
conversion of the PNU Convertible Preferred Stock or pursuant to options or
rights outstanding as of December 16, 1999 under the PNU Stock Incentive
Plans. All issued and outstanding shares of the capital stock of PNU are
duly authorized, validly issued, fully paid and nonassessable, and no class
of capital stock is entitled to preemptive rights. There were outstanding
as of December 16, 1999 no options, warrants or other rights to acquire
capital stock from PNU other than (x) the PNU Rights, (y) the PNU
Convertible Preferred Stock and (z) options and other rights representing
in the aggregate the right to purchase no more than 26, 770, 608 shares of
PNU Common Stock (collectively, the "PNU Stock Options") (including stock
appreciation rights (the "PNU SARs") and deferred shares of PNU Common
Stock (the "PNU Deferred Shares")), in each case granted under the
Pharmacia & Upjohn, Inc. Long-Term Incentive Plan, the Pharmacia & Upjohn,
Inc. Equity Compensation Plan and the Pharmacia & Upjohn, Inc. Directors
Equity Compensation and Deferral Plan (collectively, the "PNU Stock
Incentive Plans"). No options or warrants or other rights to acquire
capital stock from PNU have been issued or granted since December 16, 1999
to the date of this Agreement.
(ii) No bonds, debentures, notes or other indebtedness of PNU having
the right to vote on any matters on which stockholders of PNU may vote
("PNU Voting Debt") are issued or outstanding.
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(iii) Except for the 12% Senior Convertible Notes of Sugen, Inc. due
2002 and warrants to acquire $2,656,250 principal amount of such 12% Senior
Convertible Notes or as otherwise set forth in this Section 3.1(b), as of
the date of this Agreement, there are no securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind to which PNU or any of its Subsidiaries is a party or by which any of
them is bound obligating PNU or any of its Subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of PNU or any of its Subsidiaries
or obligating PNU or any of its Subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. As of the date of this Agreement,
there are no outstanding obligations of PNU or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of PNU
or any of its Subsidiaries.
(c) Authority; No Conflicts.
(i) PNU has all requisite corporate power and authority to enter into
this Agreement and the Stock Option Agreements and to consummate the
transactions contemplated hereby and thereby, subject in the case of the
consummation of the Merger to the adoption of this Agreement by the
Required PNU Vote (as defined in Section 3.1(g)). The execution and
delivery of this Agreement and the Stock Option Agreements and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of PNU,
subject in the case of the consummation of the Merger to the adoption of
this Agreement by the Required PNU Vote. This Agreement and the Stock
Option Agreements have been duly executed and delivered by PNU and
constitute valid and binding agreements of PNU, enforceable against it in
accordance with their respective terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to or affecting creditors generally or by general
equity principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement and the Stock Option
Agreements by PNU does not or will not, as the case may be, and the
consummation by PNU of the Merger and the other transactions contemplated
hereby and thereby will not, conflict with, or result in any violation of,
or constitute a default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, amendment, cancellation or
acceleration of any obligation or the loss of a material benefit under, or
the creation of a lien, pledge, security interest, charge or other
encumbrance on any assets (any such conflict, violation, default, right of
termination, amendment, cancellation or acceleration, loss or creation, a
"Violation") pursuant to: (A) any provision of the certificate of
incorporation or by-laws of PNU, any Significant Subsidiary of PNU or (B)
except as would not reasonably be expected to have a Material Adverse
Effect on PNU or, to the Knowledge of PNU, Newco following the Merger,
subject to obtaining or making the Necessary Consents (as defined in
paragraph (iii) below), any loan or credit agreement, note, mortgage, bond,
indenture, lease, benefit plan or similar arrangement or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
PNU, any Subsidiary of PNU or their respective properties or assets.
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(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any supranational, national,
state, municipal, local or foreign government, any instrumentality,
subdivision, court, administrative agency or commission or other authority
thereof, or any quasi-governmental or private body exercising any
regulatory, taxing, importing or other governmental or quasi-governmental
authority (a "Governmental Entity"), is required by or with respect to PNU
or any Subsidiary of PNU in connection with the execution and delivery of
this Agreement and the Stock Option Agreements by PNU or the consummation
of the Merger and the other transactions contemplated hereby and thereby,
except for those required under or in relation to (A) the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (B) state
securities or "blue sky" laws (the "Blue Sky Laws"), (C) the Securities
Act, (D) the Exchange Act, (E) the DGCL with respect to the filing of the
Certificate of Merger, (F) rules and regulations of the NYSE or the
Stockholm Stock Exchange, (G) antitrust or other competition laws of other
jurisdictions, and (H) such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or
obtain would not reasonably be expected to have a Material Adverse Effect
on PNU. Consents, approvals, orders, authorizations, registrations,
declarations and filings required under or in relation to any of the
foregoing clauses (A) through (G) are hereinafter referred to as "Necessary
Consents".
(d) Reports and Financial Statements.
(i) PNU has filed all required registration statements, prospectuses,
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC since January 1, 1998 (collectively, including all
exhibits thereto, the "PNU SEC Reports"). No Subsidiary of PNU is required
to file any form, report, registration statement, prospectus or other
document with the SEC. As of their respective dates, none of the PNU SEC
Reports (and, if amended or superseded by a filing prior to the date of
this Agreement or the Closing Date, then on the date of such filing),
contained, and none of the PNU SEC Reports filed subsequent to the date
hereof will contain, any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the financial statements (including the
related notes) included in the PNU SEC Reports presents fairly, in all
material respects, the consolidated financial position and consolidated
results of operations and cash flows of PNU and its Subsidiaries as of the
respective dates or for the respective periods set forth therein, all in
conformity with GAAP consistently applied during the periods involved
except as otherwise noted therein, and subject, in the case of the
unaudited interim financial statements, to normal and recurring year-end
adjustments that have not been and are not expected to be material in
amount. All of such PNU SEC Reports, as of their respective dates (and as
of the date of any amendment to the respective PNU SEC Report), complied as
to form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder.
(ii) Except as disclosed in the PNU SEC Reports filed prior to the
date hereof, since December 31, 1998, PNU and its Subsidiaries have not
incurred any liabilities that are of a nature that would be required to be
disclosed on a balance sheet of PNU and its Subsidiaries or the footnotes
thereto prepared in conformity with GAAP, other
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than (A) liabilities incurred in the ordinary course of business or (B)
liabilities that would not, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on PNU.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by PNU for
inclusion or incorporation by reference in (A) the Form S-4 (as defined in
Section 5.1) will, at the time the Form S-4 becomes effective under the
Securities Act or at the time of any post-effective amendment thereto,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and (B) the Joint Proxy
Statement/Prospectus will, on the date it is first mailed to Monsanto
stockholders or PNU stockholders or at the time of the Monsanto
Stockholders Meeting or the PNU Stockholders Meeting (each as defined in
Section 5.1), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Form S-4 and the Joint Proxy
Statement/Prospectus will comply as to form in all material respects with
the requirements of the Exchange Act and the Securities Act and the rules
and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section 3.1(e),
no representation or warranty is made by PNU with respect to statements
made or incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by Monsanto or Merger
Sub for inclusion or incorporation by reference therein.
(f) Board Approval. The Board of Directors of PNU, by resolutions
duly adopted by unanimous vote at a meeting duly called and held and not
subsequently rescinded or modified in any way (the "PNU Board Approval"),
has duly (i) determined that this Agreement and the Merger are advisable
and fair to and in the best interests of PNU and its stockholders, (ii)
approved this Agreement, the Stock Option Agreements and the Merger and
(iii) recommended that the stockholders of PNU adopt this Agreement and
approve the Merger and directed that this Agreement and the transactions
contemplated hereby be submitted for consideration by PNU's stockholders at
the PNU Stockholders Meeting. The PNU Board Approval constitutes approval
of this Agreement, the PNU Stock Option Agreement and the Merger for
purposes of Section 203 of the DGCL. To the Knowledge of PNU, except for
Section 203 of the DGCL (which has been rendered inapplicable), no state
takeover statute is applicable to the Merger or the other transactions
contemplated hereby.
(g) Vote Required. The affirmative vote of the holders of shares of
PNU Common Stock and shares of PNU Convertible Preferred Stock, voting
together as a single class, representing a majority of the total votes
entitled to be cast by the holders of all outstanding shares of PNU Common
Stock and all outstanding shares of PNU Convertible Preferred Stock (the
"Required PNU Vote"), is the only vote of the holders of any class or
series of PNU capital stock necessary to adopt this Agreement and approve
the Merger and the other transactions contemplated by the Merger Agreement.
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(h) Litigation; Compliance with Laws.
(i) Except as disclosed in the PNU SEC Reports filed prior to the date
of this Agreement, there is no suit, action or proceeding pending or, to
the Knowledge of PNU, threatened, against or affecting PNU or any
Subsidiary of PNU having, or which would reasonably be expected to have a
Material Adverse Effect on PNU, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against PNU or any Subsidiary of PNU having, or which
reasonably would be expected to have a Material Adverse Effect on PNU.
(ii) Except as disclosed in the PNU SEC Reports filed prior to the
date of this Agreement and except as would not reasonably be expected to
have a Material Adverse Effect on PNU, PNU and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are necessary for the operation of the
businesses of PNU and its Subsidiaries, taken as a whole (the "PNU
Permits"). PNU and its Subsidiaries are in compliance with the terms of the
PNU Permits, except where the failure so to comply would not reasonably be
expected to have a Material Adverse Effect on PNU. Except as disclosed in
the PNU SEC Reports filed prior to the date of this Agreement, the
businesses of PNU and its Subsidiaries are not being conducted in violation
of, and PNU has not received any notices of violations with respect to, any
law, ordinance or regulation of any Governmental Entity, except for
possible violations which would not reasonably be expected to have a
Material Adverse Effect on PNU.
(i) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, except as disclosed in the PNU SEC Reports filed prior to the date
of this Agreement, and except as permitted by Section 4.1, since December
31, 1998, PNU and its Subsidiaries have conducted their business only in
the ordinary course in all material respects and there has not been (i) any
change, circumstance or event which has had, or would reasonably be
expected to have, a Material Adverse Effect on PNU, (ii) any declaration,
setting aside or payment of any dividend or other distribution with respect
to its capital stock, other than regular quarterly cash dividends not
exceeding $0.27 with respect to each share of PNU Common Stock and $629.69
with respect to each share of PNU Convertible Preferred Stock, (iii) any
split, combination or reclassification of PNU's capital stock or any
issuance of or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for, shares of its capital stock,
or (iv) any material change in its accounting policies.
(j) Environmental Matters. Except as would not reasonably be expected
to have a Material Adverse Effect on PNU and except as disclosed in the PNU
SEC Reports filed prior to the date of this Agreement (i) the operations of
PNU and its Subsidiaries have been and are in compliance with all
Environmental Laws and with all licenses required by Environmental Laws (as
defined below), (ii) there are no pending or, to the Knowledge of PNU,
threatened, actions, suits, claims, investigations or other proceedings
(collectively, "Actions") under or pursuant to Environmental Laws against
PNU or its Subsidiaries or involving any real property currently or, to the
Knowledge of PNU, formerly owned, operated or leased by PNU or its
Subsidiaries and (iii) PNU and its Subsidiaries are not subject to any
Environmental Liabilities (as defined below), and, to the Knowledge of PNU,
no facts, circumstances or conditions relating to, arising from, associated
with or attributable to any real property currently or, to the Knowledge of
PNU, formerly owned, operated or leased
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by PNU or its Subsidiaries or operations thereon would reasonably be
expected to result in Environmental Liabilities.
As used in this Agreement, "Environmental Laws" means any and all
foreign, federal, state, local or municipal laws, rules, orders,
regulations, statutes, ordinances, codes, decisions, injunctions, orders,
decrees, requirements of any Governmental Entity, any and all common law
requirements, rules and bases of liability regulating, relating to or
imposing liability or standards of conduct concerning pollution, Hazardous
Materials or protection of human health, safety or the environment, as in
effect on or prior to the Closing Date and includes the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section
9601 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the
Clean Air Act, 33 U.S.C. Section 2601 et seq., the Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq., the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C., Section 136 et seq., Occupational Safety and
Health Act 29 U.S.C. Section 651 et seq. and the Oil Pollution Act of 1990,
33 U.S.C. Section 2701 et seq., as such laws have been amended or
supplemented, and the regulations promulgated pursuant thereto, and all
analogous state or local statutes. As used in this Agreement,
"Environmental Liabilities" with respect to any person means any and all
liabilities of or relating to such person or any of its Subsidiaries
(including any entity which is, in whole or in part, a predecessor of such
person or any of such Subsidiaries), whether vested or unvested, contingent
or fixed, actual or potential, known or unknown, which (i) arise under or
relate to matters covered by Environmental Laws and (ii) relate to actions
occurring or conditions existing on or prior to the Closing Date. As used
in this Agreement, "Hazardous Materials" means any hazardous or toxic
substances, materials or wastes, defined, listed, classified or regulated
as such in or under any Environmental Laws and which includes petroleum,
petroleum products, friable asbestos, urea formaldehyde and polychlorinated
biphenyls.
(k) Intellectual Property. Except as would not reasonably be expected
to have a Material Adverse Effect on PNU and except as disclosed in the PNU
SEC Reports filed prior to the date of the Agreement, to the Knowledge of
PNU: (a) PNU and each of its Subsidiaries owns, or is licensed to use (in
each case, free and clear of any liens), all Intellectual Property (as
defined below) used in or necessary for the conduct of its business as
currently conducted; (b) the use of any Intellectual Property by PNU and
its Subsidiaries does not infringe on or otherwise violate the rights of
any Person and is in accordance with any applicable license pursuant to
which PNU or any Subsidiary acquired the right to use any Intellectual
Property; (c) no Person is challenging, infringing on or otherwise
violating any right of PNU or any of its Subsidiaries with respect to any
Intellectual Property owned by and/or licensed to PNU or its Subsidiaries;
and (d) neither PNU nor any of its Subsidiaries has received any written
notice of any pending claim with respect to any Intellectual Property used
by PNU and its Subsidiaries and no Intellectual Property owned and/or
licensed by PNU or its Subsidiaries is being used or enforced in a manner
that would result in the abandonment, cancellation or unenforceability of
such Intellectual Property. For purposes of this Agreement, "Intellectual
Property" shall mean trademarks, service marks, brand names, certification
marks, trade dress and other indications of origin, the goodwill associated
with the foregoing and registrations in any jurisdiction of, and
applications in any jurisdiction to register, the foregoing,
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including any extension, modification or renewal of any such registration
or application; inventions, discoveries and ideas, whether patentable or
not, in any jurisdiction; patents, applications for patents (including,
without limitation, divisions, continuations, continuations in part and
renewal applications), and any renewals, extensions or reissues thereof, in
any jurisdiction; nonpublic information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any person; writings and other works, whether copyrightable or
not, in any jurisdiction; and registrations or applications for
registration of copyrights in any jurisdiction, and any renewals or
extensions thereof; any similar intellectual property or proprietary
rights.
(l) PNU Rights Agreement. The Board of Directors of PNU has taken the
requisite action such that none of Monsanto, Merger Sub or any of their
respective affiliates shall become an "Acquiring Person", and that no
"Stock Acquisition Date" or "Separation Time" (as such terms are defined in
the PNU Rights Agreement) will occur, by reason of the approval, execution
or delivery of this Agreement, the PNU Stock Option Agreement or the
consummation of the transactions contemplated hereby and thereby.
(m) Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any
broker's or finder's fee or any other similar commission or fee in
connection with any of the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of PNU, except Bear, Stearns &
Co. Inc. and J.P. Morgan & Co. Incorporated (the "PNU Financial Advisors"),
whose fees and expenses will be paid by PNU in accordance with PNU's
agreements with such firms, copies of which have been provided to Monsanto.
(n) Opinions of PNU Financial Advisors. PNU has received the opinions
of the PNU Financial Advisors, dated the date of this Agreement, to the
effect that, as of such date, the Exchange Ratio is fair, from a financial
point of view, to PNU's stockholders, copies of which opinions will be made
available to Monsanto.
(o) Accounting Matters. To the Knowledge of PNU as of the date of
this Agreement, neither PNU nor any of its affiliates has taken or has
agreed to take any action on or prior to the date of this Agreement that
would preclude PNU's ability to be a party in a business combination to be
accounted for as a pooling of interests.
(p) Taxes. Each of PNU and its Subsidiaries has filed all Tax Returns
required to have been filed (or extensions have been duly obtained) and has
paid all Taxes required to have been paid by it, except where failure to
file such Tax Returns or pay such Taxes would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect on PNU. For
purposes of this Agreement: (i) "Tax" (and, with correlative meaning,
"Taxes") means any federal, state, local or foreign income, gross receipts,
property, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add on minimum, ad valorem, transfer or excise
tax, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, imposed by any governmental authority and (ii) "Tax Return" means
any return, report or similar statement required to be filed with respect
to any Tax (including any attached schedules), including, without
limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
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(q) Certain Contracts. As of the date hereof, except as set forth in
the PNU SEC Reports filed prior to the date of this Agreement, neither PNU
nor any of its Subsidiaries is a party to or bound by (i) any "material
contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of
the SEC) or (ii) any non-competition agreement or any other agreement or
arrangement that limits or otherwise restricts PNU or any of its
Subsidiaries or any of their respective affiliates or any successor
thereto, or that would, after the Effective Time, to the Knowledge of PNU,
limit or restrict Newco or any of its affiliates (including the Surviving
Corporation) or any successor thereto, from engaging or competing in any
line of business or in any geographic area, which agreement or arrangement
would reasonably be expected to have a Material Adverse Effect on Newco and
its Subsidiaries (including the Surviving Corporation and its
Subsidiaries), taken together, after giving effect to the Merger.
(r) Employee Benefits. (i) With respect to each PNU Plan, except for
PNU Plans the liabilities under which are reflected in the financial
statements included in the PNU SEC Reports or which, individually or in the
aggregate, would not have a Material Adverse Effect on PNU, PNU has made
available to Monsanto a true, correct and complete copy of: (i) all plan
documents, trust agreements, and insurance contracts and other funding
vehicles; (ii) the most recent Annual Report (Form 5500 Series) and
accompanying schedule, if any; (iii) the current summary plan description
and any material modifications thereto, if any (in each case, whether or
not required to be furnished under ERISA); (iv) the most recent annual
financial report, if any; (v) the most recent actuarial report, if any; and
(vi) the most recent determination letter from the IRS, if any.
(ii) With respect to each PNU Employee Benefit Plan, PNU and its
Subsidiaries have complied, and are now in compliance, with all provisions
of ERISA, the Code and all other laws and regulations applicable to such
PNU Employee Benefit Plans and each PNU Employee Benefit Plan has been
administered in accordance with its terms, in each case except as would not
have a Material Adverse Effect on PNU. Each PNU Employee Benefit Plan that
is required by ERISA to be funded is fully funded in accordance with
reasonable actuarial assumptions except as would not have a Material
Adverse Effect on PNU.
(iii) All PNU Employee Benefit Plans subject to the laws of any
jurisdiction outside of the United States (A) have been maintained in
accordance with all applicable requirements, (B) if they are intended to
qualify for special tax treatment meet all requirements for such treatment,
and (C) if they are intended to be funded and/or book-reserved are fully
funded and/or book-reserved, as appropriate, based upon reasonable
actuarial assumptions, in each case except as would not have a Material
Adverse Effect on PNU.
SECTION 3.2 Representations and Warranties of Monsanto. Except as set
forth in the Monsanto Disclosure Schedule delivered by Monsanto to PNU prior to
the execution of this Agreement (the "Monsanto Disclosure Schedule") (each
section of which qualifies the correspondingly numbered representation and
warranty or covenant to the extent specified therein) (and, if Monsanto has
divested any of the Monsanto Nutrition and Consumer Businesses (as defined in
Section 8.11) prior to the Closing, except in respect of or to the extent
relating to (i) the business or assets of the Monsanto Nutrition and Consumer
Businesses which prior to the Closing have been divested or (ii) the liabilities
of the divested Monsanto Nutrition and Consumer Businesses which are not
retained,
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contingently or otherwise, by Monsanto or any of its Subsidiaries as of the
Closing Date, as to which Monsanto makes no representations or warranties),
Monsanto represents and warrants to PNU as follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Each of Monsanto and each of its Subsidiaries is a corporation or
a limited liability company duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or
organization, has the requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing
or to have such power and authority would not reasonably be expected to
have a Material Adverse Effect on Monsanto and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the failure
so to qualify or to be in good standing would not reasonably be expected to
have a Material Adverse Effect on Monsanto. The copies of the certificate
of incorporation and by-laws of Monsanto which were previously furnished or
made available to PNU are true, complete and correct copies of such
documents as in effect on the date of this Agreement.
(ii) Exhibit 21 to Monsanto's Annual Report on Form 10-K for the year
ended December 31, 1998 includes all the Subsidiaries of Monsanto which as
of the date of this Agreement are Significant Subsidiaries (as defined in
Rule 1-02 of Regulation S-X of the SEC). All the outstanding shares of
capital stock of, or other equity interests in, each such Significant
Subsidiary have been validly issued and are fully paid and nonassessable
and are owned directly or indirectly by Monsanto, free and clear of all
Liens and free of any other restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). Except as set forth in the Monsanto SEC Reports (as
defined in Section 3.2(d)), neither Monsanto nor any of its Subsidiaries
directly or indirectly owns any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or
entity (other than Subsidiaries), that is or would reasonably be expected
to be material to Monsanto and its Subsidiaries taken as a whole.
(b) Capital Structure.
(i) As of December 13, 1999, the authorized capital stock of Monsanto
consisted of (A) 1,000,000,000 shares of Monsanto Common Stock, of which
636,072,551 shares were outstanding and 210,854,669 shares were held in the
treasury of Monsanto (of which 420,880 shares were held in the treasury
pursuant to the Monsanto Employee Stock Purchase Plan) and (B) 10,000,000
shares of Preferred Stock, without par value ("Monsanto Preferred Stock"),
none of which were outstanding and 700,000 shares of which have been
designated Series A Junior Participating Preferred Stock and reserved for
issuance upon exercise of the rights (the "Monsanto Rights") distributed to
the holders of Monsanto Common Stock pursuant to the Rights Agreement dated
as of January 26, 1990, between Monsanto and First Chicago Trust Company as
successor to First National Bank of Boston, as Rights Agent, as amended
(the "Monsanto Rights Agreement"). Since December 13, 1999 to the date of
this Agreement, there have been no issuances of shares of the capital stock
of Monsanto or any other securities of Monsanto other than issuances of
shares (and accompanying
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Monsanto Rights) pursuant to options or rights outstanding as of December
13, 1999 under the Monsanto Stock Option Plans. All issued and outstanding
shares of the capital stock of Monsanto are duly authorized, validly
issued, fully paid and nonassessable, and no class of capital stock is
entitled to preemptive rights. There were outstanding as of December 13,
1999 no options, warrants or other rights to acquire capital stock from
Monsanto other than (x) the Monsanto Rights, (y) the 6.50% Adjustable
Conversion-rate Equity Security Units and (z) options representing in the
aggregate the right to purchase no more than 99,134,339 shares of Monsanto
Common Stock (collectively, the "Monsanto Stock Options") under the
Monsanto Company Non-Employee Director Equity Incentive Compensation Plan,
the Searle Monsanto Stock Option Plan of 1986, the Monsanto Management
Incentive Plan of 1988/II, the Monsanto Management Incentive Plan of
1988/I, the NutraSweet/ Monsanto Stock Plan of 1991, the Monsanto
Management Incentive Plan of 1994, the Searle/Monsanto Stock Plan of 1994,
the NutraSweet/Monsanto Stock Plan of 1994, the Monsanto Management
Incentive Plan of 1996 and the Monsanto Shared Success Option Plan, as each
such plan has been amended (collectively, the "Monsanto Stock Option
Plans"). No options or warrants or other rights to acquire capital stock
from Monsanto have been issued or granted since December 13, 1999 to the
date of this Agreement. References in this Agreement to the Monsanto Rights
shall be deemed to include the rights issued pursuant to the Rights
Agreement, dated as of December 19, 1999, between Monsanto and EquiServe
Trust Company N.A., as Rights Agent (the "New Monsanto Rights Agreement"),
in substantially the form previously provided to PNU.
(ii) No bonds, debentures, notes or other indebtedness of Monsanto
having the right to vote on any matters on which stockholders may vote
("Monsanto Voting Debt") are issued or outstanding.
(iii) Except as otherwise set forth in this Section 3.2(b) and as
contemplated by Section 1.8 and Section 1.9, as of the date of this
Agreement, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Monsanto or any of its Subsidiaries is a party or by which any of them is
bound obligating Monsanto or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of Monsanto or any of its
Subsidiaries or obligating Monsanto or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. As of the date of
this Agreement, there are no outstanding obligations of Monsanto or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of Monsanto or any of its Subsidiaries.
(c) Authority; No Conflicts.
(i) Monsanto has all requisite corporate power and authority to enter
into this Agreement and the Stock Option Agreements and to consummate the
transactions contemplated hereby and thereby, subject, (A) in the case of
the issuance of the shares of Monsanto Common Stock to be issued in the
Merger (the "Share Issuance"), (1) to the approval by the stockholders of
Monsanto, by the holders of a majority of the outstanding shares of
Monsanto Common Stock, of an amendment to the Restated Certificate of
Incorporation of Monsanto (i) to increase the number of authorized shares
of Monsanto Common Stock to 3 billion, (ii) to change the par value of the
Monsanto Preferred Stock to $0.01 per share, (iii) to remove the voting
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limitations per share of Monsanto Preferred Stock and (iv) to change the
name of Monsanto at the Effective Time to a new name to be mutually agreed
by Monsanto and PNU prior to mailing the Joint Proxy Statement/Prospectus
(the "Charter Amendment") and (2) to the approval by the stockholders of
Monsanto, by a majority of the votes cast at the Monsanto Stockholders
Meeting (as defined in Section 5.1(b)), of the Share Issuance
(collectively, the "Required Monsanto Votes") and the filing of a related
Certificate of Amendment with the Secretary of State of the State of
Delaware and (ii) in the case of the issuance of Monsanto Convertible
Preferred Stock to be issued in the Merger (the "Preferred Share
Issuance"), to the filing of a Certificate of Designations of the Monsanto
Convertible Preferred Stock (the "Monsanto Certificate of Designations")
with the Secretary of State of the State of Delaware. The execution and
delivery of this Agreement and the Stock Option Agreements and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of Monsanto,
subject, in the case of the Share Issuance, to the approval by the
stockholders of Monsanto of the Share Issuance and the Charter Amendment by
the Required Monsanto Votes and in the case of the Preferred Share
Issuance, to the filing of the Monsanto Certificate of Designations. This
Agreement and the Stock Option Agreements have been duly executed and
delivered by Monsanto and constitute valid and binding agreements of
Monsanto, enforceable against it in accordance with their respective terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting
creditors generally or by general equity principles (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement and the Stock Option
Agreements by Monsanto does not or will not, as the case may be, and the
consummation by Monsanto of the Merger and the other transactions
contemplated hereby and thereby will not, conflict with, or result in a
Violation pursuant to: (A) any provision of the certificate of
incorporation or by-laws of Monsanto or any Significant Subsidiary of
Monsanto or (B) except as would not reasonably be expected to have a
Material Adverse Effect on Monsanto or, to the Knowledge of Monsanto, Newco
following the Merger, subject to obtaining or making the Necessary
Consents, any loan or credit agreement, note, mortgage, bond, indenture,
lease, benefit plan or similar arrangement or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Monsanto,
any Subsidiary of Monsanto or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to Monsanto or any Subsidiary of Monsanto in
connection with the execution and delivery of this Agreement and the Stock
Option Agreements by Monsanto or the consummation of the Merger and the
other transactions contemplated hereby and thereby, except the Necessary
Consents, the filing of the Charter Amendment and the Monsanto Certificate
of Designations under the DGCL and such consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of
which to make or obtain would not reasonably be expected to have a Material
Adverse Effect on Monsanto.
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(d) Reports and Financial Statements.
(i) Monsanto has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents
required to be filed by it with the SEC since January 1, 1998
(collectively, including all exhibits thereto, the "Monsanto SEC Reports").
No Subsidiary of Monsanto is required to file any form, report,
registration statement or prospectus or other document with the SEC. As of
their respective dates, none of the Monsanto SEC Reports (and, if amended
or superseded by a filing prior to the date of this Agreement or the
Closing Date, then on the date of such filing), contained, and none of the
Monsanto SEC Reports filed subsequent to the date hereof will contain, any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Each of the financial statements (including the related notes) included in
the Monsanto SEC Reports presents fairly, in all material respects, the
consolidated financial position and consolidated results of operations and
cash flows of Monsanto and its Subsidiaries as of the respective dates or
for the respective periods set forth therein, all in conformity with GAAP
consistently applied during the periods involved except as otherwise noted
therein, and subject, in the case of the unaudited interim financial
statements, to normal and recurring year-end adjustments that have not been
and are not expected to be material in amount. All of such Monsanto SEC
Reports, as of their respective dates (and as of the date of any amendment
to the respective Monsanto SEC Report), complied as to form in all material
respects with the applicable requirements of the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder.
(ii) Except as disclosed in the Monsanto SEC Reports filed prior to
the date hereof, since December 31, 1998, Monsanto and its Subsidiaries
have not incurred any liabilities that are of a nature that would be
required to be disclosed on a balance sheet of Monsanto and its
Subsidiaries or the footnotes thereto prepared in conformity with GAAP,
other than (A) liabilities incurred in the ordinary course of business or
(B) liabilities that would not, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Monsanto.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by Monsanto for
inclusion or incorporation by reference in (A) the Form S-4 will, at the
time the Form S-4 becomes effective under the Securities Act or at the time
of any post-effective amendment thereto, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and (B)
the Joint Proxy Statement/Prospectus will, on the date it is first mailed
to Monsanto stockholders or PNU stockholders or at the time of the Monsanto
Stockholders Meeting or the PNU Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Form S-4 and the Joint Proxy Statement/Prospectus will comply as to form in
all material respects with the requirements of the Exchange Act and the
Securities Act and the rules and regulations of the SEC thereunder.
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(ii) Notwithstanding the foregoing provisions of this Section 3.2(e),
no representation or warranty is made by Monsanto with respect to
statements made or incorporated by reference in the Form S-4 or the Joint
Proxy Statement/Prospectus based on information supplied by PNU for
inclusion or incorporation by reference therein.
(f) Board Approval. The Board of Directors of Monsanto, by
resolutions duly adopted by unanimous vote at a meeting duly called and
held and not subsequently rescinded or modified in any way (the "Monsanto
Board Approval"), has duly (i) determined that this Agreement and the
Merger are advisable and fair to and in the best interests of Monsanto and
its stockholders, (ii) approved this Agreement, the Stock Option
Agreements, the Merger, the Certificate of Designations, the Charter
Amendment and the Share Issuance and (iii) recommended that the
stockholders of Monsanto approve the Share Issuance and the Charter
Amendment and directed that the Share Issuance and the Charter Amendment be
submitted for consideration by Monsanto's stockholders at the Monsanto
Stockholders Meeting. The Monsanto Board Approval constitutes approval of
this Agreement, the Monsanto Stock Option Agreement and the Merger for
purposes of Section 203 of the DGCL. To the Knowledge of Monsanto, except
for Section 203 of the DGCL (which has been rendered inapplicable), no
state takeover statute is applicable to the Merger or the other
transactions contemplated hereby.
(g) Vote Required. The Required Monsanto Votes are the only votes of
the holders of any class or series of Monsanto capital stock necessary to
adopt this Agreement and approve the transactions contemplated hereby.
(h) Litigation; Compliance with Laws.
(i) Except as disclosed in the Monsanto SEC Reports filed prior to the
date of this Agreement, there is no suit, action or proceeding pending or,
to the Knowledge of Monsanto, threatened, against or affecting Monsanto or
any Subsidiary of Monsanto having, or which would reasonably be expected to
have a Material Adverse Effect on Monsanto, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Monsanto or any Subsidiary of Monsanto having, or which
reasonably would be expected to have a Material Adverse Effect on Monsanto.
(ii) Except as disclosed in the Monsanto SEC Reports filed prior to
the date of the Agreement and except as would not reasonably be expected to
have a Material Adverse Effect on Monsanto, Monsanto and its Subsidiaries
hold all permits, licenses, variances, exemptions, orders and approvals of
all Governmental Entities necessary for the operation of the businesses of
Monsanto and its Subsidiaries, taken as a whole (the "Monsanto Permits").
Monsanto and its Subsidiaries are in compliance with the terms of the
Monsanto Permits, except where the failure so to comply would not
reasonably be expected to have a Material Adverse Effect on Monsanto.
Except as disclosed in the Monsanto SEC Reports filed prior to the date of
this Agreement, the businesses of Monsanto and its Subsidiaries are not
being conducted in violation of, and Monsanto has not received any notices
of violations with respect to, any law, ordinance or regulation of any
Governmental Entity, except for possible violations which would not
reasonably be expected to have a Material Adverse Effect on Monsanto.
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(i) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, except as disclosed in the Monsanto SEC Reports filed prior to the
date of this Agreement, and except as permitted by Section 4.2, since
December 31, 1998, Monsanto and its Subsidiaries have conducted their
business only in the ordinary course in all material respects and there has
not been (i) any change, circumstance or event which has had, or would
reasonably be expected to have, a Material Adverse Effect on Monsanto, (ii)
any declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock, other than regular
quarterly cash dividends not exceeding $0.03 with respect to each share of
Monsanto Common Stock, (iii) any split, combination or reclassification of
Monsanto's capital stock or any issuance of or the authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock, or (iv) any material change
in its accounting policies.
(j) Environmental Matters. Except as would not reasonably be expected
to have a Material Adverse Effect on Monsanto and except as disclosed in
the Monsanto SEC Reports filed prior to the date of this Agreement, (i) the
operations of Monsanto and its Subsidiaries have been and are in compliance
with all Environmental Laws and with all licenses required by Environmental
Laws, (ii) there are no pending or, to the Knowledge of Monsanto,
threatened, Actions under or pursuant to Environmental Laws against
Monsanto or its Subsidiaries or involving any real property currently or,
to the Knowledge of Monsanto, formerly owned, operated or leased by
Monsanto or its Subsidiaries and (iii) Monsanto and its Subsidiaries are
not subject to any Environmental Liabilities and, to the Knowledge of
Monsanto, no facts, circumstances or conditions relating to, arising from,
associated with or attributable to any real property currently or, to the
Knowledge of Monsanto, formerly owned, operated or leased by Monsanto or
its Subsidiaries or operations thereon would reasonably be expected to
result in Environmental Liabilities.
(k) Intellectual Property. Except as would not reasonably be expected
to have a Material Adverse Effect on Monsanto and except as disclosed in
the Monsanto SEC Reports filed prior to the date of this Agreement, to the
Knowledge of Monsanto, (a) Monsanto and each of its Subsidiaries owns, or
is licensed to use (in each case, free and clear of any liens), all
Intellectual Property used in or necessary for the conduct of its business
as currently conducted; (b) the use of any Intellectual Property by
Monsanto and its Subsidiaries does not infringe on or otherwise violate the
rights of any Person and is in accordance with any applicable license
pursuant to which Monsanto or any Subsidiary acquired the right to use any
Intellectual Property; (c) no Person is challenging, infringing on or
otherwise violating any right of Monsanto or any of its Subsidiaries with
respect to any Intellectual Property owned by and/or licensed to Monsanto
or its Subsidiaries; and (d) neither Monsanto nor any of its Subsidiaries
has received any written notice of any pending claim with respect to any
Intellectual Property used by Monsanto and its Subsidiaries and no
Intellectual Property owned and/or licensed by Monsanto or its Subsidiaries
is being used or enforced in a manner that would result in the abandonment,
cancellation or unenforceability of such Intellectual Property.
(l) Monsanto Rights Agreement. The Board of Directors of Monsanto has
approved the New Monsanto Rights Agreement. Pursuant to the terms of the
Rights Agreement and the New Monsanto Rights Agreement, none of PNU, Merger
Sub or
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any of their respective affiliates shall become an "Acquiring Person", and
no "Share Acquisition Date" or "Distribution Date" (as such terms are
defined in the Monsanto Rights Agreement and the New Monsanto Rights
Agreement) will occur, by reason of the approval, execution or delivery of
this Agreement, the Monsanto Stock Option Agreement or the consummation of
the transactions contemplated hereby and thereby.
(m) Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any
broker's or finder's fee or any other similar commission or fee in
connection with any of the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of Monsanto except Goldman,
Sachs & Co. and Morgan Stanley Dean Witter & Co. Incorporated (the
"Monsanto Financial Advisors"), whose fees and expenses will be paid by
Monsanto in accordance with Monsanto's agreements with such firms, copies
of which have been provided to PNU.
(n) Opinions of Monsanto Financial Advisors. Monsanto has received
the opinions of the Monsanto Financial Advisors, dated the date of this
Agreement, to the effect that, as of such date, the Exchange Ratio is fair,
from a financial point of view, to Monsanto, copies of which opinions will
be made available to PNU.
(o) Accounting Matters. To the Knowledge of Monsanto as of the date
of this Agreement, neither Monsanto nor any or its affiliates has taken or
agreed to take any action on or prior to the date of this Agreement that
would prevent Monsanto from accounting for the Merger as a pooling of
interests.
(p) Taxes. Each of Monsanto and its Subsidiaries has filed all Tax
Returns required to have been filed (or extensions have been duly obtained)
and has paid all Taxes required to have been paid by it, except where
failure to file such Tax Returns or pay such Taxes would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Monsanto.
(q) Certain Contracts. As of the date hereof, except as set forth in
the Monsanto SEC Reports filed prior to the date of this Agreement, neither
Monsanto nor any of its Subsidiaries is a party to or bound by (i) any
"material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC) or (ii) any non-competition agreement or any
other agreement or arrangement that limits or otherwise restricts Monsanto
or any of its Subsidiaries or any of their respective affiliates or any
successor thereto or that would, after the Effective Time, to the Knowledge
of Monsanto, limit or restrict Newco or any of its affiliates (including
the Surviving Corporation) or any successor thereto, from engaging or
competing in any line of business or in any geographic area, which
agreement or arrangement would reasonably be expected to have a Material
Adverse Effect on Newco and its Subsidiaries (including the Surviving
Corporation and its Subsidiaries), taken together, after giving effect to
the Merger.
(r) Employee Benefits. (i) With respect to each Monsanto Plan, except
for Monsanto Plans the liabilities under which are reflected in the
financial statements included in the Monsanto SEC Reports or which,
individually or in the aggregate, would not have a Material Adverse Effect,
Monsanto has made available to PNU a true, correct and complete copy of:
(i) all plan documents, trust agreements, and insurance contracts and other
funding vehicles; (ii) the most recent Annual Report (Form 5500 Series) and
accompanying schedule, if any; (iii) the current summary
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plan description and any material modifications thereto, if any (in each
case, whether or not required to be furnished under ERISA); (iv) the most
recent annual financial report, if any; (v) the most recent actuarial
report, if any; and (vi) the most recent determination letter from the IRS,
if any.
(ii) With respect to each Monsanto Employee Benefit Plan, Monsanto and
its Subsidiaries have complied, and are now in compliance, with all
provisions of ERISA, the Code and all other laws and regulations applicable
to such Monsanto Employee Benefit Plans and each Monsanto Employee Benefit
Plan has been administered in accordance with its terms, in each case
except as would not have a Material Adverse Effect on Monsanto. Each
Monsanto Employee Benefit Plan that is required by ERISA to be funded is
fully funded in accordance with reasonable actuarial assumptions, except as
would not have a Material Adverse Effect on Monsanto.
(iii) All Monsanto Employee Benefit Plans subject to the laws of any
jurisdiction outside of the United States (A) have been maintained in
accordance with all applicable requirements, (B) if they are intended to
qualify for special tax treatment meet all requirements for such treatment,
and (C) if they are intended to be funded and/or book-reserved are fully
funded and/or book-reserved, as appropriate, based upon reasonable
actuarial assumptions, in each case except as would not have a Material
Adverse Effect on Monsanto.
SECTION 3.3 Representations and Warranties of Monsanto and Merger Sub.
Monsanto and Merger Sub represent and warrant to Monsanto as follows:
(a) Organization. Merger Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of Delaware. Merger
Sub is a direct wholly-owned subsidiary of Monsanto.
(b) Corporate Authorization. Merger Sub has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance
by Merger Sub of this Agreement and the consummation by Merger Sub of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Merger Sub. This Agreement has been duly
executed and delivered by Merger Sub and constitutes a valid and binding
agreement of Merger Sub, enforceable against it in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to
or affecting creditors generally, by general equity principles (regardless
of whether such enforceability is considered in a proceeding in equity or
at law).
(c) Non-Contravention. The execution, delivery and performance by
Merger Sub of this Agreement and the consummation by Merger Sub of the
transactions contemplated hereby do not and will not contravene or conflict
with the certificate of incorporation or by-laws of Merger Sub.
(d) No Business Activities. Merger Sub has not conducted any
activities other than in connection with the organization of Merger Sub,
the negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby. Merger Sub has no Subsidiaries.
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ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Covenants of PNU. During the period from the date of this
Agreement and continuing until the Effective Time, PNU agrees as to itself and
its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement, the Stock Option Agreements or the PNU Disclosure Schedule or as
required by a Governmental Entity of competent jurisdiction or to the extent
that Monsanto shall otherwise consent in writing, which consent shall not be
unreasonably withheld or delayed):
(a) Ordinary Course.
(i) PNU and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and
shall use all reasonable efforts to preserve intact their present lines of
business, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their ongoing businesses shall not be impaired in
any material respect at the Effective Time; provided, however, that no
action by PNU or its Subsidiaries with respect to matters specifically
addressed by any other provision of this Section 4.1 shall be deemed a
breach of this Section 4.1(a)(i) unless such action would constitute a
breach of one or more of such other provisions.
(ii) Other than in connection with acquisitions permitted by Section
4.1(e), PNU shall not, and shall not permit any of its Subsidiaries to, (A)
enter into any new material line of business or (B) incur or commit to any
capital expenditures or any obligations or liabilities in connection
therewith other than capital expenditures and obligations or liabilities in
connection therewith incurred or committed to in the ordinary course of
business consistent with past practice and which, together with all such
expenditures incurred or committed since December 1, 1999, are not in
excess of the amounts set forth in Section 4.1(a) of the PNU Disclosure
Schedule.
(b) Dividends; Changes in Share Capital. PNU shall not, and shall not
permit any of its Subsidiaries to, and shall not propose to, (i) declare or
pay any dividends on or make other distributions in respect of any of its
capital stock, except (A) the declaration and payment of regular quarterly
cash dividends not in excess of $0.27 per share of PNU Common Stock with
usual record and payment dates for such dividends in accordance with past
dividend practice, (B) the declaration and payment of regular quarterly
cash dividends not in excess of $629.69 per share on the PNU Convertible
Preferred Stock with usual record and payment dates for such dividends in
accordance with past dividend practice and (C) for dividends by wholly
owned Subsidiaries of PNU, (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock, except for any such transaction by a wholly owned Subsidiary
of PNU which remains a wholly owned Subsidiary after consummation of such
transaction or (iii) repurchase, redeem or otherwise acquire any shares of
its capital stock or any securities convertible into or exercisable for any
shares of its capital stock except for the purchase from time to time by
PNU of PNU Common Stock (and the associated PNU Rights) in the ordinary
course of business consistent with past practice in connection with the PNU
Employee Benefit Plans.
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(c) Issuance of Securities. PNU shall not, and shall not permit any
of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any
class, any PNU Voting Debt or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any such
shares or PNU Voting Debt, or enter into any agreement with respect to any
of the foregoing, other than (i) the issuance of PNU Common Stock (and the
associated PNU Rights) upon the exercise of PNU Stock Options or in
connection with other stock-based benefit plans outstanding on the date
hereof, in each case in accordance with their present terms, (ii) the
granting of PNU Stock Options and restricted stock awards in the ordinary
course of business consistent with past practice not in excess of the
amounts set forth in Section 4.1(c) of the PNU Disclosure Schedule, (iii)
issuances by a wholly owned Subsidiary of PNU of capital stock to such
Subsidiary's parent or another wholly owned Subsidiary of PNU, (iv)
pursuant to acquisitions set forth on the PNU Disclosure Schedule or the
financings therefor, (v) issuances in accordance with the PNU Rights
Agreement or (vi) issuances pursuant to the PNU Stock Option Agreement.
(d) Governing Documents. Except to the extent required to comply with
its obligations hereunder, required by law or required by the rules and
regulations of the NYSE, PNU shall not amend or propose to so amend its
certificate of incorporation, by-laws or other governing documents.
(e) No Acquisitions. Other than (i) pursuant to the Monsanto Stock
Option Agreement, (ii) acquisitions disclosed on the PNU Disclosure
Schedule and (iii) acquisitions for cash in existing or related lines of
business of PNU the fair market value of the total consideration (including
the value of indebtedness acquired or assumed) for which does not exceed
the amount specified in the aggregate for all such acquisitions in Section
4.1(e) of the PNU Disclosure Schedule, PNU shall not, and shall not permit
any of its Subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire or in-license
any assets or rights (other than the acquisition or in-license of assets
used in the operations of the business of PNU and its Subsidiaries in the
ordinary course consistent with past practice); provided, however, that the
foregoing shall not prohibit (x) internal reorganizations or consolidations
involving existing direct or indirect wholly owned Subsidiaries of PNU
which remain direct or indirect wholly owned Subsidiaries of PNU or (y) the
creation of new direct or indirect wholly owned Subsidiaries of PNU
organized to conduct or continue activities otherwise permitted by this
Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing direct or indirect wholly owned
Subsidiaries of PNU which remain direct or indirect wholly owned
Subsidiaries of PNU, (ii) dispositions referred to in PNU SEC Reports filed
prior to the date of this Agreement or (iii) as may be required by or in
conformance with law or regulation in order to permit or facilitate the
consummation of the transactions contemplated hereby or the transactions
disclosed in the PNU Disclosure Schedule, PNU shall not, and shall not
permit any of its Subsidiaries to, sell, lease, out-license, encumber or
otherwise dispose of, or agree to sell, lease, out-license, encumber or
otherwise dispose of, any of its assets (including capital stock of
Subsidiaries of PNU but excluding inventory in the
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ordinary course of business consistent with past practice) the fair market
value of the total consideration (including the value of the indebtedness
acquired or assumed) for which exceeds the amount specified in the
aggregate for all such dispositions in Section 4.1(f) of the PNU Disclosure
Schedule.
(g) Investments; Indebtedness. PNU shall not, and shall not permit
any of its Subsidiaries to, other than in connection with actions permitted
by Section 4.1(e), (i) make any loans, advances or capital contributions
to, or investments in, any other Person, other than (x) by PNU or a direct
or indirect wholly owned Subsidiary of PNU to or in PNU or any direct or
indirect wholly owned Subsidiary of PNU, (y) pursuant to any contract or
other legal obligation of PNU or any of its Subsidiaries as in effect at
the date of this Agreement or (z) in the ordinary course of business
consistent with past practice in an aggregate amount not in excess of the
aggregate amount specified in Section 4.1(g) of the PNU Disclosure Schedule
or (ii) create, incur, assume or suffer to exist any indebtedness,
issuances of debt securities, guarantees, loans or advances not in
existence as of the date of this Agreement except pursuant to the credit
facilities, indentures (but not in excess of amounts authorized for
issuance thereunder as of the date of this Agreement) and other
arrangements in existence on the date of this Agreement or trade debt and
commercial finance in the ordinary course of business consistent with past
practice, in each case as such credit facilities, indentures and other
arrangements and other existing indebtedness may be amended, extended,
modified, refunded, renewed or refinanced after the date of this Agreement
which does not increase the aggregate principal amount or amount of the
facility, as the case may be.
(h) Pooling; Tax-Free Qualification. PNU shall use its reasonable
best efforts not to, and shall use its reasonable best efforts not to
permit any of its Subsidiaries to, take any action (including any action
otherwise permitted by this Section 4.1) that would prevent or impede the
Merger from qualifying as a "pooling of interests" for accounting purposes
or as a "reorganization" under Section 368(a) of the Code; provided,
however, that nothing hereunder shall limit the ability of PNU to exercise
its rights and/or fulfill its obligations under the Stock Option
Agreements.
(i) Compensation. Other than as contemplated by Section 4.1(c) or
4.1(i) of the PNU Disclosure Schedule, and except in the ordinary course of
business consistent with past practice or as required by an existing
contract or agreement as in effect on the date hereof, PNU shall not (i)
increase the amount of compensation of any director or executive officer,
(ii) make any material increase in or commitment to increase materially any
employee benefits or (iii) adopt or make any commitment to adopt any
material new employee benefit plan or make any material contribution, other
than regularly scheduled contributions, to any PNU Benefit Plan.
(j) Accounting Methods; Income Tax Elections. Except as disclosed in
PNU SEC Reports filed prior to the date of this Agreement, or as required
by a Governmental Entity, PNU shall not change its methods of accounting in
effect at December 31, 1998, except as required by changes in GAAP as
concurred in by PNU's independent auditors. PNU shall not (i) change its
fiscal year or (ii) make any material Tax election, other than in the
ordinary course of business consistent with past practice.
(k) Certain Agreements. Except as described in Schedule 4.1(f), PNU
shall not, and shall not permit any of its Subsidiaries to, enter into any
agreement or
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arrangement that limits or otherwise restricts PNU or any of its
Subsidiaries or any of their respective affiliates or any successor thereto
or that could, after the Effective Time, limit or restrict Newco or any of
its affiliates (including the Surviving Corporation) or any successor
thereto, from engaging or competing in any line of business or in any
geographic area which agreement or arrangement would reasonably be expected
to have a Material Adverse Effect on Newco and its Subsidiaries (including
the Surviving Corporation and its Subsidiaries), taken together, after
giving effect to the Merger.
(l) PNU Rights Agreement. PNU shall not amend, modify or waive any
provision of the PNU Rights Agreement, and shall not take any action to
redeem the PNU Rights or render the PNU Rights inapplicable to any
transaction, other than to permit another transaction that the Board of
Directors of PNU has determined is a Superior Proposal (as defined in
Section 8.11) to be consummated after termination of this Agreement.
(m) Funding of Benefits. PNU shall not make any contributions to any
grantor trust or other funding arrangement for any nonqualified deferred
compensation that is considered "unfunded" for purposes of ERISA.
SECTION 4.2 Covenants of Monsanto. During the period from the date of
this Agreement and continuing until the Effective Time, Monsanto agrees as to
itself and its Subsidiaries that (except as expressly contemplated or permitted
by this Agreement, the Stock Option Agreements or the Monsanto Disclosure
Schedule or as required by a Governmental Entity of competent jurisdiction or to
the extent that PNU shall otherwise consent in writing, which consent shall not
be unreasonably withheld or delayed):
(a) Ordinary Course.
(i) Monsanto and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and
shall use all reasonable efforts to preserve intact their present lines of
business, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their ongoing businesses shall not be impaired in
any material respect at the Effective Time other than in connection with
the divestiture of Monsanto's Nutrition and Consumer Businesses or as
contemplated by the Monsanto Agribusiness's Ag Going Forward Plan (as
provided to PNU on or prior to the date hereof); provided, however, that no
action by Monsanto or its Subsidiaries with respect to matters specifically
addressed by any other provision of this Section 4.2 shall be deemed a
breach of this Section 4.2(a)(i) unless such action would constitute a
breach of one or more of such other provisions.
(ii) Other than in connection with acquisitions permitted by Section
4.2(e), Monsanto shall not, and shall not permit any of its Subsidiaries
to, (A) enter into any new material line of business or (B) incur or commit
to any capital expenditures or any obligations or liabilities in connection
therewith other than capital expenditures and obligations or liabilities in
connection therewith incurred or committed to in the ordinary course of
business consistent with past practice and which, together with all such
expenditures incurred or committed since December 1, 1999, are not in
excess of the amounts set forth in Section 4.2(a) of the Monsanto
Disclosure Schedule.
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(b) Dividends; Changes in Share Capital. Monsanto shall not, and
shall not permit any of its Subsidiaries to, and shall not propose to, (i)
declare or pay any dividends on or make other distributions in respect of
any of its capital stock, except (A) the declaration and payment of regular
quarterly cash dividends not in excess of $.03 per share of Monsanto Common
Stock with usual record and payment dates for such dividends in accordance
with past dividend practice and (B) for dividends by wholly owned
Subsidiaries of Monsanto, (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock, except for any such transaction by a wholly owned Subsidiary
of Monsanto which remains a wholly owned Subsidiary after consummation of
such transaction or (iii) repurchase, redeem or otherwise acquire any
shares of its capital stock or any securities convertible into or
exercisable for any shares of its capital stock except for the purchase
from time to time by Monsanto of Monsanto Common Stock (and the associated
Monsanto Rights) in the ordinary course of business consistent with past
practice in connection with the Monsanto Employee Benefit Plans.
(c) Issuance of Securities. Monsanto shall not, and shall not permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital stock of any
class, any Monsanto Voting Debt or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any such
shares or Monsanto Voting Debt, or enter into any agreement with respect to
any of the foregoing, other than (i) the issuance of Monsanto Common Stock
(and the associated Monsanto Rights) upon the exercise of Monsanto Stock
Options or in connection with other stock-based benefit plans outstanding
on the date hereof, in each case in accordance with their present terms,
(ii) issuances by a wholly owned Subsidiary of Monsanto of capital stock to
such Subsidiary's parent or another wholly owned subsidiary of Monsanto,
(iii) the granting of Monsanto Stock Options and restricted stock awards in
the ordinary course of business consistent with past practice not in excess
of the amounts set forth in Section 4.2(c) of the Monsanto Disclosure
Schedule, (iv) pursuant to acquisitions set forth on the Monsanto
Disclosure Schedule or the financings therefor, (v) issuances in accordance
with the Monsanto Rights Agreement or the New Monsanto Rights Agreement or
(vi) issuances pursuant to the Monsanto Stock Option Agreement.
(d) Governing Documents. Except to the extent required to comply with
its obligations hereunder, required by law or required by the rules and
regulations of the NYSE, Monsanto shall not amend or propose to so amend
its certificate of incorporation, by-laws or other governing documents.
(e) No Acquisitions. Other than (i) pursuant to the PNU Stock Option
Agreement, (ii) acquisitions disclosed on the Monsanto Disclosure Schedule
and (iii) acquisitions for cash in existing or related lines of business of
Monsanto the fair market value of the total consideration (including the
value of indebtedness acquired or assumed) for which does not exceed the
amount specified in the aggregate for all such acquisitions in Section
4.2(e) of the Monsanto Disclosure Schedule, Monsanto shall not, and shall
not permit any of its Subsidiaries to, acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets or in-license any assets or rights
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(other than the acquisition or in-licenses of assets used in the operations
of the business of Monsanto and its Subsidiaries in the ordinary course
consistent with past practice); provided, however, that the foregoing shall
not prohibit (x) internal reorganizations or consolidations involving
existing direct or indirect wholly owned Subsidiaries of Monsanto which
remain direct or indirect wholly owned Subsidiaries of Monsanto or (y) the
creation of new direct or indirect wholly owned Subsidiaries of Monsanto
organized to conduct or continue activities otherwise permitted by this
Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing direct or indirect wholly owned
Subsidiaries of Monsanto which remain direct or indirect wholly owned
Subsidiaries of Monsanto, (ii) dispositions referred to in Monsanto SEC
Reports filed prior to the date of this Agreement, (iii) as may be required
by or in conformance with law or regulation in order to permit or
facilitate the consummation of the transactions contemplated hereby or the
transactions disclosed in the Monsanto Disclosure Schedule or (iv)
disposition of Monsanto's Nutrition and Consumer Businesses on commercially
reasonable terms as determined by the Board of Directors of Monsanto in the
exercise of its good faith business judgment, Monsanto shall not, and shall
not permit any of its Subsidiaries to, sell, lease, out-license, encumber
or otherwise dispose of, or agree to sell, lease, out-license, encumber or
otherwise dispose of, any of its assets (including capital stock of
Subsidiaries of Monsanto but excluding inventory in the ordinary course of
business consistent with past practice) the fair market value of the total
consideration (including the value of the indebtedness acquired or assumed)
for which exceeds the amount specified in the aggregate for all such
dispositions in Section 4.2(f) of the Monsanto Disclosure Schedule.
(g) Investments; Indebtedness. Monsanto shall not, and shall not
permit any of its Subsidiaries to, other than in connection with actions
permitted by Section 4.2(e), (i) make any loans, advances or capital
contributions to, or investments in, any other Person, other than (x) by
Monsanto or a direct or indirect wholly owned Subsidiary of Monsanto to or
in Monsanto or any direct or indirect wholly owned Subsidiary of Monsanto,
(y) pursuant to any contract or other legal obligation of Monsanto or any
of its Subsidiaries as in effect at the date of this Agreement or (z) in
the ordinary course of business consistent with past practice in an
aggregate amount not in excess of the aggregate amount specified in Section
4.2(g) of the Monsanto Disclosure Schedule or (ii) create, incur, assume or
suffer to exist any indebtedness, issuances of debt securities, guarantees,
loans or advances not in existence as of the date of this Agreement except
pursuant to the credit facilities, indentures (but not in excess of amounts
authorized for issuance thereunder as of the date of this Agreement) and
other arrangements in existence on the date of this Agreement or trade debt
and commercial finance in the ordinary course of business consistent with
past practice, in each case as such credit facilities, indentures and other
arrangements and other existing indebtedness may be amended, extended,
modified, refunded, renewed or refinanced after the date of this Agreement
which does not increase the aggregate principal amount or amount of the
facility, as the case may be.
(h) Pooling; Tax-Free Qualification. Monsanto shall use its
reasonable best efforts not to, and shall use its reasonable best efforts
not to permit any of its Subsidiaries to, take any action (including any
action otherwise permitted by this Section 4.2) that would prevent or
impede the Merger from qualifying as a "pooling
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of interests" for accounting purposes or as a "reorganization" under
Section 368(a) of the Code; provided, however, that nothing hereunder shall
limit the ability of Monsanto to exercise its rights and/or fulfill its
obligations under the Stock Option Agreements.
(i) Compensation. Other than as contemplated by Sections 4.2(c) or
4.2(i) of the Monsanto Disclosure Schedule, and except in the ordinary
course of business consistent with past practice or as required by an
existing contract or agreement as in effect on the date hereof, Monsanto
shall not (i) increase the amount of compensation of any director or
executive officer, (ii) make any material increase in or commitment to
increase materially any employee benefits or (iii) adopt or make any
commitment to adopt any material new employee benefit plan or make any
material contribution, other than regularly scheduled contributions, to any
Monsanto Benefit Plan.
(j) Accounting Methods; Income Tax Elections. Except as disclosed in
Monsanto SEC Reports filed prior to the date of this Agreement, or as
required by a Governmental Entity, Monsanto shall not change its methods of
accounting in effect at December 31, 1998, except as required by changes in
GAAP as concurred in by Monsanto's independent auditors. Monsanto shall not
(i) change its fiscal year or (ii) make any material Tax election, other
than in the ordinary course of business consistent with past practice.
(k) Certain Agreements. Except as described in Schedule 4.2(f),
Monsanto shall not, and shall not permit any of its Subsidiaries to, enter
into any agreement or arrangement that limits or otherwise restricts
Monsanto or any of its Subsidiaries or any of their respective affiliates
or any successor thereto, or that could, after the Effective Time, limit or
restrict Newco or any of its affiliates (including the Surviving
Corporation) or any successor thereto, from engaging or competing in any
line of business or in any geographic area which agreement or arrangement
would reasonably be expected to have a Material Adverse Effect on Newco and
its Subsidiaries (including the Surviving Corporation and its
Subsidiaries), taken together, after giving effect to the Merger.
(l) Monsanto Rights Agreement. Monsanto shall not amend, modify or
waive any provision of the Monsanto Rights Agreement or the New Monsanto
Rights Agreement, and shall not take any action to redeem the Monsanto
Rights or render the Monsanto Rights inapplicable to any transaction, other
than to permit another transaction that the Board of Directors of Monsanto
has determined is a Superior Proposal to be consummated after termination
of this Agreement.
(m) Funding of Benefits. Monsanto shall not make any contributions to
any grantor trust or other funding arrangement for any nonqualified
deferred compensation that is considered "unfunded" for purposes of ERISA.
SECTION 4.3 Acquisitions. If (i) a party makes a bona fide request for
consent of the other party for an acquisition that would otherwise by precluded
by Section 4.1(e) or Section 4.2(e), (ii) the other party does not give such
consent and (iii) this Agreement is terminated pursuant to Section 7.1, such
other party shall not acquire or offer to acquire, directly or indirectly, the
business that was the subject of such request for a period of one year following
such termination. In no event shall the restrictions contained in the preceding
sentence apply with respect to more than four acquisitions requested by any
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party. No party may request consent for an acquisition of a business that has
been the subject of a request for consent by the other party.
SECTION 4.4 Governmental Filings. Each party shall (a) confer on a
regular and frequent basis with the other and (b) report (to the extent
permitted by law or regulation or any applicable confidentiality agreement) on
operational matters. Monsanto and PNU shall file all reports required to be
filed by each of them with the SEC (and all other Governmental Entities) between
the date of this Agreement and the Effective Time and shall (to the extent
permitted by law or regulation or any applicable confidentiality agreement)
deliver to the other party copies of all such reports, announcements and
publications promptly after the same are filed.
SECTION 4.5 Control of Other Party's Business. Nothing contained in this
Agreement shall give Monsanto, directly or indirectly, the right to control or
direct PNU's operations prior to the Effective Time. Nothing contained in this
Agreement shall give PNU, directly or indirectly, the right to control or direct
Monsanto's operations prior to the Effective Time. Prior to the Effective Time,
each of Monsanto and PNU shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of Proxy Statement; Stockholders Meetings. (a) As
promptly as reasonably practicable following the date hereof, PNU and Monsanto
shall prepare and file with the SEC proxy materials which shall constitute the
Joint Proxy Statement/Prospectus (such proxy statement/prospectus, and any
amendments or supplements thereto, the "Joint Proxy Statement/Prospectus") and
Monsanto shall prepare and file a registration statement on Form S-4 with
respect to the issuance of Monsanto Common Stock and Monsanto Convertible
Preferred Stock in the Merger (the "Form S-4"). The Joint Proxy
Statement/Prospectus will be included in and will constitute a part of the Form
S-4 as Monsanto's prospectus. Each of PNU and Monsanto shall use reasonable best
efforts to have the Form S-4 declared effective by the SEC as promptly as
reasonably practicable after filing with the SEC and to keep the Form S-4
effective as long as is necessary to consummate the Merger and the transactions
contemplated thereby. PNU and Monsanto shall, as promptly as practicable after
receipt thereof, provide the other party copies of any written comments and
advise the other party of any oral comments, with respect to the Joint Proxy
Statement/Prospectus received from the SEC. Monsanto shall provide PNU with a
reasonable opportunity to review and comment on any amendment or supplement to
the Form S-4 prior to filing such with the SEC, and with a copy of all such
filings made with the SEC. Notwithstanding any other provision herein to the
contrary, no amendment or supplement (including by incorporation by reference)
to the Joint Proxy Statement/Prospectus or the Form S-4 shall be made without
the approval of both parties, which approval shall not be unreasonably withheld
or delayed; provided, that with respect to documents filed by a party which are
incorporated by reference in the Form S-4 or Joint Proxy Statement/Prospectus,
this right of approval shall apply only with respect to information relating to
the other party or its business, financial condition or results of operations.
PNU will use reasonable best efforts to cause the Joint Proxy
Statement/Prospectus to be mailed to PNU stockholders, and Monsanto will use
reasonable best efforts to cause the Joint Proxy Statement/Prospectus to be
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mailed to Monsanto's stockholders, in each case as promptly as practicable after
the Form S-4 is declared effective under the Securities Act. Monsanto shall also
take any action (other than qualifying to do business in any jurisdiction in
which it is not now so qualified or to file a general consent to service of
process) required to be taken under any applicable state securities laws in
connection with the Share Issuance and PNU shall furnish all information
concerning PNU and the holders of PNU Common Stock and PNU Convertible Preferred
Stock as may be reasonably requested in connection with any such action. Each
party will advise the other party, promptly after it receives notice thereof, of
the time when the Form S-4 has become effective, the issuance of any stop order,
the suspension of the qualification of the Monsanto Common Stock or the Monsanto
Convertible Preferred Stock issuable in connection with the Merger for offering
or sale in any jurisdiction, or any request by the SEC for amendment of the
Joint Proxy Statement/Prospectus or the Form S-4. If at any time prior to the
Effective Time any information relating to PNU or Monsanto, or any of their
respective affiliates, officers or directors, should be discovered by PNU or
Monsanto which should be set forth in an amendment or supplement to any of the
Form S-4 or the Joint Proxy Statement/Prospectus so that any of such documents
would not include any misstatement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which the y were made, not misleading, the party which
discovers such information shall promptly notify the other party hereto and, to
the extent required by law, rules or regulations, an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC and
disseminated to the stockholders of PNU and Monsanto.
(b) Subject to Section 5.5, Monsanto shall, as promptly as reasonably
practicable following the execution of this Agreement, duly take all lawful
action to call, give notice of, convene and hold a meeting of its stockholders
(the "Monsanto Stockholders Meeting") (which meeting the parties intend to be
held no later than May 15, 2000 or as soon as practicable thereafter) for the
purpose of obtaining the Required Monsanto Votes with respect to the Share
Issuance and the Charter Amendment, and shall take all lawful action to solicit
the approval of the Share Issuance and the Charter Amendment by the Required
Monsanto Votes; and the Board of Directors of Monsanto shall, subject to its
fiduciary duties under applicable law, recommend approval of the Share Issuance
and the Charter Amendment by the stockholders of Monsanto to the effect as set
forth in Section 3.2(f), and shall not, subject to its fiduciary duties under
applicable law, withdraw, modify or materially qualify in any manner adverse to
PNU such recommendation or take any action or make any statement in connection
with the Monsanto Stockholders Meeting materially inconsistent with such
recommendation (any such withdrawal, modification, qualification or statement
(whether or not required), an "Adverse Change in the Monsanto Recommendation").
(c) Subject to Section 5.5, PNU shall, as promptly as reasonably
practicable following the execution of this Agreement, duly take all lawful
action to call, give notice of, convene and hold a meeting of its stockholders
(the "PNU Stockholders Meeting") (which meeting the parties intend to be held no
later than May 15, 2000 or as soon as practicable thereafter) for the purpose of
obtaining the Required PNU Vote with respect to the transactions contemplated by
this Agreement, and shall take all lawful action to solicit the adoption of this
Agreement by the Required PNU Vote; and the Board of Directors of PNU shall,
subject to its fiduciary duties under applicable law, recommend adoption of this
Agreement by the stockholders of PNU to the effect as set forth in Section
3.1(f), and shall not, subject to its fiduciary duties under applicable law,
withdraw,
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modify or materially qualify in any manner adverse to Monsanto such
recommendation or take any action or make any statement in connection with the
PNU Stockholders Meeting materially inconsistent with such recommendation (any
such withdrawal, modification, qualification or statement (whether of not
required), an "Adverse Change in the PNU Recommendation").
SECTION 5.2 Newco Board of Directors; Executives; Name; Headquarters;
Monsanto Agribusiness. (a) At or prior to the Effective Time, the parties will
take all action necessary such that (i) the Board of Directors of Newco as of
the Effective Time consists of 20 members to be determined prior to the mailing
of the Joint Proxy Statement/Prospectus, 10 of whom will be designated by
Monsanto and 10 of whom will be designated by PNU, such designees to be current
directors of PNU and Monsanto or such other persons as are reasonably acceptable
to the other party, (ii) each of the executive committee, the audit committee,
the compensation committee, the nominating committee and any other committees of
the Board of Directors of Newco as of the Effective Time will consist of an
equal number of members who are directors designated by PNU and directors
designated by Monsanto, (iii) Robert B. Shapiro shall be appointed non-executive
Chairman of the Board of Directors of Newco and Fred Hassan shall be appointed
Chief Executive Officer of Newco, each as of the Effective Time, and (iv) at and
effective as of 18 months after the Effective Time, if Mr. Hassan is the Chief
Executive Officer of Newco, Mr. Hassan shall be become Chairman of the Board and
Chief Executive Officer of Newco unless otherwise determined at such time by the
affirmative vote of 80% of the members of Newco's Board of Directors. If Mr.
Shapiro is not the Chief Executive Officer of Monsanto and/or Fred Hassan is not
the Chief Executive Officer of PNU, in each case immediately prior to the
Effective Time, PNU and Monsanto will use their reasonable best efforts to agree
upon an individual or individuals to replace Mr. Shapiro and/or Mr. Hassan as
non-executive Chairman and/or Chief Executive Officer, as the case may be.
Without limiting the foregoing, the parties intend that the twenty most senior
executive positions of Newco (on a combined basis with its Subsidiaries),
excluding the Chairman and the Chief Executive Officer, shall be held by a
combination of ten executives from Monsanto and ten executives from PNU.
(b) The parties intend that Monsanto shall change its name as of the
Effective Time to a new name to be mutually agreed upon by Monsanto and PNU
prior to the Effective Time. Newco shall use the "Monsanto" name for the
Monsanto Agribusiness (as defined in Section 8.11).
(c) Following the Effective Time, the parties intend that (i) Newco shall
maintain its principal corporate offices and the headquarters of its
pharmaceutical segment in Peapack, New Jersey and (ii) Newco shall maintain the
headquarters of the Monsanto Agribusiness in St. Louis, Missouri.
(d) The parties intend, as promptly as practicable following the Closing,
that Newco would reorganize the Monsanto Agribusiness as a direct or indirect
subsidiary of Newco and sell up to 19.9% of such subsidiary by means of an
initial public offering on the New York Stock Exchange. The parties contemplate
that at the time of any such public offering, such subsidiary would have a sound
capital structure, after giving effect to the repayment of indebtedness with the
proceeds of such initial public offering. The parties intend that such
subsidiary would have a board of directors at the time of such public offering
consisting of 3 members designated by directors of Newco who are former members
of the Board of Directors of Monsanto, 3 members designated by directors of
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Newco who are former members of the Board of Directors of PNU and two members
who are independent directors and designated by the entire Board of Directors of
Newco.
(e) Subject to the Required Monsanto Votes, Monsanto shall take all
necessary action to cause the Charter Amendment (Monsanto's Restated Certificate
of Incorporation, as so amended, the "Newco Charter") and the By-laws (the
"Newco By-laws"), in substantially the forms attached hereto as Exhibits
5.2(e)(1) and 5.2(e)(2), respectively, to be effective at and as of the
Effective Time.
SECTION 5.3 Access to Information. (a) Upon reasonable notice, each party
shall (and shall cause its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of the other
party reasonable access during normal business hours, during the period prior to
the Effective Time, to all its properties, books, contracts, commitments,
records, officers and employees and, during such period, such party shall (and
shall cause its Subsidiaries to) furnish promptly to the other party (a) a copy
of each report, schedule, registration statement and other document filed,
published, announced or received by it during such period pursuant to the
requirements of Federal or state securities laws, as applicable (other than
documents which such party is not permitted to disclose under applicable law),
and (b) consistent with its legal obligations, all other information concerning
it and its business, properties and personnel as such other party may reasonably
request; provided, however, that either party may restrict the foregoing access
to the extent that any law, treaty, rule or regulation of any Governmental
Entity applicable to such party requires such party or its Subsidiaries to
restrict access to any properties or information. The parties will hold any such
information which is non-public in confidence to the extent required by, and in
accordance with, the provisions of the letter dated October 13, 1999 between
Monsanto and PNU (as it may be amended or supplemented, the "Confidentiality
Agreement"). Any investigation by PNU or Monsanto shall not affect the
representations and warranties of Monsanto or PNU, as the case may be.
(b) Between the date hereof and the Effective Time, Monsanto and PNU shall
provide each other with such documentation and information regarding the
Monsanto Employee Benefit Plans and the PNU Employee Benefit Plans,
respectively, as the other party shall reasonably request, as promptly as is
reasonably practicable.
SECTION 5.4 Reasonable Best Efforts. (a) Subject to the terms and
conditions of this Agreement, each party will use its reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the Merger and the other transactions contemplated by this Agreement
as soon as practicable after the date hereof, including (i) preparing and filing
as promptly as practicable all documentation to effect all necessary
applications, notices, petitions, filings, tax ruling requests and other
documents and to obtain as promptly as practicable all consents, waivers,
licenses, orders, registrations, approvals, permits, Tax rulings and
authorizations necessary or advisable to be obtained from any third party and/or
any Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement and (ii) taking all reasonable steps
as may be necessary to obtain all such material consents, waivers, licenses,
registrations, permits, authorizations, Tax rulings, orders and approvals. In
furtherance and not in limitation of the foregoing, each party hereto agrees to
make an appropriate filing of a Notification and Report Form pursuant to the HSR
Act and any other Regulatory Law (as defined in Section 5.4(b)) with respect to
the transactions contemplated hereby as promptly as practicable after the date
hereof and to supply as promptly as practicable any
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additional information and documentary material that may be requested pursuant
to the HSR Act and any other Regulatory Law and to take all other actions
necessary to cause the expiration or termination of the applicable waiting
periods under the HSR Act as soon as practicable. Nothing in this Section 5.4
shall require any of PNU and its Subsidiaries or Monsanto and its Subsidiaries
to sell, hold separate or otherwise dispose of or conduct their business in a
specified manner, or agree to sell, hold separate or otherwise dispose of or
conduct their business in a specified manner, or permit the sale, holding
separate or other disposition of, any assets of PNU, Monsanto or their
respective Subsidiaries or the conduct of their business in a specified manner,
whether as a condition to obtaining any approval from a Governmental Entity or
any other Person or for any other reason, if such sale, holding separate or
other disposition or the conduct of their business in a specified manner is not
conditioned on the Closing or would reasonably be expected to have a Material
Adverse Effect on Newco and its Subsidiaries (including the Surviving
Corporation and its Subsidiaries), taken together, after giving effect to the
Merger.
(b) Each of PNU and Monsanto shall, in connection with the efforts
referenced in Section 5.4(a) to obtain all requisite material approvals and
authorizations for the transactions contemplated by this Agreement under the HSR
Act or any other Regulatory Law, use its reasonable best efforts to (i)
cooperate in all respects with each other in connection with any filing or
submission and in connection with any investigation or other inquiry, including
any proceeding initiated by a private party, (ii) promptly inform the other
party of any communication received by such party from, or given by such party
to, the Antitrust Division of the Department of Justice (the "DOJ"), the Federal
Trade Commission (the "FTC") or any other Governmental Entity and of any
material communication received or given in connection with any proceeding by a
private party, in each case regarding any of the transactions contemplated
hereby, and (iii) permit the other party to review any communication given by it
to, and consult with each other in advance of any meeting or conference with,
the DOJ, the FTC or any such other Governmental Entity or, in connection with
any proceeding by a private party, with any other Person, and to the extent
appropriate or permitted by the DOJ, the FTC or such other applicable
Governmental Entity or other Person, give the other party the opportunity to
attend and participate in such meetings and conferences. For purposes of this
Agreement, "Regulatory Law" means the Sherman Act, as amended, Council
Regulation No. 4064/89 of the European Community, as amended (the "EC Merger
Regulation"), the Clayton Act, as amended, the HSR Act, the Federal Trade
Commission Act, as amended, and all other federal, state and foreign, if any,
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines and other laws that are designed or intended to prohibit, restrict or
regulate (i) foreign investment or (ii) actions having the purpose or effect of
monopolization or restraint of trade or lessening of competition.
(c) Subject to the last sentence of Section 5.4(a), if any administrative
or judicial action or proceeding, including any proceeding by a private party,
is instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Regulatory Law, each of PNU
and Monsanto shall cooperate in all respects with each other and use its
respective reasonable best efforts, including without limitation, selling,
holding separate or otherwise disposing of or conducting their business in a
specified manner, or agreeing to sell, hold separate or otherwise dispose of or
conduct their business in a specified manner or permitting the sale, holding
separate or other disposition of, any assets of PNU, Monsanto or their
respective Subsidiaries or the conducting of their business in a specified
manner, in order to contest and resist any such action or proceeding (or the
threat thereof) and to have vacated, lifted, reversed or
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overturned any decree, judgment, injunction or other order, whether temporary,
preliminary or permanent, that is in effect and that prohibits, prevents or
restricts consummation of the transactions contemplated by this Agreement.
(d) Each of PNU and Monsanto shall cooperate with each other in obtaining
opinions of Davis Polk & Wardwell, counsel to PNU, and Arnold & Porter, special
tax counsel to Monsanto, to satisfy the conditions set forth in Section 6.2(c)
and Section 6.3(c). In connection therewith, each of PNU and Monsanto shall
deliver to such counsel customary representation letters substantially in the
forms attached hereto as Exhibit 6.2(c)(2) and Exhibit 6.2(c)(3) or otherwise in
form and substance reasonably satisfactory to such counsel.
SECTION 5.5 Acquisition Proposals. Without limitation on any of such
party's other obligations under this Agreement (including under Article IV
hereof), but except to the extent specifically permitted to such party pursuant
to its Disclosure Schedules under subsections (e) and (f) of Sections 4.1 or
4.2, as the case may be, each of PNU and Monsanto agrees that neither it nor any
of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall use its reasonable best efforts to cause
its and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or
knowingly facilitate (including by way of furnishing information) any inquiries
or the making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving it, or any purchase or
sale of the consolidated assets (including without limitation stock of
Subsidiaries) of such party and its Subsidiaries, taken as a whole, having an
aggregate value equal to 10% or more of the market capitalization of such party,
or any purchase or sale of, or tender or exchange offer for, 10% or more of the
equity securities of such party (any such proposal or offer (other than a
proposal or offer made by the other party or an affiliate thereof) being
hereinafter referred to as an "Acquisition Proposal"). Each party agrees that it
will promptly inform the other party of its receipt of any inquiries, offers or
proposals received by any of its directors or executive officers relating to an
Acquisition Proposal. Each of PNU and Monsanto further agrees that neither it
nor any of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall use its reasonable best efforts to cause
its and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, have any discussion with or
provide any confidential information or data to any Person relating to an
Acquisition Proposal, or engage in any negotiations concerning an Acquisition
Proposal, or knowingly facilitate any effort or attempt to make or implement an
Acquisition Proposal or accept an Acquisition Proposal. Notwithstanding anything
in this Agreement to the contrary, each of PNU and Monsanto or its respective
Board of Directors shall be permitted to (A) to the extent applicable, comply
with Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act with regard to
an Acquisition Proposal, (B) in response to an unsolicited bona fide written
Acquisition Proposal by any Person, recommend approval of such an unsolicited
bona fide written Acquisition Proposal to its stockholders or effect an Adverse
Change in the PNU Recommendation or an Adverse Change in the Monsanto
Recommendation, as the case may be, or (C) engage in any discussions or
negotiations with, or provide any information to, any Person in response to an
unsolicited bona fide written Acquisition Proposal by any such Person, if and
only to the extent that, in any such case as is referred to in clause (B) or
(C), (i) its Stockholders Meeting shall not have occurred, (ii) its Board of
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Directors (x) in the case of clause (B) above, concludes in good faith that such
Acquisition Proposal constitutes a Superior Proposal and provides written notice
of termination of this Agreement pursuant to Section 7.1(f) or (y) in the case
of clause (C) above concludes in good faith that such Acquisition Proposal could
reasonably be expected to result in a Superior Proposal, (iii) prior to
providing any information or data to any Person in connection with an
Acquisition Proposal by any such Person, its Board of Directors receives from
such Person an executed confidentiality agreement containing confidentiality
terms at least as stringent as those contained in the Confidentiality Agreement,
and (iv) prior to providing any information or data to any Person or entering
into discussions or negotiations with any Person, such party notifies the other
party promptly of such inquiries, proposals or offers received by, any such
information requested from, or any such discussions or negotiations sought to be
initiated or continued with, it, its Subsidiaries, its or its Subsidiaries'
officers or directors, or any of its agents or representatives indicating, in
connection with such notice, the name of such Person and the material terms and
conditions of any inquiries, proposals or offers. Each of PNU and Monsanto
agrees that it will promptly keep the other party informed of the status and
terms of any such proposals or offers and the status and terms of any such
discussions or negotiations. Each of PNU and Monsanto agrees that it will, and
will cause its and its Subsidiaries' officers, directors, agents and
representatives to, immediately cease and cause to be terminated any activities,
discussions or negotiations existing as of the date of this Agreement with any
parties conducted heretofore with respect to any Acquisition Proposal, and
request the return or destruction of all non-public information furnished in
connection therewith. Each of PNU and Monsanto agrees that it will use
reasonable best efforts to promptly inform its directors, officers, key
employees, agents and representatives of the obligations undertaken in this
Section 5.5. Nothing in this Section 5.5 shall (x) permit PNU or Monsanto to
terminate this Agreement (except as specifically provided in Article VII hereof)
or (y) affect any other obligation of PNU or Monsanto under this Agreement.
SECTION 5.6 Employee Benefits Matters. (a) Continuation and Comparability
of Benefits. Following the Effective Time, Newco shall honor, and cause the
Surviving Corporation to honor, all Monsanto Employee Benefit Plans and PNU
Employee Benefit Plans and the related funding arrangements of each in
accordance with their respective terms and shall interpret such Monsanto
Employee Benefit Plans and PNU Employee Benefit Plans in accordance with the
past practice of Monsanto or PNU, as the case may be. From the Effective Time
until December 31, 2001, Newco and the Surviving Corporation do not intend to
reduce base salary, annual bonus opportunities or long-term incentive
opportunities for employees of PNU, Monsanto and their respective Subsidiaries,
except as otherwise determined by the Board of Directors or Compensation
Committee of Newco. From the Effective Time until December 31, 2001, Newco and
the Surviving Corporation shall provide employee benefits under employee benefit
plans to the employees and former employees of PNU and Monsanto and their
respective Subsidiaries (the "Newco Employees") that are in the aggregate no
less favorable than those provided to such persons pursuant to the employee
benefit plans of each of Monsanto and PNU in effect on the date hereof
(excluding equity and equity-based compensation). Without limiting the
generality of the foregoing, Newco shall provide severance pay and benefits to
Newco Employees whose employment terminates on or before December 31, 2001 in
accordance with the following: (i) with respect to such Newco Employees who are
employed by Monsanto or any of its Subsidiaries immediately before the Effective
Time, not less favorable than those provided under the applicable Monsanto
Employee Benefit Plans; and (ii) with respect to such Newco Employees who are
employed by PNU or any
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of its Subsidiaries immediately before the Effective Time, not less favorable
than those provided under the applicable PNU Employee Benefit Plans, in each
case as interpreted in accordance with past practice of Monsanto and PNU,
respectively. Nothing herein shall prohibit any changes to the Monsanto Employee
Benefit Plans and PNU Employee Benefit Plans that may be (i) required by law
(including, without limitation, any applicable qualification requirements of
Section 401(a) of the Code), (ii) necessary as a technical matter to reflect the
transactions contemplated hereby or (iii) required for Newco to provide for or
permit investment in its securities. Furthermore, nothing herein shall require
Newco to continue any particular Monsanto Employee Benefit Plan or PNU Employee
Benefit Plan or prevent the amendment or termination thereof (subject to the
maintenance, in the aggregate, of the benefits as provided in this Section
5.6(a) and to the obligation to provide severance pay and benefits as provided
above).
(b) Pre-Existing Limitations; Deductibles; Service Credit. With respect to
any employee benefit plans in which any Newco Employees first become eligible to
participate, on or after the Effective Time, and in which the Newco Employees
did not participate prior to the Effective Time (the "New Newco Plans"), Newco
shall: (A) waive all pre-existing conditions, exclusions and waiting periods
with respect to participation and coverage requirements applicable to the Newco
Employees under any New Newco Plans in which such employees may be eligible to
participate after the Effective Time, except to the extent such pre-existing
conditions, exclusions or waiting periods would apply under the analogous
Monsanto Employee Benefit Plan or PNU Employee Benefit Plan, as the case may be;
(B) provide each Newco Employee with credit for any co-payments and deductibles
paid prior to the Effective Time (to the same extent such credit was given under
the analogous employee benefit plan prior to the Effective Time) in satisfying
any applicable deductible or out-of-pocket requirements under any New Newco
Plans in which such employees may be eligible to participate after the Effective
Time, and (C) recognize all service of the Newco Employees with PNU and
Monsanto, respectively, for all purposes (including, without limitation,
purposes of eligibility to participate, vesting credit, entitlement to benefits,
and, except with respect to defined benefit pension plans, benefit accrual) in
any New Newco Plan in which such employees may be eligible to participate after
the Effective Time, to the extent such service is taken into account under the
applicable New Newco Plan; provided, that the foregoing shall not apply to the
extent it would result in duplication of benefits.
(c) Grantor Trusts. Monsanto and PNU shall each take all steps (if any)
that are necessary or appropriate to amend any grantor trusts to which Monsanto
or any of its Subsidiaries, or PNU or any of its Subsidiaries, as applicable, is
a party so that no contributions to such trusts are required to be made as a
result of or in connection with the consummation of the transactions
contemplated hereby.
(d) Pension Plans. (i) PNU shall take all steps necessary or appropriate
to declare void the provisions of the PNU Retirement Plan that, absent such
action, would otherwise become effective upon a change of control.
(ii) Monsanto shall take all steps necessary or appropriate to ensure that
its defined benefit pension plans do not contain provisions that would become
effective upon a change of control.
(e) Assumption of Employment Agreements. Monsanto and PNU shall take all
action necessary or appropriate to effect the assumption by Monsanto, effective
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immediately following the Effective Time, of all rights and obligations of PNU
under the employment agreements listed on Schedule 5.6(e).
SECTION 5.7 Fees and Expenses. Whether or not the Merger is consummated,
all Expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such Expenses, except
(a) if the Merger is consummated, the Surviving Corporation shall pay, or cause
to be paid, any and all property or transfer taxes imposed on PNU or its
Subsidiaries and (b) Expenses incurred in connection with the filing, printing
and mailing of the Form S-4 and the Joint Proxy Statement/Prospectus, which
shall be shared equally by PNU and Monsanto. As used in this Agreement,
"Expenses" includes all out-of-pocket expenses (including, without limitation,
all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the transactions
contemplated hereby, including the preparation, printing, filing and mailing of
the Joint Proxy Statement/ Prospectus and the solicitation of stockholder
approvals and all other matters related to the transactions contemplated hereby.
SECTION 5.8 Directors' and Officers' Indemnification and Insurance. The
Surviving Corporation shall, and Newco shall cause the Surviving Corporation to,
(i) indemnify and hold harmless, and provide advancement of expenses to, all
past and present directors, officers and employees of PNU and its Subsidiaries
(in all of their capacities), to the same extent such persons are indemnified or
have the right to advancement of expenses as of the date of this Agreement by
PNU pursuant to PNU's certificate of incorporation, by-laws and indemnification
agreements, if any, in existence on the date hereof with any directors, officers
and employees of PNU and its Subsidiaries for acts or omissions occurring at or
prior to the Effective Time (including for acts or omissions occurring in
connection with the approval of this Agreement and the consummation of the
transactions contemplated hereby), (ii) include and cause to be maintained in
effect in the Surviving Corporation's (or any successor's) certificate of
incorporation and by-laws for a period of six years after the Effective Time,
the current provisions regarding elimination of liability of directors,
indemnification of officers, directors and employees and advancement of expenses
contained in the certificate of incorporation and by-laws of PNU, as the case
may be, and (iii) cause to be maintained for a period of six years after the
Effective Time the current policies of directors' and officers' liability
insurance and fiduciary liability insurance maintained by PNU (provided that the
Surviving Corporation (or any successor) may substitute therefor policies of at
least the same coverage and amounts containing terms and conditions which are,
in the aggregate, no less advantageous to the insured) with respect to claims
arising from facts or events that occurred on or before the Effective Time;
provided, however, that in no event shall the Surviving Corporation be required
to expend in any one year an amount in excess of 200% of the annual premiums
currently paid by PNU for such insurance; and, provided, further, that if the
annual premiums of such insurance coverage exceed such amount, the Surviving
Corporation shall be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount.
SECTION 5.9 Public Announcements. PNU and Monsanto shall use reasonable
best efforts to develop a joint communications plan and each party shall use
reasonable best efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications
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plan, and (ii) unless otherwise required by applicable law or by obligations
pursuant to any listing agreement with or rules of any securities exchange, to
consult with each other before issuing any press release or, to the extent
practical, otherwise making any public statement with respect to this Agreement
or the transactions contemplated hereby.
SECTION 5.10 Accounting Matters. (a) PNU shall use reasonable best
efforts to cause to be delivered to Monsanto two letters from PNU's independent
public accountants, one dated approximately the date on which the Form S-4 shall
become effective and one dated the Closing Date, each addressed to PNU and
Monsanto, in form and substance reasonably satisfactory to Monsanto and
customary in scope and substance for comfort letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
(b) Monsanto shall use reasonable best efforts to cause to be delivered to
PNU two letters from Monsanto's independent public accountants, one dated
approximately the date on which the Form S-4 shall become effective and one
dated the Closing Date, each addressed to Monsanto and PNU, in form and
substance reasonably satisfactory to PNU and customary in scope and substance
for comfort letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
(c) Each of PNU and Monsanto shall use reasonable best efforts to cause the
transactions contemplated by this Agreement, including the Merger, to be
accounted for as a pooling of interests under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations, and such accounting
treatment to be accepted by the SEC; provided, however, that notwithstanding
anything in this Agreement to the contrary, the qualification of the Merger for
pooling of interests accounting treatment shall not be a condition to the
Closing.
SECTION 5.11 Listing of Shares of Monsanto Common Stock. Monsanto shall
use its reasonable best efforts to cause the shares of Monsanto Common Stock to
be issued in the Merger and the shares of Monsanto Common Stock to be reserved
for issuance upon exercise of the PNU Stock Options (i) to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date and (ii) to be approved for listing on the Stockholm Stock
Exchange, subject to official notice of issuance, prior to the Closing Date.
SECTION 5.12 Dividends. After the date of this Agreement, each of PNU and
Monsanto shall coordinate with the other the payment of dividends with respect
to the PNU Common Stock and Monsanto Common Stock and the record dates and
payment dates relating thereto, it being the intention of the parties hereto
that holders of PNU Common Stock and Monsanto Common Stock shall not receive two
dividends, or fail to receive one dividend, for any single calendar quarter with
respect to their shares of PNU Common Stock and/or Monsanto Common Stock and any
shares of Monsanto Common Stock that any such holder receives in exchange for
such shares of PNU Common Stock in the Merger.
SECTION 5.13 Affiliates. (a) Not less than 45 days prior to the Effective
Time, PNU shall deliver to Monsanto a letter identifying all persons who, in the
judgment of PNU, may be deemed at the time this Agreement is submitted for
adoption by the stockholders of PNU, "affiliates" of PNU for purposes of Rule
145 under the Securities Act or for purposes of qualifying the Merger for
pooling of interests accounting treatment under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and
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regulations, and such list shall be updated as necessary to reflect changes from
the date hereof. PNU shall use reasonable best efforts to cause each person
identified on such list to deliver to Monsanto not less than 30 days prior to
the Effective Time, a written agreement substantially in the form attached as
Exhibit 5.13 hereto (an "Affiliate Agreement").
(b) Not less than 45 days prior to the Effective Time, Monsanto shall
deliver to PNU a letter identifying all persons who, in the judgment of
Monsanto, may be deemed at the time this Agreement is submitted for adoption by
the stockholders of Monsanto, "affiliates" of Monsanto for purposes of
qualifying the Merger for pooling of interests accounting treatment under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, and such list shall be updated as necessary to reflect changes from
the date thereof. Monsanto shall use reasonable best efforts to cause each
person identified on such list to deliver to PNU not less than 30 days prior to
the Effective Time, a written agreement including the substance of paragraphs
(C), (D) and (E) of Exhibit 5.13 hereto.
(c) If the Merger qualifies for pooling of interests accounting treatment,
Newco shall use its reasonable best efforts to publish no later than 90 days
after the end of the first month after the Effective Time in which there are at
least 30 days of post-Merger combined operations (which month may be the month
in which the Effective Time occurs), combined sales and net income figures as
contemplated by and in accordance with the terms of SEC Accounting Series
Release No. 135.
SECTION 5.14 Section 16 Matters. Prior to the Effective Time, PNU and
Monsanto shall take all such steps as may be required to cause any dispositions
of PNU Common Stock (including derivative securities with respect to PNU Common
Stock) or acquisitions of Monsanto Common Stock (including derivative securities
with respect to Monsanto Common Stock) resulting from the transactions
contemplated by Article I or Article II of this Agreement by each individual who
is subject to the reporting requirements of Section 16(a) of the Exchange Act
with respect to PNU or Monsanto, to be exempt under Rule 16b-3 promulgated under
the Exchange Act.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger are
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. (i) Monsanto shall have obtained the
Required Monsanto Votes in connection with the approval of the Share
Issuance and the Charter Amendment by the stockholders of Monsanto and (ii)
PNU shall have obtained the Required PNU Vote in connection with the
adoption of this Agreement by the stockholders of PNU.
(b) No Injunctions or Restraints, Illegality. No Laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect, (i) having the effect
of making the Merger illegal or otherwise prohibiting consummation of the
Merger or (ii) which otherwise would
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reasonably be expected to have a Material Adverse Effect on Newco and its
Subsidiaries (including the Surviving Corporation and its Subsidiaries),
taken together after giving effect to the Merger; provided, however, that
the provisions of this Section 6.1(b) shall not be available to any party
whose failure to fulfill its obligations pursuant to Section 5.4 shall have
been the cause of, or shall have resulted in, such order or injunction.
(c) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(d) EU Antitrust. PNU and Monsanto shall have received in respect of
the Merger and any matters arising therefrom confirmation by way of a
decision from the Commission on the European Communities under Regulation
4064/89 (with or without the initiation of proceedings under Article
6(1)(c) thereof) that the Merger and any matters arising therefrom are
compatible with the common market.
(e) Governmental and Regulatory Approvals. Other than the filings
provided for under Section 1.5 and filings pursuant to the HSR Act and the
EC Merger Regulation (which are addressed in Section 6.1(c) and Section
6.1(d)), all consents, approvals and actions of, filings with and notices
to any Governmental Entity required of PNU, Monsanto or any of their
Subsidiaries to consummate the Merger, the Share Issuance and the other
transactions contemplated hereby, the failure of which to be obtained or
taken would reasonably be expected to have a Material Adverse Effect on
Newco and its Subsidiaries (including the Surviving Corporation and its
Subsidiaries), taken together after giving effect to the Merger, shall have
been obtained; provided however, that the provisions of this Section 6.1(e)
shall not be available to any party whose failure to fulfill its
obligations pursuant to Section 5.4 shall have been the cause of, or shall
have resulted in, the failure to obtain such consent or approval.
(f) NYSE Listing. The shares of Monsanto Common Stock to be issued in
the Merger and such other shares to be reserved for issuance in connection
with the Merger shall have been approved for listing on the NYSE, subject
to official notice of issuance.
(g) Effectiveness of the Form S-4. The Form S-4 shall have been
declared effective by the SEC under the Securities Act. No stop order
suspending the effectiveness of the Form S-4 shall have been issued by the
SEC and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
SECTION 6.2 Additional Conditions to Obligations of PNU. The obligation
of PNU to effect the Merger is subject to the satisfaction of, or waiver by PNU,
on or prior to the Closing Date of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Monsanto set forth in this Agreement that is qualified as to
Material Adverse Effect shall be true and correct, and each of the
representations and warranties of Monsanto set forth in this Agreement that
is not so qualified shall be true and correct in all material respects, in
each case as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent in either
case that such representations and warranties speak as of another date),
and PNU shall have received a certificate of Monsanto executed by the chief
executive officer and the chief financial officer of Monsanto to such
effect.
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(b) Performance of Obligations of Monsanto. Monsanto shall have
performed or complied with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that
are qualified as to Material Adverse Effect and shall have performed or
complied in all material respects with all other agreements and covenants
required to be performed by it under this Agreement at or prior to the
Closing Date that are not so qualified, and PNU shall have received a
certificate of Monsanto executed by the chief executive officer and the
chief financial officer of Monsanto to such effect.
(c) Tax Opinion. PNU shall have received from Davis Polk & Wardwell,
counsel to PNU, on or before the date the Form S-4 shall become effective
and, subsequently, on the Closing Date, a written opinion dated as of such
dates substantially in the form of Exhibit 6.2(c)(1). In rendering such
opinion, counsel to PNU shall be entitled to rely upon information,
representations and assumptions provided by PNU and Monsanto substantially
in the form of Exhibits 6.2(c)(2) and 6.2(c)(3) (allowing for such
amendments to the representations as counsel to PNU deems reasonably
necessary).
(d) Monsanto Rights Agreement. No Shares Acquisition Date or
Distribution Date shall have occurred pursuant to the Monsanto Rights
Agreement or the New Monsanto Rights Agreement.
(e) Governance. Ten designees of PNU shall have been elected as
directors of Monsanto, a person reasonably acceptable to Monsanto and PNU
shall have been appointed non-executive Chairman of Monsanto (it being
understood and agreed that Robert B. Shapiro is such a person), a person
reasonably acceptable to Monsanto and PNU shall have been appointed Chief
Executive Officer of Monsanto (it being understood and agreed that Fred
Hassan is such a person), and the Newco Charter and the Newco By-laws shall
have become and remain effective.
SECTION 6.3 Additional Conditions to Obligations of Monsanto and Merger
Sub. The obligations of Monsanto and Merger Sub to effect the Merger are subject
to the satisfaction of, or waiver by Monsanto, on or prior to the Closing Date
of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of PNU set forth in this Agreement that is qualified as to
Material Adverse Effect shall be true and correct, and each of the
representations and warranties of PNU set forth in this Agreement that is
not so qualified shall be true and correct in all material respects, in
each case as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent in either
case that such representations and warranties speak as of another date),
and Monsanto shall have received a certificate of PNU executed by the chief
executive officer and the chief financial officer of PNU to such effect.
(b) Performance of Obligations of PNU. PNU shall have performed or
complied with all agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are qualified as
to Material Adverse Effect and shall have performed or complied in all
material respects with all other agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that
are not so qualified, and Monsanto shall have received
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a certificate of PNU executed by the chief executive officer and the chief
financial officer of PNU to such effect.
(c) Tax Opinion. Monsanto shall have received from Arnold & Porter,
special tax counsel to Monsanto, on or before the date the Form S-4 shall
become effective and, subsequently, on the Closing Date, a written opinion
dated as of such dates substantially in the form of Exhibit 6.3(c)(1). In
rendering such opinion, counsel to Monsanto shall be entitled to rely upon
information, representations and assumptions provided by PNU and Monsanto
substantially in the form of Exhibits 6.2(c)(2) and 6.2(c)(3) (allowing for
such amendments to the representations as counsel to Monsanto deems
reasonably necessary).
(d) PNU Rights Agreement. No Stock Acquisition Date or Separation
Time shall have occurred pursuant to the PNU Rights Agreement.
ARTICLE VII
TERMINATION AND AMENDMENT
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, by action taken or authorized by the Board of
Directors of the terminating party or parties, and except as provided below,
whether before or after approval of the matters presented in connection with the
Merger by the stockholders of Monsanto or PNU:
(a) by mutual written consent of PNU and Monsanto (which consent shall
not be unreasonably withheld (i) in the case of PNU, if the conditions set
forth in Sections 6.3(a) or 6.3(b) would not reasonably be expected to be
satisfied prior to the Termination Date (as defined in Section 7.1(b))
through the exercise of PNU's reasonable best efforts or (ii) in the case
of Monsanto, if the conditions set forth in Section 6.2(a) or 6.2(b) would
not reasonably be expected to be satisfied prior to the Termination Date
through the exercise of Monsanto's reasonable best efforts);
(b) by either Monsanto or PNU if the Effective Time shall not have
occurred on or before December 31, 2000 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement (including without limitation such party's
obligations set forth in Section 5.4) has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before the Termination
Date;
(c) by either Monsanto or PNU if any Governmental Entity (i) shall
have issued an order, decree or ruling or taken any other action (which
such party shall have used its reasonable best efforts to resist, resolve
or lift, as applicable, in accordance with Section 5.4) permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable or (ii) shall have failed
to issue an order, decree or ruling or to take any other action (which
order, decree, ruling or other action such party shall have used its
reasonable best efforts to obtain, in accordance with Section 5.4), in the
case of each of (i) and (ii) which is necessary to fulfill the conditions
set forth in subsections 6.1(c), (d) and (e), as applicable, and such
denial of a request to issue such order, decree, ruling or take
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such other action shall have become final and nonappealable; provided,
however, that the right to terminate this Agreement under this Section
7.1(c) shall not be available to any party whose failure to comply with
Section 5.4 has been the cause of such action or inaction;
(d) by either Monsanto or PNU if (i) the approval by the stockholders
of Monsanto required for the Share Issuance and the Charter Amendment shall
not have been obtained by reason of the failure to obtain the Required
Monsanto Votes or (ii) the approval by the stockholders of PNU required for
the consummation of the Merger shall not have been obtained by reason of
the failure to obtain the Required PNU Vote, in each case upon the taking
of such vote at a duly held meeting of stockholders of Monsanto or PNU, as
the case may be, or at any adjournment thereof;
(e) by PNU or Monsanto, as the case may be, if the Board of Directors
of the other party, prior to the other party's required stockholders
approval, shall approve or recommend a Superior Proposal pursuant to
Section 5.5 or shall resolve to take any of such actions;
(f) by PNU or Monsanto, as the case may be, at any time prior to its
required stockholders approval, upon three Business Days' prior notice to
the other party, if its Board of Directors shall have determined as of the
date of such notice that an Acquisition Proposal is a Superior Proposal;
provided, however, that (i) the terminating party shall have complied with
Section 5.5, (ii) prior to any such termination, the terminating party
shall, if requested by the other party in connection with a revised
proposal by it, negotiate in good faith for such three Business Day period
with the other party and (iii) the Board of Directors of the terminating
party shall have concluded in good faith, as of the effective date of such
termination, after taking into account any revised proposal by the other
party during such three Business Day period, that an Acquisition Proposal
is a Superior Proposal and; provided, further, that it shall be a condition
to termination by the terminating party pursuant to this Section 7.l(f)
that the terminating party shall have made the payment of the fee to the
other party required by Section 7.2(b)(i)(A) or Section 7.2(c)(i)(A), as
the case may be;
(g) by either party, if (A) the Board of Directors of PNU shall have
effected an Adverse Change in the PNU Recommendation (or resolved to take
such action) or (B) the Board of Directors of Monsanto shall have effected
an Adverse Change in the Monsanto Recommendation (or resolved to take such
action);
(h) by Monsanto, if a Stock Acquisition Date shall have occurred
pursuant to the PNU Rights Agreement; or
(i) by PNU, if a Share Acquisition Date shall have occurred pursuant
to the Monsanto Rights Agreement or the New Monsanto Rights Agreement.
SECTION 7.2 Effect of Termination. (a) In the event of termination of
this Agreement by either Monsanto or PNU as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of PNU or Monsanto or their respective officers or
directors except with respect to Section 3.1(m), Section 3.2(m), Section 4.3,
the second sentence of Section 5.3, Section 5.7, this Section 7.2 and Article
VIII, which provisions shall survive such termination, and except that,
notwithstanding anything to the contrary contained in this Agreement, neither
PNU
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nor Monsanto shall be relieved or released from any liabilities or damages
arising out of its willful material breach of this Agreement.
(b) (i) PNU shall pay Monsanto the sum of $575 million (the "PNU
Alternative Transaction Fee") if this Agreement is terminated solely as follows:
(A) if PNU shall terminate this Agreement pursuant to Section 7.1(f), (B) if (I)
either party shall terminate this Agreement pursuant to Section 7.1(d)(ii) due
to the failure of PNU's stockholders to adopt this Agreement and approve the
transactions contemplated hereby, (II) at any time after the date of this
Agreement and at or before the date of the PNU Stockholders Meeting a Business
Combination (as defined in Section 7.2(d)) proposal with respect to PNU shall
have been publicly announced or otherwise communicated to the Board of Directors
of PNU, and (III) within twelve months of the termination of this Agreement, PNU
enters into a definitive agreement with any third party with respect to a
Business Combination or a Business Combination with respect to PNU is
consummated, (C) if Monsanto shall terminate this Agreement pursuant to Section
7.1(e) or 7.1(h), (D) if (I) either party shall terminate this Agreement
pursuant to Section 7.1(b), (II) at any time after the date of this Agreement
and at or before the Termination Date there shall exist a Business Combination
proposal with respect to PNU, (III) following the existence of such Business
Combination proposal and prior to any such termination, PNU shall have
intentionally breached (and not cured after notice thereof) any of its covenants
or agreements set forth in this Agreement in any material respect, which breach
shall have materially contributed to the failure of the Effective Time to occur
on or before the Termination Date and (IV) within twelve months of any such
termination of this Agreement, PNU shall enter into a definitive agreement with
any third party with respect to a Business Combination or a Business Combination
with respect to PNU is consummated, or (E) if (I) either party shall terminate
this Agreement pursuant to 7.1(g)(A), (II) at any time after the date of this
Agreement and at or before the Adverse Change in the PNU Recommendation a
Business Combination proposal with respect to PNU shall have been publicly
announced or otherwise communicated to the Board of Directors of PNU, and (III)
within twelve months of any such termination of this Agreement, PNU shall enter
into a definitive agreement with any third party with respect to a Business
Combination or a Business Combination with respect to PNU is consummated,
provided that, in the case of this subclause (E) of Section 7.2(b)(i), if the
PNU Termination Fee (as defined in Section 7.2(b)(ii)) has previously been paid
in connection with the termination of this Agreement pursuant to Section
7.1(g)(A), then the amount of such fee shall be credited to the PNU Alternative
Transaction Fee.
(ii) PNU shall pay Monsanto the amount of $250 million (the "PNU
Termination Fee") if this Agreement is terminated by either party pursuant to
Section 7.1(g)(A) in circumstances in which the PNU Alternative Transaction Fee
is not then payable unless at the time the Board of Directors of PNU effected an
Adverse Change in the PNU Recommendation (or resolved to take such action)
Monsanto shall be in material breach of its representations, warranties or
covenants contained in this Agreement.
(c) (i) Monsanto shall pay PNU the sum of $575 million (the "Monsanto
Alternative Transaction Fee") if this Agreement is terminated solely as follows:
(A) if Monsanto shall terminate this Agreement pursuant to Section 7.1(f), (B)
if (I) either party shall terminate this Agreement pursuant to Section 7.1(d)(i)
due to the failure of Monsanto's stockholders to approve the Share Issuance or
the Charter Amendment, (II) at any time after the date of this Agreement and at
or before the date of the Monsanto Stockholders Meeting a Business Combination
proposal with respect to
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Monsanto shall have been publicly announced or otherwise communicated to the
Board of Directors of Monsanto and (III) within twelve months of the termination
of this Agreement, Monsanto enters into a definitive agreement with any third
party with respect to a Business Combination proposal or a Business Combination
with respect to Monsanto is consummated, (C) if PNU shall terminate this
Agreement pursuant to Section 7.1(e) or 7.1(i), (D) if (I) either party shall
terminate this Agreement pursuant to Section 7.1(b), (II) at any time after the
date of this Agreement and at or before the Termination Date there shall exist a
Business Combination proposal with respect to Monsanto, (III) following the
existence of such a Business Combination proposal and prior to any such
termination, Monsanto shall have intentionally breached (and not cured after
notice thereof) any of its covenants or agreements set forth in this Agreement
in any material respect which breach shall have materially contributed to the
failure of the Effective Time to occur on or before the Termination Date and
(IV) within twelve months of any such termination of this Agreement, Monsanto
shall enter into a definitive agreement with any third party with respect to a
Business Combination proposal or a Business Combination with respect to Monsanto
is consummated, or (E)(I) if either party shall terminate this Agreement
pursuant to 7.1(g)(B), (II) at any time after the date of this Agreement and at
or before the termination of this Agreement relating to the Adverse Change in
the Monsanto Recommendation a Business Combination proposal with respect to
Monsanto, shall have been publicly announced or otherwise communicated to the
Board of Directors of Monsanto and (III) within twelve months of any such
termination of this Agreement, Monsanto shall enter into a definitive agreement
with any third party with respect to a Business Combination or a Business
Combination with respect to Monsanto is consummated, provided that, in the case
of this subclause (E) of Section 7.2(c)(i), if the Monsanto Termination Fee (as
defined in section 7.2(c)(ii)) has previously been paid in connection with the
termination of this Agreement pursuant to Section 7.1(g)(B), then the amount of
such fee shall be credited to the Monsanto Alternative Transaction Fee.
(ii) Monsanto shall pay PNU the amount of $250 million (the "Monsanto
Termination Fee") if this Agreement is terminated by either party pursuant to
Section 7.1(g)(B) in circumstances in which the Monsanto Alternative Transaction
Fee is not then payable unless at the time the Board of Directors of Monsanto
effected an Adverse Change in the Monsanto Recommendation (or resolved to take
such action) PNU shall be in material breach of its representations, warranties
or covenants contained in this Agreement.
(d) For the purposes of this Section 7.2, "Business Combination" means with
respect to PNU or Monsanto, as the case may be, (i) a merger, reorganization,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving such party as a result
of which either (A) such party's stockholders prior to such transaction (by
virtue of their ownership of such party's shares) in the aggregate cease to own
at least 60% of the voting securities of the entity surviving or resulting from
such transaction (or the ultimate parent entity thereof) or, regardless of the
percentage of voting securities held by such stockholders, if any Person shall
beneficially own, directly or indirectly, at least 30% of the voting securities
of such ultimate parent entity, or (B) the individuals comprising the board of
directors of such party prior to such transaction do not constitute a majority
of the board of directors of such ultimate parent entity, (ii) a sale, lease,
exchange, transfer or other disposition of at least 50% of the assets of such
party and its Subsidiaries, taken as whole, in a single transaction or a series
of related transactions, or (iii) the acquisition, directly or indirectly, by a
Person of beneficial ownership of 30% or more of the common stock of such party
whether by merger,
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consolidation, share exchange, business combination, tender or exchange offer or
otherwise (other than a merger, reorganization, consolidation, share exchange,
business combination, recapitalization, liquidation, dissolution or similar
transaction upon the consummation of which such party's stockholders would in
the aggregate beneficially own greater than 60% of the voting securities of such
Person).
(e) The PNU Alternative Transaction Fee and the Monsanto Alternative
Transaction Fee required to be paid pursuant to Section 7.2(b)(i) or 7.2(c)(i),
as the case may be, shall be paid prior to, and shall be a pre-condition to the
effectiveness of, termination of this Agreement pursuant to Section 7.1(f). Any
other payment required to be made pursuant to Section 7.2(b) or 7.2(c) shall be
made not later than two Business Days after the entering into of a definitive
agreement with respect to, or the consummation of, a Business Combination, as
applicable, or a termination pursuant to Section 7.1(e), Section 7.1(g), Section
7.1(h) or Section 7.1(i). In no event shall more than one PNU Alternative
Transaction Fee or Monsanto Alternative Transaction Fee be made.
SECTION 7.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Monsanto and PNU, but, after any such
approval, no amendment shall be made which by law or in accordance with the
rules of any relevant stock exchange requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party. The failure of
any party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Non-Survival of Representations, Warranties and Agreements.
None of the representations, warranties, covenants and other agreements in this
Agreement or in any instrument delivered pursuant to this Agreement, including
any rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Time, except for
those covenants and agreements contained herein and therein that by their terms
apply or are to be performed in whole or in part after the Effective Time and
this Article VIII.
SECTION 8.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed duly given (a) on the date of delivery if
delivered personally, or by telecopy or telefacsimile, upon confirmation of
receipt, (b) on the first Business Day following the date of dispatch if
delivered by a recognized next-day courier
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service, or (c) on the tenth Business Day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice:
(a) if to PNU to
Pharmacia & Upjohn, Inc.
100 Route 206 North
Peapack, New Jersey 07977
Fax: (908) 901-1862
Attention: Don Schmitz, Esq.
with a copy to
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Fax: (212) 450-4800
Attention: Peter R. Douglas, Esq.
(b) if to Monsanto to
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Fax: (314) 694-6399
Attention: R. William Ide, III, Esq.
with a copy to
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Fax: (212) 403-2000
Attention: Richard D. Katcher, Esq.
Eric S. Robinson, Esq.
SECTION 8.3 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
SECTION 8.5 Entire Agreement; No Third Party Beneficiaries. (a) This
Agreement, the Stock Option Agreements and the Confidentiality Agreement
constitute
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the entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 5.8 (which is intended to be for the benefit of the Persons covered
thereby and may be enforced by such Persons).
SECTION 8.6 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware (without giving effect to
choice of law principles thereof).
SECTION 8.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 8.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of law or otherwise), without
the prior written consent of the other party, and any attempt to make any such
assignment without such consent shall be null and void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
SECTION 8.9 Submission to Jurisdiction; Waivers. Each of PNU and Monsanto
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in the Chancery or other Courts of the State of Delaware, and
each of PNU and Monsanto hereby irrevocably submits with regard to any such
action or proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each
of PNU and Monsanto hereby irrevocably waives, and agrees not to assert, by way
of motion, as a defense, counterclaim or otherwise, in any action or proceeding
with respect to this Agreement, (a) any claim that it is not personally subject
to the jurisdiction of the above-named courts for any reason other than the
failure to lawfully serve process, (b) that it or its property is exempt or
immune from jurisdiction of any such court or from any legal process commenced
in such courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise),
and (c) to the fullest extent permitted by applicable law, that (i) the suit,
action or proceeding in any such court is brought in an inconvenient forum, (ii)
the venue of such suit, action or proceeding is improper and (iii) this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
SECTION 8.10 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in
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accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
SECTION 8.11 Definitions. As used in this Agreement:
(a) "affiliate" means (except as specifically otherwise defined), as
to any person, any other person which, directly or indirectly, controls, or
is controlled by, or is under common control with, such person. As used in
this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") means the possession,
directly or indirectly, of the power to direct or cause the direction of
management or policies of a person, whether through the ownership of
securities or partnership or other ownership interests, by contract or
otherwise.
(b) "beneficial ownership" or "beneficially own" shall have the
meaning under Section 13(d) of the Exchange Act and the rules and
regulations thereunder.
(c) "Board of Directors" means the Board of Directors of any specified
Person and any committees thereof.
(d) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
(e) "Known" or "Knowledge" means, with respect to any party, the
knowledge of such party's executive officers after reasonable inquiry.
(f) "Material Adverse Effect" means, with respect to any entity, any
event, change, circumstance or effect that is or is reasonably likely to be
materially adverse to (i) the business, financial condition or results of
operations of such entity and its Subsidiaries taken as a whole, other than
any event, change, circumstance or effect relating (x) to the economy or
financial markets in general or (y) in general to the industries in which
PNU or Monsanto operate and not specifically relating to PNU or Monsanto or
(ii) the ability of such party to consummate the transactions contemplated
by this Agreement.
(g) "Monsanto Agribusiness" means the Agricultural Products business
of Monsanto, all as more fully described in Monsanto's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and its Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1999, June 30,
1999 and September 30, 1999.
(h) A "Monsanto Employee Benefit Plan" means any employee benefit
plan, program, policy, practices, or other arrangement providing benefits
to any current or former employee, officer or director of Monsanto or any
of its Subsidiaries or any beneficiary or dependent thereof that is
sponsored or maintained by Monsanto or any of its Subsidiaries or to which
Monsanto or any of its Subsidiaries contributes or is obligated to
contribute, whether or not written, including without limitation any
employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
any employee pension benefit plan within the meaning of Section 3(2) of
ERISA (whether or not such plan is subject to ERISA) and any bonus,
incentive, deferred compensation, vacation, stock purchase, stock option,
severance, employment, change of control or fringe benefit plan, program or
agreement.
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(i) "Monsanto Nutrition and Consumer Businesses" means the alginates,
artificial sweetner and biogum businesses that have been reclassified as
discontinued operations in the financial statements of Monsanto.
(j) A "Monsanto Plan" means any Monsanto Employee Benefit Plan other
than a Multiemployer Plan.
(k) A "Multiemployer Plan" means any "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA.
(l) "Newco" is sometimes used in the Agreement to refer to Monsanto
following the Merger.
(m) "Person" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization,
other entity or group (as defined in the Exchange Act).
(n) A "PNU Employee Benefit Plan" means any employee benefit plan,
program, policy, practices, or other arrangement providing benefits to any
current or former employee, officer or director of PNU or any of its
Subsidiaries or any beneficiary or dependent thereof that is sponsored or
maintained by PNU or any of its Subsidiaries or to which PNU or any of its
Subsidiaries contributes or is obligated to contribute, whether or not
written, including without limitation any employee welfare benefit plan
within the meaning of Section 3(1) of ERISA, any employee pension benefit
plan within the meaning of Section 3(2) of ERISA (whether or not such plan
is subject to ERISA) and any bonus, incentive, deferred compensation,
vacation, stock purchase, stock option, severance, employment, change of
control or fringe benefit plan, program or agreement.
(o) A "PNU Plan" means any PNU Employee Benefit Plan other than a
Multiemployer Plan.
(p) "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated,
(i) of which such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which
held by such party or any Subsidiary of such party do not have a majority
of the voting interests in such partnership) or (ii) at least a majority of
the securities or other interests of which having by their terms ordinary
voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or
by any one or more of its Subsidiaries, or by such party and one or more of
its Subsidiaries.
(q) "Superior Proposal" means with respect to PNU or Monsanto, as the
case may be, a written proposal made by a Person other than either such
party which is for (I)(i) a merger, reorganization, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution
or similar transaction involving such party as a result of which either (A)
such party's stockholders prior to such transaction (by virtue of their
ownership of such party's shares) in the aggregate cease to own at least
50% of the voting securities of the entity surviving or resulting from such
transaction (or the ultimate parent entity thereof) or (B) the individuals
comprising the board of directors of such party prior to such transaction
do not constitute a majority of the board of directors of such ultimate
parent entity, (ii) a
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sale, lease, exchange, transfer or other disposition of at least 50% of the
assets of such party and its Subsidiaries, taken as a whole, in a single
transaction or a series of related transactions, or (iii) the acquisition,
directly or indirectly, by a Person of beneficial ownership of 50% or more
of the common stock of such party whether by merger, consolidation, share
exchange, business combination, tender or exchange offer or otherwise
(other than a merger, consolidation, share exchange, business combination,
tender or exchange offer or other transaction upon the consummation of
which such party's stockholders would in the aggregate beneficially own
greater than 60% of the voting securities of such Person), and which is
(II) otherwise on terms which the Board of Directors of such party in good
faith concludes (after consultation with its financial advisors and outside
counsel), taking into account, among other things, all legal, financial,
regulatory and other aspects of the proposal and the Person making the
proposal, (i) would, if consummated, result in a transaction that is more
favorable to its stockholders (in their capacities as stockholders), from a
financial point of view, than the transactions contemplated by this
Agreement (after giving effect, for purposes of clause (iii) of Section
7.1(f), to any revised proposal made by the other party prior to the end of
the three business-day period referred to in clause (ii) of Section 7.1(f))
and (ii) is reasonably capable of being completed.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
MONSANTO COMPANY
By: /s/ ROBERT B. SHAPIRO
-----------------------------------
Name: Robert B. Shapiro
Title: Chairman and
Chief Executive Officer
MP SUB, INCORPORATED
By: /s/ GARY L. CRITTENDEN
-----------------------------------
Name: Gary L. Crittenden
Title: President
PHARMACIA & UPJOHN, INC.
By: /s/ FRED HASSAN
-----------------------------------
Name: Fred Hassan
Title: Chief Executive Officer
By: /s/ J. SOREN GYLL
-----------------------------------
Name: J. Soren Gyll
Title: Chairman of the Board
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<PAGE> 192
ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of December 19, 1999 (the "Agreement"), by
and between Monsanto Company, a Delaware corporation ("Issuer"), and Pharmacia &
Upjohn, Inc., a Delaware corporation ("Grantee").
WHEREAS, Issuer and Grantee propose to enter into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"; capitalized terms
used but not defined herein shall have the meanings set forth in the Merger
Agreement), providing for, among other things, a merger (the "Merger") of
Grantee with a wholly-owned subsidiary of Issuer;
WHEREAS, as a condition and inducement to Grantee's willingness to enter
into the Merger Agreement and the Pharmacia Stock Option Agreement, Grantee has
requested that Issuer agree, and Issuer has agreed, to grant Grantee the Option
(as defined below); and
WHEREAS, as a condition and inducement to Issuer's willingness to enter
into the Merger Agreement and this Agreement, Issuer has requested that Grantee
agree, and Grantee has agreed, to grant Issuer an option to purchase shares of
Grantee's common stock under the Pharmacia Stock Option Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, Issuer and Grantee agree as follows:
SECTION 1. Grant of Options. Subject to the terms and conditions set
forth herein, Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase up to 94,774,810 shares (the "Option Shares") of common
stock, par value $2.00 per share, of Issuer (the "Shares") (being 14.9% of the
number of Shares outstanding immediately before such grant), together with the
associated purchase rights (the "Rights") under (i) the Rights Agreement dated
as of January 26, 1990, between Issuer and First Chicago Trust Company of New
York, as successor to The First National Bank of Boston, as rights agent, as
amended by the First Amendment thereto dated as of May 31, 1998 and (ii) the
Rights Agreement dated as of December 19, 1999, between Issuer and Equiserve
Trust Company N.A., as rights agent (references to the Option Shares shall be
deemed to include the associated Rights), at a purchase price of $41.75 per
Option Share (such price, as adjusted if applicable, the "Purchase Price"). The
number of Option Shares that may be received upon the exercise of the Option and
the Purchase Price are subject to adjustment as set forth herein.
SECTION 2. Exercise of Option. (a) Grantee may exercise the Option, in
whole or in part, at any time or from time to time following the occurrence of a
Purchase Event (as defined below); provided that, except as otherwise provided
herein, the Option shall terminate and be of no further force and effect upon
the earliest to occur of (i) the Effective Time, (ii) 6 months after the first
occurrence of a Purchase Event (or if, at the expiration of such 6 months after
the first occurrence of a Purchase Event, the Option cannot be exercised by
reason of any applicable judgment, decree, order, law or regulation, 10 business
days after such impediment to exercise shall have been removed, but in no event
under this clause (ii) later than the first anniversary of the Purchase Event),
(iii) termination of the Merger Agreement under circumstances which do not and
cannot result in Grantee's becoming entitled to receive termination fees from
Issuer pursuant to
<PAGE> 193
Section 7.2(c) of the Merger Agreement of $575 million or more, (iv) twelve
months after the termination of the Merger Agreement under circumstances which
could result in Grantee's becoming entitled to receive termination fees from
Issuer pursuant to clause (B), (D) or (E) of Section 7.2(c)(i) of the Merger
Agreement, and (v) the date Grantee shall have received the Maximum Repurchase
Price pursuant to Section 7. The termination of the Option shall not affect any
rights hereunder which by their terms extend beyond the date of such
termination.
(b) As used herein, a "Purchase Event" means an event the result of which
is that the total fee or fees required to be paid by Issuer to Grantee pursuant
to Section 7.2(c) of the Merger Agreement equals $575 million.
(c) In the event Grantee wishes to exercise the Option, it shall send to
Issuer a written notice (the "Exercise Notice"; the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of Option
Shares it intends to purchase pursuant to such exercise and (ii) a place and
date not earlier than three business days nor later than 10 business days from
such Notice Date for the closing of such purchase (a "Closing"; and the date of
such Closing, a "Closing Date"); provided that such closing shall be held only
if (A) such purchase would not otherwise violate or cause the violation of
applicable law (including the HSR Act), (B) no law, rule or regulation shall
have been adopted or promulgated, and no temporary restraining order,
preliminary or permanent injunction or other order, decree or ruling issued by a
court or other governmental authority of competent jurisdiction shall be in
effect, which prohibits delivery of such Option Shares (and the parties hereto
shall use their reasonable best efforts to have any such order, injunction,
decree or ruling vacated or reversed) and (C) any prior notification to or
approval of any other regulatory authority in the United States or elsewhere
required in connection with such purchase shall have been made or obtained,
other than those which if not made or obtained would not reasonably be expected
to result in a significant detriment to the Grantee and its Subsidiaries taken
as a whole or the Issuer and its Subsidiaries taken as a whole. If the Closing
cannot be consummated by reason of a restriction set forth in clause (A), (B) or
(C) above, notwithstanding the provisions of Section 2(a), the Closing shall be
held within 5 business days following the elimination of such restriction.
Section 3. Payment and Delivery of Certificates. (a) On each Closing
Date, Grantee shall pay to Issuer in immediately available funds by wire
transfer to a bank account designated by Issuer an amount equal to the Purchase
Price multiplied by the Option Shares to be purchased on such Closing Date.
(b) At each Closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), Issuer shall deliver to Grantee a
certificate or certificates representing the Option Shares to be purchased at
such closing, which Option Shares shall be free and clear of all liens, charges
or encumbrances ("Liens"), and Grantee shall deliver to Issuer a letter agreeing
that Grantee shall not offer to sell or otherwise dispose of such Option Shares
in violation of applicable law or the provisions of this Agreement.
(c) Certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF DECEMBER
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19, 1999. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel
in form and substance reasonably satisfactory to Issuer and its counsel, to the
effect that such legend is not required for purposes of the Securities Act and
(ii) the reference to restrictions pursuant to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the Option Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance with the provisions of
this Agreement under circumstances that do not require the retention of such
reference.
SECTION 4. Authorized Stock. Issuer hereby represents and warrants to
Grantee that Issuer has taken all necessary corporate and other action to
authorize and reserve and to permit it to issue, at all times from the date
hereof until the obligation to deliver Shares upon the exercise of the Option
terminates, will have reserved for issuance, upon exercise of the Option, Shares
necessary for Grantee to exercise the Option, and Issuer will take all necessary
corporate action to authorize and reserve for issuance all additional Shares or
other securities which may be issued pursuant to Section 6 upon exercise of the
Option. The Shares to be issued upon due exercise of the Option, including all
additional Shares or other securities which may be issuable upon exercise of the
Option pursuant to Section 6, upon issuance pursuant hereto, shall be duly and
validly issued, fully paid and nonassessable, and shall be delivered free and
clear of all Liens, including any preemptive rights of any stockholder of
Issuer.
SECTION 5. Purchase Not for Distribution. Grantee hereby represents and
warrants to Issuer that any Option Shares or other securities acquired by
Grantee upon exercise of the Option will not be taken with a view to the public
distribution thereof and will not be transferred or otherwise disposed of except
in a transaction registered or exempt from registration under the Securities
Act.
SECTION 6. Adjustment upon Changes in Capitalization, etc. (a) In the
event of any change in Shares by reason of reclassification, recapitalization,
stock split, split-up, combination, exchange of shares, stock dividend,
dividend, dividend payable in any other securities, or any similar event, the
type and number of Shares or securities subject to the Option, and the Purchase
Price therefor (including for purposes of repurchase thereof pursuant to Section
7), shall be adjusted appropriately, and proper provisions shall be made in the
agreements governing such transaction, so that Grantee shall receive upon
exercise of the Option the number and class of shares or other securities or
property that Grantee would have received in respect of Shares if the Option had
been exercised immediately prior to such event or the record date therefor, as
applicable. If any additional Shares are issued after the date of this Agreement
(other than pursuant to an event described in the immediately preceding
sentence), the number of Shares subject to the Option shall be adjusted so that
immediately prior to such issuance, it equals 14.9% of the number of Shares then
issued and outstanding. In no event shall the number of Shares subject to the
Option exceed 14.9% of the number of Shares issued and outstanding at the time
of exercise (without giving effect to any shares subject or issued pursuant to
the Option).
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(b) Without limiting the foregoing, whenever the number of Option Shares
purchasable upon exercise of the Option is adjusted as provided in this Section
6, the Purchase Price per Option Share shall be adjusted by multiplying the
Purchase Price by a fraction, the numerator of which is equal to the number of
Option Shares purchasable prior to the adjustment and the denominator of which
is equal to the number of Option Shares purchasable after the adjustment.
(c) Without limiting the parties' relative rights and obligations under the
Merger Agreement, in the event that Issuer enters into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and Issuer will not be the continuing or surviving corporation in
such consolidation or merger, (ii) to permit any Person, other than Grantee or
one of its Subsidiaries, to merge into Issuer and Issuer will be the continuing
or surviving corporation, but in connection with such merger, the shares of
Common Stock outstanding immediately prior to the consummation of such merger
will be changed into or exchanged for stock or other securities of Issuer or any
other Person or cash or any other property, or (iii) to sell or otherwise
transfer all or substantially all of its assets to any Person, other than
Grantee or one of its Subsidiaries, then, and in each such case, the agreement
governing such transaction will make proper provision so that the Option will,
upon the consummation of any such transaction and upon the terms and conditions
set forth herein, be converted into, or exchanged for, an option with identical
terms appropriately adjusted to acquire the number and class of shares or other
securities or property that Grantee would have received in respect of Option
Shares had the Option been exercised immediately prior to such consolidation,
merger, sale or transfer or the record date therefor, as applicable. Issuer
shall take such steps in connection with such consolidation, merger, liquidation
or other such transaction as may be reasonably necessary to assure that the
provisions hereof shall thereafter apply as nearly as possible to any securities
or property thereafter deliverable upon exercise of the Option.
SECTION 7. Repurchase of Option. (a) Notwithstanding the provisions of
Section 2(a), at any time commencing upon the first occurrence of a Purchase
Event and ending upon termination of this Option in accordance with Section 2,
Issuer (or any successor entity thereof) shall at the request of Grantee (any
such request, a "Cash Exercise Notice"), repurchase from Grantee the Option or a
portion thereof (if and to the extent not previously exercised or terminated) at
a price which, subject to Section 10 below, is equal to the excess, if any, of
(x) the Applicable Price (as defined below) as of the Section 7 Request Date (as
defined below) for a Share over (y) the Purchase Price (subject to adjustment
pursuant to Section 6), multiplied by all or such portion of the Option Shares
subject to the Option as the Grantee shall specify in the Cash Exercise Notice
(the "Option Repurchase Price").
(b) Notwithstanding the provisions of Section 2(a), at any time following
the occurrence of a Purchase Event, Issuer (or any successor entity thereof)
may, at its election, repurchase the Option (if and to the extent not previously
exercised or terminated) at the Option Repurchase Price. For purposes of this
Agreement, an exercise of the Option shall be deemed to occur on the Closing
Date and not on the Notice Date relating thereto.
(c) In connection with any exercise of rights under this Section 7, Issuer
shall, within 5 business days after the Section 7 Request Date, pay the Option
Repurchase Price in immediately available funds, and Grantee or such owner, as
the case may be, shall surrender to Issuer the Option. Upon receipt by the
Grantee of the Option Repurchase Price, the obligations of the Issuer to deliver
Option Shares pursuant to Section 3 of this
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Agreement shall be terminated with respect to the number of Option Shares
specified in the Cash Exercise Notice or the number of Option Shares as to which
the Option is repurchased under Section 7(b).
(d) For purposes of this Agreement, the following terms have the following
meanings:
(i) "Applicable Price", as of any date, means the highest of (A) the
highest price per Share paid or proposed to be paid by any third party for
Shares or the consideration per Share received or to be received by holders
of Shares, in each case pursuant to any Acquisition Proposal for or with
Issuer made on or prior to such date or (B) the average closing price per
Share as reported on the New York Stock Exchange, Inc. ("NYSE") Composite
Tape or if the Shares are not listed on the NYSE, the highest bid price per
Share as quoted on the National Association of Securities Dealers Automated
Quotation System or, if the Shares are not quoted thereon, on the principal
trading market on which such Shares are traded as reported by a recognized
source during the 10 trading days preceding such date. If the consideration
to be offered, paid or received pursuant to the foregoing clause (A) shall
be other than in cash, the value of such consideration shall be determined
in good faith by an independent nationally recognized investment banking
firm selected by Grantee and reasonably acceptable to Issuer.
(ii) "Section 7 Request Date" means the date on which Issuer or
Grantee, as the case may be, exercises its rights under this Section.
(e) In no event shall the aggregate Option Repurchase Price paid pursuant
to this Section 7 be in excess of $635 million less any termination fee paid by
Issuer and received by Grantee pursuant to Section 7.2(c) of the Merger
Agreement (the "Maximum Repurchase Price").
SECTION 8. Registration Rights. Issuer shall, if requested by Grantee or
any Subsidiary of the Grantee which is the owner of Option Shares (collectively
with Grantee, the "Owners") at any time and from time to time within two years
of the first exercise of the Option, as expeditiously as possible prepare and
file up to two registration statements under the Securities Act if such
registration is necessary in order to permit the sale or other disposition of
any or all shares of securities that have been acquired by or are issuable to
such Owners upon exercise of the Option in accordance with the intended method
of sale or other disposition stated by such Owners, including a "shelf"
registration statement under Rule 415 under the Securities Act or any successor
provision, and Issuer shall use all reasonable efforts to qualify such shares or
other securities under any applicable state securities laws. Issuer shall use
all reasonable efforts to cause each such registration statement to become
effective, to obtain all consents or waivers of other parties which are required
therefor and to keep such registration statement effective for such period at
least 90 days from the day such registration statement first becomes effective
as may be reasonably necessary to effect such sale or other disposition. The
obligations of Issuer hereunder to file a registration statement and to maintain
its effectiveness may be suspended for a period of time not exceeding 90 days in
the aggregate if the Board of Directors of Issuer shall have determined in good
faith that the filing of such registration statement or the maintenance of its
effectiveness would require disclosure of nonpublic information that would
materially and adversely affect Issuer (but in no event shall Issuer exercise
such postponement right more than once in any month period). Any registration
statement prepared and filed under this Section 8, and any sale covered thereby,
shall be at Issuer's expense except underwriting discounts or commissions,
brokers' fees and the reasonable fees and disbursements of Owners' counsel
related thereto. The Owners shall
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provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If during the time period referred
to in the first sentence of this Section 8; provided Issuer effects a
registration under the Securities Act of Shares for its own account or for any
other stockholders of Issuer (other than on Form S-4 or Form S-8, or any
successor form), it shall allow the Owners the right to participate in such
registration, and such participation shall not affect the obligation of Issuer
to effect two registration statements for the Owners under this Section 8;
provided that, if the managing underwriters of such offering advise Issuer in
writing that in their opinion the number of Shares requested to be included in
such registration exceeds the number which can be sold in such offering without
adversely affecting the offering price, Issuer and the Owners shall each reduce
on a pro rata basis the Shares to be included therein on their respective
behalf. In connection with any registration pursuant to this Section 8, Issuer
and the Owners shall provide each other and any underwriter of the offering with
customary representations, warranties, covenants, indemnification and
contribution in connection with such registration.
SECTION 9. Additional Covenants of Issuer. (a) If Shares or any other
securities to be acquired upon exercise of the Option are then listed on the
NYSE or any other securities exchange or market, Issuer, upon the request of any
Owner, will promptly file an application to list the Shares or other securities
to be acquired upon exercise of the Options on the NYSE or such other securities
exchange or market and will use its reasonable best efforts to obtain approval
of such listing as soon as practicable.
(b) Issuer will use its reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to permit the exercise of the
Option in accordance with the terms and conditions hereof, as soon as
practicable after the date hereof, including making any appropriate filing
pursuant to the HSR Act and any other applicable law, supplying as promptly as
practicable any additional information and documentary material that may be
requested pursuant to the HSR Act and any other applicable law, and taking all
other actions necessary to cause the expiration or termination of the applicable
waiting periods under the HSR Act as soon as practicable.
(c) Issuer agrees not to avoid or seek to avoid (whether by charter
amendment or through reorganization, consolidation, merger, issuance of rights,
dissolution or sale of assets, or by any other voluntary act) the observance or
performance of any of the covenants, agreements or conditions to be observed or
performed hereunder by it.
(d) Issuer shall use its reasonable best efforts to cause any acquisitions
by Grantee (or any affiliate who may become subject to the reporting
requirements of Section 16(a) of the Exchange Act) of any Shares acquired in
connection with this Agreement (through conversion or exercise of the Option or
otherwise) to be exempt under Rule 16b-3 promulgated under the Exchange Act.
SECTION 10. Limitation of Grantee Profit. (a) Notwithstanding any other
provision in this Agreement, in no event shall Grantee's Total Profit (as
defined below) exceed $635 million (the "Maximum Profit") and, if it otherwise
would exceed such amount, Grantee, at its sole discretion, shall either (i)
reduce the number of Shares subject to the Option, (ii) deliver to Issuer for
cancellation Shares (or other securities into which such Option Shares are
converted or exchanged) previously purchased by Grantee, (iii) pay cash to
Issuer, or (iv) any combination of the foregoing, so that Grantee's actually
realized Total Profit shall not exceed the Maximum Profit after taking into
account the foregoing actions.
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(b) Notwithstanding any other provision of this Agreement, the Option may
not be exercised for a number of Option Shares as would, as of any Notice Date,
result in a Notional Total Profit (as defined below) of more than the Maximum
Profit and, if exercise of the Option otherwise would result in the Notional
Total Profit exceeding such amount, Grantee, at its discretion, may (in addition
to any of the actions specified in Section 10(a) above) (i) reduce the number of
Shares subject to the Option or (ii) increase the Purchase Price for that number
of Option Shares set forth in the Exercise Notice so that the Notional Total
Profit shall not exceed the Maximum Profit; provided that nothing in this
sentence shall restrict any exercise of the Option permitted hereby on any
subsequent date at the Purchase Price set forth in Section 1 hereof.
(c) For purposes of this Agreement, "Total Profit" shall mean: (i) the
aggregate amount (before taxes) of (A) any excess of (x) the net cash amounts or
fair market value of any property received by Grantee pursuant to a sale of
Option Shares (or securities into which such shares are converted or exchanged)
over (y) the Grantee's aggregate purchase price for such Option Shares (or other
securities), plus (B) any amounts received by Grantee on the repurchase of the
Option by Issuer pursuant to Section 7, plus (C) any termination fee paid by
Issuer and received by Grantee pursuant to Section 7.2(c) of the Merger
Agreement, minus (ii) the amounts of any cash previously paid by Grantee to
Issuer pursuant to this Section 10 plus the value of the Option Shares (or other
securities) previously delivered by Grantee to Issuer for cancellation pursuant
to this Section 10.
(d) For purposes of this Agreement, "Notional Total Profit" with respect to
any number of Option Shares as to which Grantee may propose to exercise the
Option shall mean the Total Profit determined as of the Notice Date assuming
that the Stock Option was exercised on such date for such number of Option
Shares and assuming that such Option Shares, together with all other Option
Shares previously acquired upon exercise of the Option and held by Grantee as of
such date, were sold for cash at the closing price per Share on the NYSE as of
the close of business on the preceding trading day (less customary brokerage
commissions).
(e) Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall affect the ability of Grantee to receive, nor relieve Issuer's
obligation to pay, any termination fee provided for in Section 7.2(c) of the
Merger Agreement; provided that if and to the extent the Total Profit received
by Grantee would exceed the Maximum Profit following receipt of such payment,
Grantee shall be obligated to promptly comply with the terms of Section 10(a).
(f) For purposes of Section 10(a) and clause (ii) of Section 10(c), the
value of any Option Shares delivered by Grantee to Issuer shall be the
Applicable Price of such Option Shares.
SECTION 11. Loss, Theft, Etc. of Agreement (and the Option granted
hereby). This Agreement is exchangeable, without expense, at the option of
Grantee, upon presentation and surrender of this Agreement at the principal
office of Issuer for other Agreements providing for Options of different
denominations entitling the holder thereof to purchase in the aggregate the same
number of Shares purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any other Agreements and related Options for which this
Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction
or mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement
of like tenor and
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date. Any such new Agreement executed and delivered shall constitute an
additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
SECTION 12. Miscellaneous. (a) Expenses. Except as otherwise provided in
Section 9 hereof or in the Merger Agreement, each of the parties hereto shall
bear and pay all expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including fees and expenses of its own
financial consultants, investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
(c) Entire Agreement; No Third-Party Beneficiary; Severability. Except as
otherwise set forth in the Merger Agreement, this Agreement, together with the
Merger Agreement and the Pharmacia Stock Option Agreement (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (b) is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or a
federal or state regulatory agency to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Option does not permit Grantee to acquire, or does not require Issuer
to repurchase, the full number of Shares as provided in Sections 2 and 7, as
adjusted pursuant to Section 6, it is the express intention of Issuer to allow
Grantee to acquire or to require Issuer to repurchase such lesser number of
Shares as may be permissible without any amendment or modification hereof.
(d) Governing Law. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING EFFECT TO
CHOICE OF LAW PRINCIPLES).
(e) Descriptive Headings. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given as set forth in Section 8.2 of the Merger
Agreement.
(g) Counterparts. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
of the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
(h) Assignment. Grantee may not, without the prior written consent of
Issuer (which shall not be unreasonably withheld), assign this Agreement or the
Option to any other person. This Agreement shall not be assignable by Issuer
except by operation of law. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
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(i) Representations and Warranties. The representations and warranties
contained in Sections 3.1(a)(i) and 3.2(a)(i) of the Merger Agreement, and, to
the extent they relate to this Stock Option Agreement, in Sections 3.2(b), (c),
(f) and (g) and Section 3.1(c) of the Merger Agreement, are incorporated herein
by reference
(j) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(k) Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
Both parties further agree to waive any requirement for the securing or posting
of any bond in connection with the obtaining of any such equitable relief and
that this provision is without prejudice to any other rights that the parties
hereto may have for any failure to perform this Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first above written.
MONSANTO COMPANY
By: /s/ R. WILLIAM IDE III
-----------------------------------
Name: R. William Ide III
Title: Senior Vice President and
Secretary
PHARMACIA & UPJOHN, INC.
By: /s/ FRED HASSAN
-----------------------------------
Name: Fred Hassan
Title: Chief Executive Officer
By: /s/ J. SOREN GYLL
-----------------------------------
Name: J. Soren Gyll
Title: Chairman of the Board
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ANNEX C
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of December 19, 1999 (the "Agreement"), by
and between Pharmacia & Upjohn, Inc., a Delaware corporation ("Issuer"), and
Monsanto Company, a Delaware corporation ("Grantee").
WHEREAS, Issuer and Grantee propose to enter into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"; capitalized terms
used but not defined herein shall have the meanings set forth in the Merger
Agreement), providing for, among other things, a merger (the "Merger") of Issuer
with a wholly-owned subsidiary of Grantee;
WHEREAS, as a condition and inducement to Grantee's willingness to enter
into the Merger Agreement and the Monsanto Stock Option Agreement, Grantee has
requested that Issuer agree, and Issuer has agreed, to grant Grantee the Option
(as defined below); and
WHEREAS, as a condition and inducement to Issuer's willingness to enter
into the Merger Agreement and this Agreement, Issuer has requested that Grantee
agree, and Grantee has agreed, to grant Issuer an option to purchase shares of
Grantee's common stock under the Monsanto Stock Option Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, Issuer and Grantee agree as follows:
SECTION 1. Grant of Options. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 77,388,932 shares (the "Option Shares") of common stock, par
value $0.01 per share, of Issuer (the "Shares") (being 14.9% of the number of
Shares outstanding immediately before such grant), together with the associated
purchase rights (the "Rights") under the Shareholder Protection Rights Agreement
dated as of March 4, 1997, between Issuer and Harris Trust & Savings Bank, as
Rights Agent (references to the Option Shares shall be deemed to include the
associated Rights), at a purchase price of $50.25 per Option Share (such price,
as adjusted if applicable, the "Purchase Price"). The number of Option Shares
that may be received upon the exercise of the Option and the Purchase Price are
subject to adjustment as set forth herein.
SECTION 2. Exercise of Option. (a) Grantee may exercise the Option, in
whole or in part, at any time or from time to time following the occurrence of a
Purchase Event (as defined below); provided that, except as otherwise provided
herein, the Option shall terminate and be of no further force and effect upon
the earliest to occur of (i) the Effective Time, (ii) 6 months after the first
occurrence of a Purchase Event (or if, at the expiration of such 6 months after
the first occurrence of a Purchase Event, the Option cannot be exercised by
reason of any applicable judgment, decree, order, law or regulation, 10 business
days after such impediment to exercise shall have been removed, but in no event
under this clause (ii) later than the first anniversary of the Purchase Event),
(iii) termination of the Merger Agreement under circumstances which do not and
cannot result in Grantee's becoming entitled to receive termination fees from
Issuer pursuant to Section 7.2(b) of the Merger Agreement of $575 million or
more, (iv) twelve months
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after the termination of the Merger Agreement under circumstances which could
result in Grantee's becoming entitled to receive termination fees from Issuer
pursuant to clause (B), (D) or (E) of Section 7.2(b)(i) of the Merger Agreement,
and (v) the date Grantee shall have received the Maximum Repurchase Price
pursuant to Section 7. The termination of the Option shall not affect any rights
hereunder which by their terms extend beyond the date of such termination.
(b) As used herein, a "Purchase Event" means an event the result of which
is that the total fee or fees required to be paid by Issuer to Grantee pursuant
to Section 7.2(b) of the Merger Agreement equals $575 million.
(c) In the event Grantee wishes to exercise the Option, it shall send to
Issuer a written notice (the "Exercise Notice"; the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of Option
Shares it intends to purchase pursuant to such exercise and (ii) a place and
date not earlier than three business days nor later than 10 business days from
such Notice Date for the closing of such purchase (a "Closing"; and the date of
such Closing, a "Closing Date"); provided that such closing shall be held only
if (A) such purchase would not otherwise violate or cause the violation of
applicable law (including the HSR Act), (B) no law, rule or regulation shall
have been adopted or promulgated, and no temporary restraining order,
preliminary or permanent injunction or other order, decree or ruling issued by a
court or other governmental authority of competent jurisdiction shall be in
effect, which prohibits delivery of such Option Shares (and the parties hereto
shall use their reasonable best efforts to have any such order, injunction,
decree or ruling vacated or reversed) and (C) any prior notification to or
approval of any other regulatory authority in the United States or elsewhere
required in connection with such purchase shall have been made or obtained,
other than those which if not made or obtained would not reasonably be expected
to result in a significant detriment to the Grantee and its Subsidiaries taken
as a whole or the Issuer and its Subsidiaries taken as a whole. If the Closing
cannot be consummated by reason of a restriction set forth in clause (A), (B) or
(C) above, notwithstanding the provisions of Section 2(a), the Closing shall be
held within 5 business days following the elimination of such restriction.
SECTION 3. Payment and Delivery of Certificates. (a) On each Closing Date,
Grantee shall pay to Issuer in immediately available funds by wire transfer to a
bank account designated by Issuer an amount equal to the Purchase Price
multiplied by the Option Shares to be purchased on such Closing Date.
(b) At each Closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), Issuer shall deliver to Grantee a
certificate or certificates representing the Option Shares to be purchased at
such closing, which Option Shares shall be free and clear of all liens, charges
or encumbrances ("Liens"), and Grantee shall deliver to Issuer a letter agreeing
that Grantee shall not offer to sell or otherwise dispose of such Option Shares
in violation of applicable law or the provisions of this Agreement.
(c) Certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF DECEMBER
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19, 1999. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel
in form and substance reasonably satisfactory to Issuer and its counsel, to the
effect that such legend is not required for purposes of the Securities Act and
(ii) the reference to restrictions pursuant to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the Option Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance with the provisions of
this Agreement under circumstances that do not require the retention of such
reference.
SECTION 4. Authorized Stock. Issuer hereby represents and warrants to
Grantee that Issuer has taken all necessary corporate and other action to
authorize and reserve and to permit it to issue, at all times from the date
hereof until the obligation to deliver Shares upon the exercise of the Option
terminates, will have reserved for issuance, upon exercise of the Option, Shares
necessary for Grantee to exercise the Option, and Issuer will take all necessary
corporate action to authorize and reserve for issuance all additional Shares or
other securities which may be issued pursuant to Section 6 upon exercise of the
Option. The Shares to be issued upon due exercise of the Option, including all
additional Shares or other securities which may be issuable upon exercise of the
Option pursuant to Section 6, upon issuance pursuant hereto, shall be duly and
validly issued, fully paid and nonassessable, and shall be delivered free and
clear of all Liens, including any preemptive rights of any stockholder of
Issuer.
SECTION 5. Purchase Not for Distribution. Grantee hereby represents and
warrants to Issuer that any Option Shares or other securities acquired by
Grantee upon exercise of the Option will not be taken with a view to the public
distribution thereof and will not be transferred or otherwise disposed of except
in a transaction registered or exempt from registration under the Securities
Act.
SECTION 6. Adjustment upon Changes in Capitalization, etc. (a) In the
event of any change in Shares by reason of reclassification, recapitalization,
stock split, split-up, combination, exchange of shares, stock dividend,
dividend, dividend payable in any other securities, or any similar event, the
type and number of Shares or securities subject to the Option, and the Purchase
Price therefor (including for purposes of repurchase thereof pursuant to Section
7), shall be adjusted appropriately, and proper provisions shall be made in the
agreements governing such transaction, so that Grantee shall receive upon
exercise of the Option the number and class of shares or other securities or
property that Grantee would have received in respect of Shares if the Option had
been exercised immediately prior to such event or the record date therefor, as
applicable. If any additional Shares are issued after the date of this Agreement
(other than pursuant to an event described in the immediately preceding
sentence), the number of Shares subject to the Option shall be adjusted so that
immediately prior to such issuance, it equals 14.9% of the number of Shares then
issued and outstanding. In no event shall the number of Shares subject to the
Option exceed 14.9% of the number of Shares issued and outstanding at the time
of exercise (without giving effect to any shares subject or issued pursuant to
the Option).
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(b) Without limiting the foregoing, whenever the number of Option Shares
purchasable upon exercise of the Option is adjusted as provided in this Section
6, the Purchase Price per Option Share shall be adjusted by multiplying the
Purchase Price by a fraction, the numerator of which is equal to the number of
Option Shares purchasable prior to the adjustment and the denominator of which
is equal to the number of Option Shares purchasable after the adjustment.
(c) Without limiting the parties' relative rights and obligations under the
Merger Agreement, in the event that Issuer enters into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and Issuer will not be the continuing or surviving corporation in
such consolidation or merger, (ii) to permit any Person, other than Grantee or
one of its Subsidiaries, to merge into Issuer and Issuer will be the continuing
or surviving corporation, but in connection with such merger, the shares of
Common Stock outstanding immediately prior to the consummation of such merger
will be changed into or exchanged for stock or other securities of Issuer or any
other Person or cash or any other property, or (iii) to sell or otherwise
transfer all or substantially all of its assets to any Person, other than
Grantee or one of its Subsidiaries, then, and in each such case, the agreement
governing such transaction will make proper provision so that the Option will,
upon the consummation of any such transaction and upon the terms and conditions
set forth herein, be converted into, or exchanged for, an option with identical
terms appropriately adjusted to acquire the number and class of shares or other
securities or property that Grantee would have received in respect of Option
Shares had the Option been exercised immediately prior to such consolidation,
merger, sale or transfer or the record date therefor, as applicable. Issuer
shall take such steps in connection with such consolidation, merger, liquidation
or other such transaction as may be reasonably necessary to assure that the
provisions hereof shall thereafter apply as nearly as possible to any securities
or property thereafter deliverable upon exercise of the Option.
SECTION 7. Repurchase of Option. (a) Notwithstanding the provisions of
Section 2(a), at any time commencing upon the first occurrence of a Purchase
Event and ending upon termination of this Option in accordance with Section 2,
Issuer (or any successor entity thereof) shall at the request of Grantee (any
such request, a "Cash Exercise Notice"), repurchase from Grantee the Option or a
portion thereof (if and to the extent not previously exercised or terminated) at
a price which, subject to Section 10 below, is equal to the excess, if any, of
(x) the Applicable Price (as defined below) as of the Section 7 Request Date (as
defined below) for a Share over (y) the Purchase Price (subject to adjustment
pursuant to Section 6), multiplied by all or such portion of the Option Shares
subject to the Option as the Grantee shall specify in the Cash Exercise Notice
(the "Option Repurchase Price").
(b) Notwithstanding the provisions of Section 2(a), at any time following
the occurrence of a Purchase Event, Issuer (or any successor entity thereof)
may, at its election, repurchase the Option (if and to the extent not previously
exercised or terminated) at the Option Repurchase Price. For purposes of this
Agreement, an exercise of the Option shall be deemed to occur on the Closing
Date and not on the Notice Date relating thereto.
(c) In connection with any exercise of rights under this Section 7, Issuer
shall, within 5 business days after the Section 7 Request Date, pay the Option
Repurchase Price in immediately available funds, and Grantee or such owner, as
the case may be, shall surrender to Issuer the Option. Upon receipt by the
Grantee of the Option Repurchase Price, the obligations of the Issuer to deliver
Option Shares pursuant to Section 3 of this
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Agreement shall be terminated with respect to the number of Option Shares
specified in the Cash Exercise Notice or the number of Option Shares as to which
the Option is repurchased under Section 7(b).
(d) For purposes of this Agreement, the following terms have the following
meanings:
(i) "Applicable Price", as of any date, means the highest of (A) the
highest price per Share paid or proposed to be paid by any third party for
Shares or the consideration per Share received or to be received by holders
of Shares, in each case pursuant to any Acquisition Proposal for or with
Issuer made on or prior to such date or (B) the average closing price per
Share as reported on the New York Stock Exchange, Inc. ("NYSE") Composite
Tape or if the Shares are not listed on the NYSE, the highest bid price per
Share as quoted on the National Association of Securities Dealers Automated
Quotation System or, if the Shares are not quoted thereon, on the principal
trading market on which such Shares are traded as reported by a recognized
source during the 10 trading days preceding such date. If the consideration
to be offered, paid or received pursuant to the foregoing clause (A) shall
be other than in cash, the value of such consideration shall be determined
in good faith by an independent nationally recognized investment banking
firm selected by Grantee and reasonably acceptable to Issuer.
(ii) "Section 7 Request Date" means the date on which Issuer or
Grantee, as the case may be, exercises its rights under this Section.
(e) In no event shall the aggregate Option Repurchase Price paid pursuant
to this Section 7 be in excess of $635 million less any termination fee paid by
Issuer and received by Grantee pursuant to Section 7.2(b) of the Merger
Agreement (the "Maximum Repurchase Price").
SECTION 8. Registration Rights. Issuer shall, if requested by Grantee or
any Subsidiary of the Grantee which is the owner of Option Shares (collectively
with Grantee, the "Owners") at any time and from time to time within two years
of the first exercise of the Option, as expeditiously as possible prepare and
file up to two registration statements under the Securities Act if such
registration is necessary in order to permit the sale or other disposition of
any or all shares of securities that have been acquired by or are issuable to
such Owners upon exercise of the Option in accordance with the intended method
of sale or other disposition stated by such Owners, including a "shelf"
registration statement under Rule 415 under the Securities Act or any successor
provision, and Issuer shall use all reasonable efforts to qualify such shares or
other securities under any applicable state securities laws. Issuer shall use
all reasonable efforts to cause each such registration statement to become
effective, to obtain all consents or waivers of other parties which are required
therefor and to keep such registration statement effective for such period at
least 90 days from the day such registration statement first becomes effective
as may be reasonably necessary to effect such sale or other disposition. The
obligations of Issuer hereunder to file a registration statement and to maintain
its effectiveness may be suspended for a period of time not exceeding 90 days in
the aggregate if the Board of Directors of Issuer shall have determined in good
faith that the filing of such registration statement or the maintenance of its
effectiveness would require disclosure of nonpublic information that would
materially and adversely affect Issuer (but in no event shall Issuer exercise
such postponement right more than once in any month period). Any registration
statement prepared and filed under this Section 8, and any sale covered thereby,
shall be at Issuer's expense except underwriting discounts or commissions,
brokers' fees and the
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reasonable fees and disbursements of Owners' counsel related thereto. The Owners
shall provide all information reasonably requested by Issuer for inclusion in
any registration statement to be filed hereunder. If during the time period
referred to in the first sentence of this Section 8; provided Issuer effects a
registration under the Securities Act of Shares for its own account or for any
other stockholders of Issuer (other than on Form S-4 or Form S-8, or any
successor form), it shall allow the Owners the right to participate in such
registration, and such participation shall not affect the obligation of Issuer
to effect two registration statements for the Owners under this Section 8;
provided that, if the managing underwriters of such offering advise Issuer in
writing that in their opinion the number of Shares requested to be included in
such registration exceeds the number which can be sold in such offering without
adversely affecting the offering price, Issuer and the Owners shall each reduce
on a pro rata basis the Shares to be included therein on their respective
behalf. In connection with any registration pursuant to this Section 8, Issuer
and the Owners shall provide each other and any underwriter of the offering with
customary representations, warranties, covenants, indemnification and
contribution in connection with such registration.
SECTION 9. Additional Covenants of Issuer. (a) If Shares or any other
securities to be acquired upon exercise of the Option are then listed on the
NYSE or any other securities exchange or market, Issuer, upon the request of any
Owner, will promptly file an application to list the Shares or other securities
to be acquired upon exercise of the Options on the NYSE or such other securities
exchange or market and will use its reasonable best efforts to obtain approval
of such listing as soon as practicable.
(b) Issuer will use its reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to permit the exercise of the
Option in accordance with the terms and conditions hereof, as soon as
practicable after the date hereof, including making any appropriate filing
pursuant to the HSR Act and any other applicable law, supplying as promptly as
practicable any additional information and documentary material that may be
requested pursuant to the HSR Act and any other applicable law, and taking all
other actions necessary to cause the expiration or termination of the applicable
waiting periods under the HSR Act as soon as practicable.
(c) Issuer agrees not to avoid or seek to avoid (whether by charter
amendment or through reorganization, consolidation, merger, issuance of rights,
dissolution or sale of assets, or by any other voluntary act) the observance or
performance of any of the covenants, agreements or conditions to be observed or
performed hereunder by it.
(d) Issuer shall use its reasonable best efforts to cause any acquisitions
by Grantee (or any affiliate who may become subject to the reporting
requirements of Section 16(a) of the Exchange Act) of any Shares acquired in
connection with this Agreement (through conversion or exercise of the Option or
otherwise) to be exempt under Rule 16b-3 promulgated under the Exchange Act.
SECTION 10. Limitation of Grantee Profit. (a) Notwithstanding any other
provision in this Agreement, in no event shall Grantee's Total Profit (as
defined below) exceed $635 million (the "Maximum Profit") and, if it otherwise
would exceed such amount, Grantee, at its sole discretion, shall either (i)
reduce the number of Shares subject to the Option, (ii) deliver to Issuer for
cancellation Shares (or other securities into which such Option Shares are
converted or exchanged) previously purchased by Grantee, (iii) pay cash to
Issuer, or (iv) any combination of the foregoing, so that Grantee's
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actually realized Total Profit shall not exceed the Maximum Profit after taking
into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, the Option may
not be exercised for a number of Option Shares as would, as of any Notice Date,
result in a Notional Total Profit (as defined below) of more than the Maximum
Profit and, if exercise of the Option otherwise would result in the Notional
Total Profit exceeding such amount, Grantee, at its discretion, may (in addition
to any of the actions specified in Section 10(a) above) (i) reduce the number of
Shares subject to the Option or (ii) increase the Purchase Price for that number
of Option Shares set forth in the Exercise Notice so that the Notional Total
Profit shall not exceed the Maximum Profit; provided that nothing in this
sentence shall restrict any exercise of the Option permitted hereby on any
subsequent date at the Purchase Price set forth in Section 1 hereof.
(c) For purposes of this Agreement, "Total Profit" shall mean: (i) the
aggregate amount (before taxes) of (A) any excess of (x) the net cash amounts or
fair market value of any property received by Grantee pursuant to a sale of
Option Shares (or securities into which such shares are converted or exchanged)
over (y) the Grantee's aggregate purchase price for such Option Shares (or other
securities), plus (B) any amounts received by Grantee on the repurchase of the
Option by Issuer pursuant to Section 7, plus (C) any termination fee paid by
Issuer and received by Grantee pursuant to Section 7.2(b) of the Merger
Agreement, minus (ii) the amounts of any cash previously paid by Grantee to
Issuer pursuant to this Section 10 plus the value of the Option Shares (or other
securities) previously delivered by Grantee to Issuer for cancellation pursuant
to this Section 10.
(d) For purposes of this Agreement, "Notional Total Profit" with respect to
any number of Option Shares as to which Grantee may propose to exercise the
Option shall mean the Total Profit determined as of the Notice Date assuming
that the Stock Option was exercised on such date for such number of Option
Shares and assuming that such Option Shares, together with all other Option
Shares previously acquired upon exercise of the Option and held by Grantee as of
such date, were sold for cash at the closing price per Share on the NYSE as of
the close of business on the preceding trading day (less customary brokerage
commissions).
(e) Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall affect the ability of Grantee to receive, nor relieve Issuer's
obligation to pay, any termination fee provided for in Section 7.2(b) of the
Merger Agreement; provided that if and to the extent the Total Profit received
by Grantee would exceed the Maximum Profit following receipt of such payment,
Grantee shall be obligated to promptly comply with the terms of Section 10(a).
(f) For purposes of Section 10(a) and clause (ii) of Section 10(c), the
value of any Option Shares delivered by Grantee to Issuer shall be the
Applicable Price of such Option Shares.
SECTION 11. Loss, Theft, Etc. of Agreement (and the Option granted
hereby). This Agreement is exchangeable, without expense, at the option of
Grantee, upon presentation and surrender of this Agreement at the principal
office of Issuer for other Agreements providing for Options of different
denominations entitling the holder thereof to purchase in the aggregate the same
number of Shares purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any other Agreements and related Options for which this
Agreement (and the Option granted hereby) may be exchanged.
C-7
<PAGE> 208
Upon receipt by Issuer of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Agreement, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Agreement, if mutilated, Issuer will execute
and deliver a new Agreement of like tenor and date. Any such new Agreement
executed and delivered shall constitute an additional contractual obligation on
the part of Issuer, whether or not the Agreement so lost, stolen, destroyed or
mutilated shall at any time be enforceable by anyone.
SECTION 12. Miscellaneous. (a) Expenses. Except as otherwise provided in
Section 9 hereof or in the Merger Agreement, each of the parties hereto shall
bear and pay all expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including fees and expenses of its own
financial consultants, investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
(c) Entire Agreement; No Third-Party Beneficiary; Severability. Except as
otherwise set forth in the Merger Agreement, this Agreement, together with the
Merger Agreement and the Monsanto Stock Option Agreement (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (b) is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or a
federal or state regulatory agency to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Option does not permit Grantee to acquire, or does not require Issuer
to repurchase, the full number of Shares as provided in Sections 2 and 7, as
adjusted pursuant to Section 6, it is the express intention of Issuer to allow
Grantee to acquire or to require Issuer to repurchase such lesser number of
Shares as may be permissible without any amendment or modification hereof.
(d) Governing Law. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING EFFECT TO
CHOICE OF LAW PRINCIPLES).
(e) Descriptive Headings. The descriptive headings contained herein are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given as set forth in Section 8.2 of the Merger
Agreement.
(g) Counterparts. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
of the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
C-8
<PAGE> 209
(h) Assignment. Grantee may not, without the prior written consent of
Issuer (which shall not be unreasonably withheld), assign this Agreement or the
Option to any other person. This Agreement shall not be assignable by Issuer
except by operation of law. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
(i) Representations and Warranties. The representations and warranties
contained in Sections 3.1(a)(i) and 3.2(a)(i) of the Merger Agreement, and, to
the extent they relate to this Stock Option Agreement, in Sections 3.1(b), (c),
(f) and (g) and Section 3.2(c) of the Merger Agreement, are incorporated herein
by reference.
(j) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(k) Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
Both parties further agree to waive any requirement for the securing or posting
of any bond in connection with the obtaining of any such equitable relief and
that this provision is without prejudice to any other rights that the parties
hereto may have for any failure to perform this Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first above written.
PHARMACIA & UPJOHN, INC.
By: /s/ FRED HASSAN
-----------------------------------
Name: Fred Hassan
Title: Chief Executive Officer
By: /s/ J. SOREN GYLL
-----------------------------------
Name: J. Soren Gyll
Title: Chairman of the Board
MONSANTO COMPANY
By: /s/ R. WILLIAM IDE III
-----------------------------------
Name: R. William Ide III
Title: Senior Vice President and
Secretary
C-9
<PAGE> 210
ANNEX D
PERSONAL AND CONFIDENTIAL
December 19, 1999
Board of Directors
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, MO 63167
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Monsanto Company (the "Company"), of the exchange ratio of 1.19 shares
of common stock, par value $2.00 per share, of the Company (the "Company Common
Stock") to be exchanged for each outstanding share of common stock, par value
$0.01 per share ("PNU Common Stock"), of Pharmacia & Upjohn, Inc. ("PNU") other
than shares owned directly or indirectly by Monsanto or directly or indirectly
by PNU (the "Exchange Ratio"), pursuant to the Agreement and Plan of Merger,
dated as of December 19, 1999 (the "Agreement"), among the Company, MP Sub,
Incorporated and PNU.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as its financial advisor from time to
time, including having acted as: (i) co-lead managing underwriter in connection
with the issuance of 22,500,000 shares of Company Common Stock and $700 million
principal amount of 6.5% Adjustable Conversion-Rate Equity Security Units in
November 1998; (ii) financial advisor in connection with the purchase by the
Company in December 1998 of all the outstanding shares of capital stock of
Dekalb Genetics Corporation not then owned by the Company; and (iii) co-lead
managing underwriter in connection with the issuance of certain Notes and Bonds
of varying maturities and interest rates in December 1998. We also have acted as
its financial advisor in connection with, and have participated in certain of
the negotiations leading to, the Agreement. We also have provided certain
investment banking services to PNU from time to time, including having acted as
its financial advisor in connection with its acquisition of Sugen, Inc. in
August 1999 and as its agent on its stock repurchase program instituted in
August 1999, and we may provide investment banking services to PNU and its
affiliates in the future. Goldman, Sachs & Co. provides a full range of
financial advisory and securities services and, in the course of its normal
trading activities, may from time to time effect transactions and hold
securities, including derivative securities, of the Company, PNU and their
respective affiliates for its own account and for the accounts of customers. As
of the date hereof, Goldman, Sachs & Co. held a net short position of 841,166
shares of Company Common Stock, a net long position of options to purchase
348,600 shares of Company Common Stock, an aggregate $47,045,000 principal
amount of Notes and Bonds of varying maturities and interest rates and a net
short position of 142,430 of 6.5% Adjustable Conversion-Rate Equity Security
Units. As of the date hereof, Goldman, Sachs & Co. held a net short position of
8,136 shares of PNU Common Stock, a long
<PAGE> 211
Board of Directors
Monsanto Company
December 19, 1999
Page Two
position of options to purchase 50,000 shares of PNU Common Stock and a long
position of options to sell 50,000 shares of PNU Common Stock.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company and PNU (including its predecessor) for the five years ended
December 31, 1998; certain interim reports to stockholders and Quarterly Reports
on Form 10-Q of the Company and PNU; certain other communications from the
Company and PNU to their respective stockholders; and certain internal financial
analyses and forecasts for the Company and PNU prepared by the managements of
the Company and PNU, including certain cost savings and operating synergies
projected by the managements of the Company and PNU to result from the
transaction contemplated by the Agreement (the "Synergies"). We also have held
discussions with members of the senior managements of the Company and PNU
regarding their assessment of the strategic rationale for, and the potential
benefits of, the transaction contemplated by the Agreement and the past and
current business operations, financial condition and future prospects of their
respective companies. In addition, we have reviewed the reported price and
trading activity for the Company Common Stock and PNU Common Stock, compared
certain financial and stock market information for the Company and PNU with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the pharmaceutical industry specifically and in other industries
generally and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by or discussed with us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In that
regard, we have assumed with your consent that the forecasts, including the
Synergies, have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the Company and PNU. We also have
taken into account the Company's expectation regarding the accounting treatment
of the transaction, as well as that the consummation of the transaction is not
conditioned upon any particular accounting treatment. We also have assumed that
all governmental, regulatory or other consents and approvals necessary for the
consummation of the transaction contemplated by the Agreement will be obtained
without any adverse effect on the Company or PNU or on the contemplated benefits
of the transaction contemplated by the Agreement. In addition, we have not made
an independent evaluation or appraisal of the assets and liabilities of the
Company or PNU or any of their respective subsidiaries and we have not been
furnished with any such evaluation or appraisal. Our advisory services and the
opinion expressed herein are provided for the information and assistance of the
Board of Directors of the Company in connection with its consideration of the
transaction contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of Company Common Stock should vote with
respect to such transaction.
D-2
<PAGE> 212
Board of Directors
Monsanto Company
December 19, 1999
Page Three
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to the Company.
Very truly yours,
D-3
<PAGE> 213
ANNEX E
December 19, 1999
Board of Directors
Monsanto Company
800 North Lindbergh Blvd.
St. Louis, Missouri 63167
Members of the Board:
We understand that Monsanto Company, a Delaware Corporation ("Monsanto" or
the "Company"), MP Sub, Incorporated, a Delaware corporation and a direct
wholly-owned subsidiary of Monsanto ("Merger Sub") and Pharmacia & Upjohn, Inc.,
a Delaware corporation ("PNU") propose to enter into an Agreement and Plan of
Merger, dated December 19, 1999 (the "Merger Agreement"), which provides, among
other things, for the merger of Merger Sub with and into PNU ("the Merger").
Pursuant to the Merger, (i) each share of issued and outstanding common stock,
par value $0.01 per share, of PNU ("PNU Common Stock"), other than shares owned
or held directly or indirectly by Monsanto or directly or indirectly by PNU,
will be converted into the right to receive 1.19 shares of Common Stock, par
value $2.00 per share, of Monsanto ("Monsanto Common Stock"), and (ii) each
share of issued and outstanding Series A Convertible Perpetual Preferred Stock,
par value $0.01 per share, of PNU ("PNU Convertible Preferred Stock") will be
converted into the right to receive one share of a newly issued series of
convertible perpetual preferred stock to be issued by Monsanto ("Monsanto
Convertible Preferred Stock"). The terms and conditions of the Merger are more
fully set forth in the Merger Agreement. We further understand that Monsanto and
PNU propose to enter into (i) a Stock Option Agreement dated December 19, 1999
("PNU Stock Option Agreement") pursuant to which PNU is granting to Monsanto an
option to purchase shares of PNU Common Stock and (ii) a Stock Option Agreement
dated December 19, 1999 (the "Monsanto Stock Option Agreement") pursuant to
which Monsanto is granting to PNU an option to purchase shares of Monsanto
Common Stock. The terms and conditions of the Stock Option Agreements are more
fully set forth in the Stock Option Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to Monsanto.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Monsanto and PNU;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the
management of the Company;
(iii) reviewed certain internal financial statements and other
financial and operating data concerning PNU prepared by PNU Management and
discussed financial condition and the prospects of PNU with management of
PNU;
(iv) discussed the past and current operations and financial condition
and the prospects of the Company with executives of the Company;
<PAGE> 214
(v) reviewed information relating to certain strategic, financial and
operational benefits anticipated from the Merger, prepared by the
management of Monsanto and PNU;
(vi) reviewed the reported prices and trading activity for Monsanto
Common Stock and PNU Common Stock;
(vii) compared the financial performance of Monsanto and PNU and the
prices and trading activity of Monsanto Common Stock and PNU Common Stock
with that of certain other comparable publicly-traded companies and their
securities;
(viii) reviewed estimated cost synergies provided by Monsanto
management;
(ix) reviewed the financial terms, to the extent publicly available,
of certain comparable merger of equals transactions;
(x) participated in certain discussions among representatives of the
Company and PNU and certain other parties and their financial and legal
advisors;
(xi) reviewed the draft Merger Agreement dated December 19, 1999 and
related documents; and
(xii) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections including information
reflecting to certain strategic, financial and operational benefits anticipated
from the merger, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of the Company. In addition, we assumed that the
merger will be consummated in accordance with the terms set forth in the merger
agreement including, among other things, that the merger shall qualify as a
reorganization within the meaning of Section 386(a) of the Internal Revenue Code
of 1986 as amended. We have not made any independent valuation or appraisal of
the assets or liabilities of the Company, nor have we been furnished with any
such appraisals. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and have received fees
for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company only and may not be used for any other purpose without
our prior written consent; except that this opinion may be included in its
entirety in any filing made by Monsanto with the Securities and Exchange
Commission in connection with the Merger.
E-2
<PAGE> 215
Based on the foregoing, we are of the opinion on the date hereof that the
Exchange Ratio is fair from a financial point of view to Monsanto.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By:
--------------------------------------
Stephen R. Munger
Managing Director
E-3
<PAGE> 216
ANNEX F
December 19, 1999
The Board of Directors
Pharmacia & Upjohn, Inc.
100 Route 206 North
Peapack, NJ 07977
Ladies and Gentlemen:
We understand that Pharmacia & Upjohn, Inc. ("PNU") and The Monsanto
Company ("Monsanto") propose to enter into an Agreement and Plan of Merger to be
dated December 19, 1999, (the "Agreement") pursuant to which a newly formed
wholly owned subsidiary of Monsanto will be merged with and into PNU (the
"Merger"). We further understand that at the effective time of the Merger, (i)
each issued and outstanding share of common stock, par value $0.01 per share, of
PNU ("PNU Common Stock"), will be converted into the right to receive 1.19
shares (the "Exchange Ratio") of common stock, par value $2.00 per share, of
Monsanto ("Monsanto Common Stock"), (ii) each share of Series A Convertible
Preferred Stock, par value $0.01 per share, of PNU will be converted into the
right to receive one share of a new series of preferred stock to be issued by
Monsanto, and (iii) each outstanding option to purchase shares of PNU Common
Stock will be converted into a similar option to purchase shares of Monsanto
Common Stock, adjusted to reflect the Exchange Ratio pursuant to the terms of
the Agreement. You have provided us with a copy of the Agreement.
You have asked us to render our opinion as to whether the Exchange Ratio is
fair, from a financial point of view, to the shareholders of PNU.
In the course of performing our review and analyses for rendering this
opinion, we have:
- reviewed the Agreement;
- reviewed the Stock Option Agreements (as defined in the Agreement);
- reviewed each of PNU's and Monsanto's Annual Reports to Shareholders and
Annual Reports on Form 10-K for the years ended December 31, 1996 through
1998, and their respective Quarterly Reports on Form 10-Q for the periods
ended March 31, 1999, June 30, 1999 and September 30, 1999;
- reviewed certain operating and financial information provided to us by
the senior management of PNU relating to PNU's business and prospects, as
well as projections for PNU for the fiscal years ending December 31, 1999
through 2003 prepared by analysts, which projections senior management of
PNU informed us are reasonable and reflect PNU's best currently available
estimates and judgments (the "PNU Projections"), as well as certain other
forward-looking information with regard to PNU;
- reviewed certain operating and financial information provided to us by
the senior management of PNU and Monsanto relating to Monsanto's business
and prospects, including financial projections of Monsanto for the fiscal
years ending December 31, 1999 through 2004 (the "Monsanto Projections")
(the PNU Projections and the Monsanto Projections are collectively
referred to herein as the "Projections"), as well as certain other
forward-looking information with regard to Monsanto;
<PAGE> 217
Pharmacia & Upjohn, Inc.
December 19, 1999
Page 2
- reviewed certain estimates of cost savings and other combination benefits
(collectively, the "Projected Benefits") expected to result from the
Merger, jointly prepared and provided to us by the senior managements of
PNU and Monsanto;
- met with certain members of the senior managements of PNU and Monsanto
and Monsanto's advisors to discuss (i) the current landscape and
competitive dynamics related to the markets in which PNU and Monsanto
operate, (ii) each company's operations, historical financial statements,
prospects and financial condition, (iii) each company's views of the
strategic, business, operational and financial rationale for, and
expected strategic benefits and other implications of, the Merger, (iv)
the PNU Projections, the Monsanto Projections and the Projected Benefits
and (v) certain other assumptions and judgments underlying certain
estimates which we deemed relevant to our analysis;
- reviewed the historical prices, trading multiples and trading volumes of
the Monsanto Common Stock and PNU Common Stock;
- reviewed publicly available financial data, stock market performance data
and trading multiples of companies which we deemed generally comparable
to PNU and Monsanto or otherwise relevant to our analysis;
- reviewed the terms, to the extent publicly available, of recent merger
and acquisition transactions which we deemed generally comparable to the
Merger or otherwise relevant to our analysis; and
- conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including
without limitation the Projections and the Projected Benefits, reviewed by us.
With respect to the Projections and the Projected Benefits, we have assumed that
they are reasonable and that they reflect the best currently available estimates
and judgments of the senior managements of PNU and Monsanto as to the expected
future performance of PNU and Monsanto, respectively. We have not assumed any
responsibility for the independent verification of any such information or of
the Projections and Projected Benefits provided to us, and we have further
relied upon the assurances of the senior managements of PNU and Monsanto that
they are unaware of any facts that would make the information, Projections and
Projected Benefits provided to us incomplete or misleading.
In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets or liabilities of PNU and Monsanto, nor have
we been furnished with any such appraisals. In rendering our opinion, we have
analyzed the Merger as a strategic business combination not involving a sale of
control of PNU, and we have not solicited, nor were we asked to solicit, third
party acquisition interest in PNU. We have assumed that the Merger will (i)
qualify as a tax-free "reorganization" within the meaning of Section 368(a) of
the Internal Revenue Code and (ii) be consummated without any regulatory
limitations, restrictions, conditions, amendments or modifications that
collectively would have a material adverse effect on the combined company after
the merger. Our opinion is necessarily based on economic, market and other
conditions, and
F-2
<PAGE> 218
Pharmacia & Upjohn, Inc.
December 19, 1999
Page 3
the information made available to us, as of the date hereof. We understand that
it is expected that the Merger will be treated as a pooling-of-interests for
accounting purposes but that such treatment is not a condition to consummation
of the Merger.
We do not express any opinion as to the price or range of prices at which
the PNU Common Stock and Monsanto Common Stock may trade subsequent to the
announcement of the Merger or as to the price or range of prices at which the
shares of common stock of Monsanto may trade subsequent to the consummation of
the Merger.
We have acted as a financial advisor to PNU in connection with the Merger
and will receive a fee for such services. We will also receive an additional fee
if the proposed Merger is consummated. Prior to this advisory assignment, we
have provided certain investment banking services to PNU for which we received
customary fees. In the ordinary course of business, Bear Stearns may actively
trade the equity and debt securities of PNU and/or Monsanto for our own account
and for the account of our customers and, accordingly, may at any time hold a
long or short position in such securities.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of PNU and does not constitute a recommendation to the
Board of Directors of PNU or any holders of PNU Common Stock as to how to vote
in connection with the Merger. This opinion does not address PNU's underlying
business decision to pursue the Merger. This letter is not to be used for any
other purpose, or reproduced, disseminated, quoted from or referred to at any
time, in whole or in part, without our prior written consent; provided, however,
that this letter may be included in its entirety in any joint proxy
statement/prospectus to be distributed to the holders of PNU Common Stock in
connection with the Merger.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair, from a financial point of view, to the
shareholders of PNU.
Very truly yours,
BEAR, STEARNS & CO. INC.
By:
-----------------------------------
Executive Vice President
F-3
<PAGE> 219
ANNEX G
December 19, 1999
Board of Directors
Pharmacia & Upjohn, Inc.
100 Route 206 North
Peapack, NJ 07977
Attention: Mr. Christopher Coughlin
Executive Vice President and Chief Financial Officer
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the common stockholders of Pharmacia & Upjohn, Inc. (the "Company")
of the consideration to be received by them in connection with the proposed
merger of equals contemplated by the Agreement and Plan of Merger, dated as of
December 19, 1999 (the "Agreement"), between the Company and The Monsanto
Company ("Monsanto"). Pursuant to the Agreement, a newly formed wholly owned
subsidiary of Monsanto will be merged with and into the Company (the "Merger"),
and the Company will continue as the surviving corporation. At the effective
time of the Merger, (i) each share of common stock, par value $0.01 per share,
of the Company (the "Company Common Stock") issued and outstanding immediately
prior to the effective time (other than shares to be canceled pursuant to the
Agreement) will be converted into the right to receive 1.19 shares of common
stock, par value $2.00 per share, of Monsanto (the "Monsanto Common Stock"), and
(ii) each share of Series A Convertible Preferred Stock, par value $0.01 per
share, of the Company will be converted into the right to receive one share of a
new series of convertible preferred stock to be issued by Monsanto.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii) the
Stock Option Agreements (as defined in the Agreement) to be entered into by the
Company and Monsanto; (iii) certain publicly available information concerning
the business of the Company, Monsanto and certain other companies engaged in
businesses comparable to those of the Company and Monsanto, and the reported
market prices for certain other companies' securities deemed comparable; (iv)
publicly available terms of certain transactions involving companies comparable
to the Company and Monsanto and the consideration received for such companies;
(v) current and historical market prices of the common stock of the Company and
Monsanto; (vi) the audited financial statements of the Company and Monsanto for
the fiscal year ended December 31, 1998, and the unaudited financial statements
of the Company and Monsanto for the periods ended March 31, 1999, June 30, 1999
and September 30, 1999; (vii) certain publicly available agreements with respect
to outstanding indebtedness or obligations of the Company and Monsanto; and
(viii) certain internal financial analyses and forecasts prepared by the Company
and Monsanto and their respective managements, as well as projections for the
Company prepared by equity research analysts for the fiscal years ending
December 31, 1999 through 2004 (the "Florida forecast").
In addition, we have held discussions with certain members of the
management of the Company and Monsanto with respect to certain aspects of the
Merger, the past and current business operations of the Company and Monsanto,
the financial condition and future prospects and operations of the Company and
Monsanto, the effects of the Merger on the financial condition and future
prospects of the Company and Monsanto, and certain other matters we believed
necessary or appropriate to our inquiry. We have reviewed such
<PAGE> 220
other financial studies and analyses and considered such other information as we
deemed appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and Monsanto or otherwise
reviewed by us, and we have not assumed any responsibility or liability
therefor. We have not conducted any valuation or appraisal of any assets or
liabilities, nor have any such valuations or appraisals been provided to us. In
relying on financial analyses, senior management of the Company has informed us
that the Florida forecast prepared by analysts is reasonable and reflects the
Company's best currently available estimates and judgments by management as to
the expected future results of operations and financial condition of the
Company. We have also assumed that the Merger will have the tax consequences
described in discussions with, and materials furnished to us by, representatives
of the Company, and that the other transactions contemplated by the Agreement
will be consummated as described in the Agreement. We also understand that the
Company and Monsanto intend to treat the Merger as a pooling of interests for
accounting purposes, but that such treatment is not a condition to consummation
of the Merger. We have relied as to all legal matters relevant to rendering our
opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. It should be understood that subsequent developments may affect this
opinion and that we do not have any obligation to update, revise, or reaffirm
this opinion. We are expressing no opinion herein as to the price at which the
Company Common Stock or the Monsanto Common Stock will trade at any future time.
We have acted as financial advisor to the Company with respect to the
proposed Merger and will receive a fee from the Company for our services. We
will also receive an additional fee if the proposed Merger is consummated. We
have acted as a financial advisor to the Company with respect to other
contemplated transactions. In addition, one of our affiliates has a credit
relationship with the Company, and we have served as a co-lead for the Company's
secondary equity offering. As you are aware, one our affiliates has from time to
time had a credit relationship with Monsanto and we have assisted Monsanto on
debt financings, investment banking advisory services, as well as a series of
tax structured private placements. In the ordinary course of their businesses,
J.P. Morgan Securities Inc. and its affiliates may actively trade the debt and
equity securities of the Company or Monsanto for their own account or for the
accounts of customers and, accordingly, they may at any time hold long or short
positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the consideration to be received by the Company's common
stockholders in the proposed Merger is fair, from a financial point of view, to
such stockholders.
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This letter is provided to the Board of Directors of the Company in
connection with and for the purposes of its evaluation of the Merger. This
opinion does not constitute a recommendation to any stockholder of the Company
as to how such stockholder should vote with respect to the Merger. This opinion
may be reproduced in full in any proxy or information statement mailed to
stockholders of the Company.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By:
--------------------------------
Name: Willard Boothby
Title: Managing Director
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ANNEX H
MONSANTO CHARTER AMENDMENTS
1. Change the name of Monsanto effective as of the consummation of the
merger by amending Article I to read:
"The name of the Corporation shall be Pharmacia Corporation."
2. Increase the number of shares of authorized common stock of Monsanto to
three billion (3,000,000,000) and change the par value of authorized preferred
stock of Monsanto from no par value to $.01 par value per share, to become
effective immediately before the consummation of the merger, by amending the
first sentence of Article IV to read:
"The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 3,010,000,000 shares, to be
divided into two classes consisting of (a) ten million (10,000,000) shares
of preferred stock, par value $.01 per share (hereinafter designated
"Preferred Stock"), and (b) three billion (3,000,000,000) shares of common
stock of a par value of $2 per share (hereinafter designated "Common
Stock")."
3. Eliminate the requirement that preferred stock have no more than one
vote per share by deleting the last sentence of the first paragraph of Article
IV, Section I, and amending Article IV, Section I(b) to read:
"Whether the shares of such series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of
such voting rights;"
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ANNEX I
PHARMACIA CORPORATION
AMENDED AND RESTATED BY-LAWS
AS ADOPTED , 2000
OFFICES
1. Registered
The name of the registered agent of the Company is Corporation Service
Company and the registered office of the Company shall be located in the City of
Wilmington, County of New Castle, State of Delaware.
2. Other
The Company shall have offices at such places both within or without the
State of Delaware as the Board of Directors may from time to time designate or
the business of the Company may require.
STOCKHOLDERS' MEETINGS
3. Annual Meeting
An annual meeting of stockholders shall be held on such day and at such
time as may be designated by the Board of Directors for the purpose of electing
Directors and for the transaction of such other business as properly may come
before such meeting. Any previously scheduled annual meeting of the stockholders
may be postponed by resolution of the Board of Directors upon public notice
given on or prior to the date previously scheduled for such annual meeting of
stockholders.
4. Business to be Conducted at Annual Meeting
(a) At an annual meeting of stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) pursuant to the
Company's notice of the meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder of the Company who is a stockholder of
record at the time of giving of the notice provided for in this By-Law, who
shall be entitled to vote at such meeting and who shall have complied with the
notice procedures set forth in this By-Law.
(b) For business to be properly brought before an annual meeting by a
stockholder pursuant to Section (a)(iii) of this By-Law, notice in writing must
be delivered or mailed to the Secretary and received at the principal offices of
the Company, not less than 90 days nor more than 120 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the meeting is advanced by more than 30 days or
delayed by more than 60 days from such anniversary date, notice by the
stockholder must be received not earlier than the 120th day prior to such annual
meeting and not later than the close of business on the later of the 90th day
prior to such annual meeting or the tenth day following the day on which public
announcement of the date of the annual meeting is first made. Such stockholder's
notice shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business to be brought
before the annual meeting and the reasons for conducting such business at such
meeting; (ii) the name and address, as they appear on
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the Company's books, of the stockholder proposing such business, and the name
and address of the beneficial owner, if any, on whose behalf the proposal is
made; (iii) the class and number of shares of the Company's stock which are
beneficially owned by the stockholder, and by the beneficial owner, if any, on
whose behalf the proposal is made; and (iv) any material interest of the
stockholder, and of the beneficial owner, if any, on whose behalf the proposal
is made, in such business. For purposes of these By-Laws, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly filed by
the Company with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(b) of the Securities Exchange Act of 1934, as amended.
(c) Notwithstanding anything in these By-Laws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this By-Law. The chairman of the meeting may, if the facts warrant,
determine that the business was not properly brought before the meeting in
accordance with the provisions of this By-Law; and if the chairman should so
determine, the chairman shall so declare to the meeting, and any such business
not properly brought before the meeting shall not be transacted. Notwithstanding
the foregoing provisions of this By-Law, a stockholder shall also comply with
all applicable requirements of the Securities Exchange Act of 1934, as amended,
(the "Exchange Act") and the rules and regulations thereunder with respect to
the matters set forth in this By-Law. Nothing in this By-Law shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the
Company's proxy statement pursuant to Rule 14a-8 under the Exchange Act. The
provision of this Section 4 shall also govern what constitutes timely notice for
purposes of Rule 14a-4(c) of the Exchange Act.
5. Special Meetings
Special meetings of stockholders, unless otherwise provided by the law of
Delaware, may be called by the Chairman of the Board or the Chief Executive
Officer, or pursuant to resolution of the Board of Directors, and such person
calling the meeting shall have the sole right to determine the proper purpose or
purposes of such meeting. Business transacted at a special meeting of
stockholders shall be confined to the purpose or purposes of the meeting as
stated in the notice of such meeting. Any previously scheduled special meeting
of the stockholders may be postponed by resolution of the Board of Directors
upon notice by public announcement given on or prior to the date previously
scheduled for such special meeting of stockholders.
6. Place of Meetings
Meetings of stockholders shall be held at a location determined by
resolution of the Board of Directors.
7. Notice of Meetings
Except as otherwise required by the law of Delaware, notice of each meeting
of the stockholders, whether annual or special, shall, at least ten days but not
more than sixty days before the date of the meeting, be given to each
stockholder of record entitled to vote at the meeting by mailing such notice in
the United States mail, postage prepaid, addressed to such stockholder at such
stockholder's address as the same appears on the records of the Company. Such
notice shall state the place, date and hour of the meeting, and in the case of a
special meeting, shall also state the purpose or purposes thereof.
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8. Nominations of Directors
(a) Only persons who are nominated in accordance with the procedures set
forth in these By-Laws shall be eligible for election as Directors. Nominations
of persons for election to the Board of Directors may be made at a meeting of
stockholders (i) by or at the direction of the Board of Directors or (ii) by any
stockholder of the Company who is a stockholder of record at the time of giving
of the notice provided for in this By-Law, who shall be entitled to vote for the
election of Directors at the meeting and who complies with the notice procedures
set forth in this By-Law.
(b) Nominations by stockholders shall be made pursuant to notice in
writing, delivered or mailed to the Secretary and received at the principal
offices of the Company (i) in the case of an annual meeting, not less than 60
days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting, provided, however, that in the event that the date of the
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, notice by the stockholder must be received not earlier
than the 90th day prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting or the tenth
day following the day on which public announcement of the date of the meeting is
first made; or (ii) in the case of a special meeting at which directors are to
be elected, not earlier than the 90th day prior to such special meeting and not
later than the close of business on the later of the 60th day prior to such
special meeting or the tenth day following the day on which public announcement
of the date of the meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting is first made. In the case of a special
meeting of stockholders at which Directors are to be elected, stockholders may
nominate a person or persons (as the case may be) for election only to such
position(s) as are specified in the Company's notice of meeting as being up for
election at such meeting. Such stockholder's notice shall set forth (i) as to
each person whom the stockholder proposes to nominate for election or reelection
as a Director, all information relating to such person that would be required to
be disclosed in solicitations of proxies for election of Directors, or is
otherwise required, in each case pursuant to Regulation 14A under the Exchange
Act (including such person's written consent to being named as a nominee and to
serving as a Director if elected); (ii) as to the stockholder giving the notice,
the name and address, as they appear on the Company's books, of such stockholder
and the class and number of shares of the Company's stock which are beneficially
owned by such stockholder; and (iii) as to any beneficial owner on whose behalf
the nomination is made, the name and address of such person and the class and
number of shares of the Company's stock which are beneficially owned by such
person. At the request of the Board of Directors, any person nominated by the
Board of Directors for election as a Director shall furnish to the Secretary
that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. Notwithstanding anything in this By-
Law to the contrary, in the event that the number of directors to be elected to
the Board of Directors of the Company is increased and there is no public
statement naming all the nominees for Director or specifying the size of the
increased Board of Directors made by the Company at least 70 days prior to the
first anniversary of the preceding year's annual meeting, a stockholder's notice
required by this By-Law shall also be considered timely, but only with respect
to nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal offices of the Company not later
than the close of business on the 10th day following the day on which such
public announcement is first made by the Company.
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(c) No person shall be eligible for election as a Director of the Company
unless nominated in accordance with the procedures set forth in these By-Laws.
The chairman of the meeting may, if the facts warrant, determine that a
nomination was not made in accordance with the procedures prescribed in this
By-Law; and if the chairman should so determine, the chairman shall so declare
to the meeting, and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this By-Law, a stockholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this By-Law.
9. List of Stockholders
(a) The Secretary of the Company shall prepare, at least ten days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
(b) The stock ledger of the Company shall be the only evidence as to the
identity of the stockholders entitled (i) to vote in person or by proxy at any
meeting of stockholders, or (ii) to exercise the rights in accordance with
Delaware law to examine the stock ledger, the list required by this By-Law or
the books and records of the Company.
10. Quorum
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum for the transaction of any business at all meetings of the stockholders,
except as otherwise provided by the law of Delaware, by the Certificate of
Incorporation or by these By-Laws. The stockholders present at any duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of sufficient stockholders to render the
remaining stockholders less than a quorum. Whether or not a quorum is present,
either the chairman of the meeting or a majority of the stockholders entitled to
vote thereat, present in person or by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting. At such adjourned meeting at which the requisite amount of
voting stock shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally noticed.
11. Voting and Required Vote
Subject to the provisions of the Certificate of Incorporation, each
stockholder shall, at every meeting of stockholders, be entitled to one vote for
each share of capital stock held by such stockholder. Subject to the provisions
of the Certificate of Incorporation and Delaware law, Directors shall be chosen
by the vote of a plurality of the shares present in person or represented by
proxy at the meeting; and all other questions shall be determined
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by the affirmative vote of the majority of shares present in person or
represented by proxy at the meeting. Elections of Directors shall be by written
ballot.
12. Proxies
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for such stockholder by proxy,
provided the instrument authorizing such proxy to act shall have been executed
in writing in the manner prescribed by law. No proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period.
13. Inspectors of Election; Polls
Before each meeting of stockholders, the Chairman of the Board or another
officer of the Company designated by resolution of the Board of Directors shall
appoint one or more inspectors of election for the meeting and may appoint one
or more inspectors to replace any inspector unable to act. If any of the
inspectors appointed shall fail to attend, or refuse or be unable to serve,
substitutes shall be appointed by the chairman of the meeting. Each inspector
shall have such duties as are provided by law, and shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of such person's ability. The chairman of the meeting
shall fix and announce at the meeting the date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at
the meeting.
14. Organization
The Chairman of the Board of Directors, or in the Chairman's absence, (i)
the Chief Executive Officer, if a member of the Board of Directors, (ii) one of
the Vice Chairmen of the Board who is a member of the Board of Directors, if
any, in such order as may be designated by the Chairman of the Board, in that
order, or (iii) in the absence of each of them, a chairman chosen by a majority
of the Directors present, shall act as chairman of the meetings of the
stockholders. The order of business and the procedure at any meeting of
stockholders shall be determined by the chairman of the meeting.
15. No Stockholder Action by Written Consent
Any action required or permitted to be taken by the stockholders of the
Company must be effected at a duly called annual or special meeting of
stockholders of the Company and may not be effected by any consent in writing in
lieu of a meeting of such stockholders.
BOARD OF DIRECTORS
16. General Powers, Number, Term of Office
The business of the Company shall be managed under the direction of its
Board of Directors. Subject to the rights of the holders of any series of
preferred stock, par value $0.01 per share, of the Company ("Preferred Stock")
to elect additional directors under specified circumstances, the number of
directors of the Company which shall constitute the whole Board shall be not
less than five nor more than 20. The exact number of directors within the
minimum and maximum limitation specified in the preceding sentence shall be
fixed from time to time exclusively by resolution of a majority of the whole
Board. The Directors, other than those who may be elected by the holders of any
series of Preferred
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Stock, shall be divided into three classes, as nearly equal in number as
possible. One class of directors shall have a term expiring at the annual
meeting of stockholders to be held in 1998, another class shall have a term
expiring at the annual meeting of stockholders to be held in 1999, and another
class shall have a term expiring at the annual meeting of stockholders to be
held in 2000. Members of each class shall hold office until their successors are
elected and qualified. At each annual meeting of the stockholders of the Company
commencing with the 1998 annual meeting, (1) directors elected to succeed those
directors whose terms then expire shall be elected to hold office for a term
expiring at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until his or her successor shall
have been duly elected and qualified, and (2) only if authorized by a resolution
of the Board of Directors, directors may be elected to fill any vacancy on the
Board of Directors, regardless of how such vacancy shall have been created.
Directors need not be stockholders of the Company or residents of the State of
Delaware.
17. Vacancies
Subject to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, and unless the Board
of Directors otherwise determines, vacancies resulting from death, resignation,
retirement, disqualification, removal from office or other cause, and newly
created directorships resulting from any increase in the authorized number of
directors, may be filled only by a director nominated by the nominating
committee and approved by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the Board of Directors, or by a sole
remaining director, and directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the Board of Directors shall shorten the
term of any incumbent director.
18. Regular Meetings
Following the annual meeting of stockholders, the first meeting of each
newly elected Board of Directors may be held, without notice, on the same day
and at the same place as such stockholders' meeting. The Board of Directors by
resolution may provide for the holding of regular meetings and may fix the times
and places at which such meetings shall be held. Notice of regular meetings
shall not be required provided that whenever the time or place of regular
meetings shall be fixed or changed, notice of such action shall be given
promptly to each director, as provided in Section 19 below, who was not present
at the meeting at which such action was taken.
19. Special Meetings
Special meetings of the Board of Directors shall be held whenever called by
the Chairman of the Board of Directors or the Chief Executive Officer, or in the
absence of each of them, by any Vice Chairman of the Board, in such order as may
be designated by the Chairman of the Board, or by the Secretary at the written
request of a majority of the Directors.
20. Notices
Notice of any special meeting of the Board of Directors shall be addressed
to each Director at such Director's residence or business address and shall be
sent to such Director
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by mail, electronic mail, telecopier, telegram or telex or telephoned or
delivered to such Director personally. If such notice is sent by mail, it shall
be sent not later than three days before the day on which the meeting is to be
held. If such notice is sent by electronic mail, telecopier, telegram or telex,
it shall be sent not later than 12 hours before the time at which the meeting is
to be held. If such notice is telephoned or delivered personally, it shall be
received not later than 12 hours before the time at which the meeting is to be
held. Such notice shall state the time, place and purpose or purposes of the
meeting.
21. Quorum
One-third of the total number of Directors constituting the whole Board,
but not less than two, shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, but if less than such required number
of Directors for a quorum is present at a meeting, a majority of the Directors
present may adjourn the meeting from time to time without further notice. Except
as otherwise specifically provided by the law of Delaware, the Certificate of
Incorporation or these By-Laws, the act of a majority of the Directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors.
22. Organization
At each meeting of the Board of Directors, the Chairman of the Board or, in
the Chairman's absence, (i) the Chief Executive Officer, if a member of the
Board of Directors, (ii) one of the Vice Chairmen of the Board who is a member
of the Board of Directors, if any, in such order as may be designated by the
Chairman of the Board, in that order, or (iii) in the absence of each of them, a
chairman chosen by a majority of the Directors present, shall act as chairman of
the meeting, and the Secretary or, in the Secretary's absence, an Assistant
Secretary or any employee of the Company appointed by the chairman of the
meeting, shall act as secretary of the meeting.
23. Resignations
Any Director may resign at any time by giving written notice to the
Chairman of the Board, the Chief Executive Officer or the Secretary of the
Company. Such resignation shall take effect upon receipt thereof or at any later
time specified therein; and, unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
24. Removal
Subject to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, any director may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 80 percent of the voting power of the then
outstanding Voting Stock, voting together as a single class. For purposes of
these By-Laws, "Voting Stock" shall mean the outstanding shares of capital stock
of the Company entitled to vote generally in the election of directors.
25. Action Without a Meeting
Unless otherwise restricted by the Certificate of Incorporation or these
By-Laws, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting if
all members of the Board or
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committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
26. Location of Books
Except as otherwise provided by resolution of the Board of Directors and
subject to the law of Delaware, the books of the Company may be kept at the
principal offices of the Company and at such other places as may be necessary or
convenient for the business of the Company.
27. Dividends
Subject to the provisions of the Certificate of Incorporation and the law
of Delaware, dividends upon the capital stock of the Company may be declared by
the Board of Directors at any regular or special meeting. Dividends may be paid
in cash, in property, or in shares of the Company's capital stock.
28. Compensation of Directors
Directors shall receive such compensation and benefits as may be determined
by resolution of the Board for their services as members of the Board and
committees. Directors shall also be reimbursed for their expenses of attending
Board and committee meetings. Nothing contained herein shall preclude any
Director from serving the Company in any other capacity and receiving
compensation therefor.
29. Additional Powers
In addition to the powers and authorities by these By-Laws expressly
conferred upon it, the Board of Directors may exercise all such powers of the
Company and do all such lawful acts and things as are not by statute or by the
Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
COMMITTEES OF DIRECTORS
30. Designation, Power, Alternate Members
(a) The Board of Directors shall have an executive committee, a
compensation committee, a nominating committee, an audit committee and may, by
resolution or resolutions passed by a majority of the whole Board, designate one
or more additional committees, each committee to consist of two or more of the
Directors of the Company. Any such committee, to the extent provided in said
resolution or resolutions and subject to any limitations provided by law, shall
have and may exercise the powers of the Board of Directors in the management of
the business and affairs of the Company. The Board of Directors may designate
one or more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. If at a meeting
of any committee one or more of the members thereof is absent or disqualified,
and if either the Board of Directors has not so designated any alternate member
or members, or the number of absent or disqualified members exceeds the number
of alternate members who are present at such meeting, then the member or members
of such committee (including alternates) present at any meeting and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another Director to act at the meeting in the place of such
absent or disqualified member. The term of office of the members of each
committee shall be as fixed from time to time by the Board;
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provided, however, that any committee member who ceases to be a member of the
Board shall automatically cease to be a committee member.
(b) The executive committee shall have six members, one of whom shall be
the Chief Executive Officer and one of whom shall be the Chairman of the Board
(if not the same person).
(c) The nominating committee shall have four members. The power of the
Board of Directors to nominate persons for election as Directors is delegated to
the nominating committee. In the event of a vacancy of the nominating committee,
the remaining Directors on the nominating committee shall appoint a replacement
member or members, as applicable.
31. Quorum, Manner of Acting
At any meeting of a committee, the presence of one-third, but not less than
two, of its members then in office shall constitute a quorum for the transaction
of business; and the act of a majority of the members present at a meeting at
which a quorum is present shall be the act of the committee; provided that in
the event that any member or members of the committee is or are in any way
interested in or connected with any other party to a contract or transaction
being approved at such meeting, or are themselves parties to such contract or
transaction, the act of a majority of the members present who are not so
interested or connected, or are not such parties, shall be the act of the
committee. Each committee may provide for the holding of regular meetings, make
provision for the calling of special meetings and, except as otherwise provided
in these By-Laws or by resolution of the Board of Directors, make rules for the
conduct of its business.
32. Minutes
The committees shall keep minutes of their proceedings and report the same
to the Board of Directors when required; but failure to keep such minutes shall
not affect the validity of any acts of the committee or committees.
ADVISORY DIRECTORS
33. Advisory Directors
The Board of Directors may, by resolution adopted by a majority of the
whole Board, appoint such number of senior executives of the Company as Advisory
Directors as the Board may from time to time determine. The Advisory Directors
shall have such advisory responsibilities as the Chairman of the Board may
designate and the term of office of such Advisory Directors shall be as fixed by
the Board.
OFFICERS
34. Designation
The officers of the Company shall be a Chairman of the Board, a Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary, a
Treasurer and a Controller. The Board of Directors may also elect one or more
Vice Chairmen of the Board, one or more Vice Chairmen of the Company, one or
more Executive Vice Presidents, Senior Vice Presidents, Group Vice Presidents, a
Chief Financial Officer, Deputy and Assistant Secretaries, Deputy and Assistant
Treasurers, Deputy and Assistant
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Controllers and such other officers as it shall deem necessary. Any number of
offices may be held by the same person. The Chairman of the Board of Directors
shall be chosen from among the Directors.
35. Election and Term
At least annually, the Board of Directors of the Company shall elect the
officers of the Company and at any time thereafter the Board may elect
additional officers of the Company and each such officer shall hold office until
the officer's successor is elected and qualified or until the officer's earlier
death, resignation, termination of employment or removal.
36. Removal
Any officer shall be subject to removal or suspension at any time, for or
without cause, by the affirmative vote of a majority of the whole Board of
Directors.
37. Resignations
Any officer may resign at any time by giving written notice to the Chairman
of the Board, the President or to the Secretary. Such resignation shall take
effect upon receipt thereof or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
38. Vacancies
A vacancy in any office because of death, resignation, removal or any other
cause may be filled for the unexpired portion of the term by the Board of
Directors.
39. Compensation
The compensation committee of the Board of Directors shall fix the salaries
of all employees of the Company who are subject to the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934 or any successor statute,
rule or provision, and other members of executive management designated by such
committee.
40. Chairman of the Board
The Chairman of the Board shall preside at all meetings of the stockholders
and of the Board of Directors, except as may be otherwise required under the law
of Delaware. The Chairman shall act in an advisory capacity with respect to
matters of policy and other matters of importance pertaining to the affairs of
the Company. The Chairman shall, in consultation with the Chief Executive
Officer, establish the agenda for the meetings of the Board of Directors. The
Chairman, alone or with the Chief Executive Officer, one or more of the Vice
Chairmen of the Board, and/or the Secretary shall sign and send out reports and
other messages which are to be sent to stockholders from time to time. The
Chairman shall also perform such other duties as may be assigned to the Chairman
by these By-Laws, the Board of Directors or, if applicable, the Chief Executive
Officer. If Fred Hassan is the Chief Executive Officer of the Company on [date
that is 18 months after the Effective Time], on such date he shall become
Chairman of the Board and Chief Executive Officer of the Company, unless
otherwise determined at such time by the affirmative vote of at least 80 percent
of the whole Board of Directors.
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41. Chief Executive Officer
The Chief Executive Officer, if a member of the Board of Directors, shall,
in the absence of the Chairman of the Board, preside at all meetings of the
stockholders and of the Board of Directors. The Chief Executive Officer shall
have the general and active management and supervision of the business of the
Company. The Chief Executive Officer shall see that all orders and resolutions
of the Board of Directors are carried into effect and shall be responsible to
the Board of Directors for the Company's strategic development, operational
results and for the running of the Company in accordance with policies approved
by the Board of Directors. The Chief Executive Officer shall also perform such
other duties as may be assigned to the Chief Executive Officer by these By-Laws
or the Board of Directors.
42. President
The President shall perform such duties as may be assigned to the President
by these By-Laws, the Board of Directors or the Chief Executive Officer.
43. Vice Chairmen of the Board; Vice Chairmen
The Vice Chairmen of the Board, if a member of the Board of Directors,
shall, in the absence of the Chairman of the Board and the Chief Executive
Officer, and in such order as may be designated by the Chairman of the Board,
preside at all meetings of the stockholders and of the Board of Directors. The
Vice Chairmen of the Board and the Vice Chairmen shall perform such other duties
as may be assigned to them by these By-Laws, the Board of Directors or the Chief
Executive Officer.
44. Executive, Senior, Group and other Vice Presidents
Each Executive Vice President, Senior Vice President, Group Vice President
and each other Vice President shall perform the duties and functions and
exercise the powers assigned to such officer by the Board of Directors or the
Chief Executive Officer.
45. Chief Financial Officer
The Chief Financial Officer (if any) shall act in an executive financial
capacity. The Chief Financial Officer shall assist the Chairman of the Board and
the Chief Executive Officer in the general supervision of the Company's
financial policies and affairs.
46. Secretary
The Secretary shall attend all meetings of the Board of Directors and of
the stockholders and record all votes and the minutes of all proceedings in a
book to be kept for that purpose. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors and, when appropriate, shall cause the corporate seal to be
affixed to any instruments executed on behalf of the Company. The Secretary
shall also perform all duties incident to the office of Secretary and such other
duties as may be assigned to the Secretary by these By-Laws, the Board of
Directors, the Chairman of the Board or the Chief Executive Officer.
47. Assistant Secretaries
The Assistant Secretaries shall, during the absence of the Secretary,
perform the duties and functions and exercise the powers of the Secretary. Each
Assistant Secretary
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shall perform such other duties as may be assigned to such Assistant Secretary
by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer or the Secretary.
48. Treasurer
The Treasurer shall have the custody of the funds and securities of the
Company and shall deposit them in the name and to the credit of the Company in
such depositories as may be designated by the Board of Directors or by any
officer or officers authorized by the Board of Directors to designate such
depositories; disburse funds of the Company when properly authorized by vouchers
prepared and approved by the Controller; and invest funds of the Company when
authorized by the Board of Directors or a committee thereof. The Treasurer shall
render to the Board of Directors, the Chief Executive Officer, the Senior Vice
President -- Finance or the Vice President -- Finance, whenever requested, an
account of all transactions as Treasurer and shall also perform all duties
incident to the office of Treasurer and such other duties as may be assigned to
the Treasurer by these By-Laws, the Board of Directors, the Chief Executive
Officer, the Senior Vice President -- Finance or the Vice President -- Finance.
49. Assistant Treasurers
The Assistant Treasurers shall, during the absence of the Treasurer,
perform the duties and functions and exercise the powers of the Treasurer. Each
Assistant Treasurer shall perform such other duties as may be assigned to the
Assistant Treasurer by the Board of Directors, the Chief Executive Officer, the
Senior Vice President -- Finance, the Vice President -- Finance or the
Treasurer.
50. Controller
The Controller shall serve as the principal accounting officer of the
Company and shall keep full and accurate account of receipts and disbursements
in books of the Company and render to the Board of Directors, the Chief
Executive Officer, the Senior Vice President -- Finance or the Vice
President -- Finance, whenever requested, an account of all transactions as
Controller and of the financial condition of the Company. The Controller shall
also perform all duties incident to the office of Controller and such other
duties as may be assigned to the Controller by these By-Laws, the Board of
Directors, the Chief Executive Officer, the Senior Vice President -- Finance or
the Vice President -- Finance.
51. Assistant Controllers
The Assistant Controllers shall, during the absence of the Controller,
perform the duties and functions and exercise the powers of the Controller. Each
Assistant Controller shall perform such other duties as may be assigned to such
officer by the Board of Directors, the Chief Executive Officer, the Senior Vice
President -- Finance, the Vice President -- Finance or the Controller.
COMPANY CHECKS, DRAFTS AND PROXIES
52. Checks, Drafts
All checks, drafts or other orders for the payment of money by the Company
shall be signed by such person or persons as from time to time may be designated
by the Board of
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Directors or by any officer or officers authorized by the Board of Directors to
designate such signers; and the Board of Directors or such officer or officers
may determine that the signature of any such authorized signer may be facsimile.
53. Proxies
Except as otherwise provided by resolution of the Board of Directors, the
Chairman of the Board, the Chief Executive Officer, the President, any Vice
Chairman of the Board, any Vice President, the Treasurer and any Assistant
Treasurer, the Controller and any Assistant Controller, the Secretary and any
Assistant Secretary of the Company, shall each have full power and authority, in
behalf of the Company, to exercise any and all rights of the Company with
respect to any meeting of stockholders of any corporation in which the Company
holds stock, including the execution and delivery of proxies therefor, and to
consent in writing to action by such corporation without a meeting.
CAPITAL STOCK
54. Stock Certificates
Each holder of stock in the Company shall be entitled to have a certificate
signed by, or in the name of the Company by, the Chairman of the Board, the
Chief Executive Officer, the President, any Vice Chairman of the Board, any
Executive Vice President, any Senior Vice President, any Group Vice President or
any other Vice President, and by the Secretary or any Assistant Secretary of the
Company, certifying the number of shares owned by such holder in the Company.
Any of or all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Company with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue.
55. Record Ownership
The Company shall be entitled to treat the person in whose name any share,
right or option is registered as the owner thereof, for all purposes, and shall
not be bound to recognize any equitable or other claim to or interest in such
share, right or option on the part of any other person, whether or not the
Company shall have notice thereof, except as otherwise provided by the law of
Delaware.
56. Record Dates
In order that the Company may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action.
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57. Transfer of Stock
Transfers of shares of stock of the Company shall be made only on the books
of the Company by the registered holder thereof, or by the registered holder's
attorney thereunto authorized by power of attorney duly executed and filed with
the Secretary or a transfer agent of the Company, and on surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon.
58. Lost, Stolen or Destroyed Certificates
The Board of Directors may authorize a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
Company alleged to have been lost, stolen or destroyed, upon the making of an
affidavit of the fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or the owner's legal representative, to
give the Company a bond sufficient to indemnify it against any claim that may be
made against the Company on account of the alleged loss, theft or destruction of
such certificate or the issuance of such new certificate.
59. Terms of Preferred Stock
The provisions of these By-Laws, including those pertaining to voting
rights, election of Directors and calling of special meetings of stockholders,
are subject to the terms, preferences, rights and privileges of any then
outstanding class or series of Preferred Stock as set forth in the Certificate
of Incorporation and in any resolutions of the Board of Directors providing for
the issuance of such class or series of Preferred Stock; provided, however, that
the provisions of any such Preferred Stock shall not affect or limit the
authority of the Board of Directors to fix, from time to time, the number of
Directors which shall constitute the whole Board as provided in Section 16
above, subject to the right of the holders of any class or series of Preferred
Stock to elect additional Directors as and to the extent specifically provided
by the provisions of such Preferred Stock.
INDEMNIFICATION
60. Indemnification
(a) The Company shall indemnify and hold harmless, to the fullest extent
permitted by applicable law as it presently exists or may hereafter be amended,
any person who was or is made or is threatened to be made a party or is
otherwise involved in any claim, action, suit, or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding") by reason of the fact
that the person, or a person for whom he or she is the legal representative, is
or was a Director, officer, employee or agent of the Company or is or was
serving at the request of the Company as a director, officer, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust, non- profit entity, or other enterprise, including service with respect
to employee benefit plans, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such
person. The right to indemnification conferred in this By-Law shall be a
contract right. Except as provided in paragraph (c) of this By-Law with respect
to proceedings seeking to enforce rights to indemnification, the Company shall
indemnify a person in
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connection with a proceeding initiated by such person or a claim made by such
person against the Company only if such proceeding or claim was authorized by
the Board of Directors of the Company.
(b) The Company shall pay the expenses incurred in defending any proceeding
in advance of its final disposition, provided, however, that if and to the
extent required by law the payment of expenses incurred by any person covered
hereunder in advance of the final disposition of the proceeding shall be made
only upon receipt of an undertaking by or on behalf of the affected person to
repay all amounts advanced if it should ultimately be determined that such
person is not entitled to be indemnified under this By-Law or otherwise.
(c) If a claim for indemnification or payment of expenses under this By-Law
is not paid in full within thirty days, or such other period as might be
provided pursuant to contract, after a written claim therefor has been received
by the Company, the claimant may file suit to recover the unpaid amount of such
claim or may seek whatever other remedy might be provided pursuant to contract.
In any such action the Company shall have the burden of proving that the
claimant was not entitled to the requested indemnification or payment of
expenses under applicable law. If successful in whole or in part, claimant shall
be entitled to be paid the expense of prosecuting such claim. Neither the
failure of the Company (including its Directors, independent legal counsel or
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because the claimant has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the Company (including its Directors, independent legal counsel or stockholders)
that the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
(d) Any determination regarding whether indemnification of any person is
proper in the circumstances because such person has met the applicable standard
of conduct set forth in the General Corporation Law of the State of Delaware
shall be made by independent legal counsel selected by such person with the
consent of the Company (which consent shall not unreasonably be withheld).
(e) The rights conferred on any person by this By-Law shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, these By-Laws,
agreement, vote of stockholders or disinterested Directors or otherwise.
(f) Any repeal or modification of the foregoing provisions of this By-Law
60 shall not adversely affect any right or protection hereunder of any person
with respect to any act or omission occurring prior to or at the time of such
repeal or modification.
MISCELLANEOUS
61. Corporate Seal
The seal of the Company shall be circular in form, containing the words
"Pharmacia Corporation" and the word "Delaware" on the circumference surrounding
the word "Seal." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or in any other manner reproduced.
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62. Fiscal Year
The fiscal year of the Company shall begin on the first day of January in
each year.
63. Auditors
The Board of Directors shall select certified public accountants to audit
the books of account and other appropriate corporate records of the Company
annually and at such other times as the Board shall determine by resolution.
64. Waiver of Notice
Whenever notice is required to be given pursuant to the law of Delaware,
the Certificate of Incorporation or these By-Laws, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting of stockholders or the Board of Directors or a committee thereof shall
constitute a waiver of notice of such meeting, except when the stockholder or
Director attends such meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders or the
Board of Directors or committee thereof need be specified in any written waiver
of notice unless so required by the Certificate of Incorporation or by these
By-Laws.
AMENDMENT TO BY-LAWS
65. Amendments
Notwithstanding any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
series of Preferred Stock of the Company required by law, the Certificate of
Incorporation or any Preferred Stock designation, the affirmative vote of the
holders of at least 80 percent of the voting power of all of the
then-outstanding Voting Stock (as defined in the Certificate of Incorporation),
voting together as a single class, shall be required for the stockholders to
amend or repeal the By-Laws or to adopt new By-Laws. The By-Laws may also be
amended or repealed and new By-Laws may be adopted by the affirmative vote of a
majority of the whole Board of Directors at any regular or special meeting of
the Board of Directors.
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<PAGE> 239
EMERGENCY BY-LAWS
These Emergency By-Laws, notwithstanding any different provision in the
Certificate of Incorporation or By-Laws, shall be operative during any emergency
resulting from an attack on the United States or on a locality in which the
Company conducts its business or customarily holds meetings of the Board of
Directors or its stockholders, or during any nuclear or atomic disaster, or
during the existence of any catastrophe, or other similar emergency condition,
as a result of which a quorum of the Board of Directors or a committee thereof
cannot be readily convened for action. These Emergency By-Laws shall cease to be
operative upon termination of such emergency.
During any such emergency:
(a) A meeting of the Board of Directors or a committee thereof may be
called by any officer or Director. Notice of the time and place of the
meeting shall be given by the person calling the meeting to only such of
the Directors as it may be feasible to reach at the time and by such means
as may be feasible at the time. Such notice shall be given at such time in
advance of the meeting as circumstances permit in the judgment of the
person calling the meeting.
(b) The officers or other persons designated on a list approved by the
Board of Directors before the emergency, all in such order or priority and
subject to such conditions and for such period of time (not longer than
reasonably necessary after the termination of the emergency) as may be
provided in the resolution approving the list, shall, to the extent
required to constitute a quorum at any meeting of the Board of Directors
during the emergency, be deemed Directors for such meeting. If at the time
of the emergency the Board of Directors has not approved such a list of
persons, then to the extent required to constitute a quorum at any meeting
of the Board of Directors during the emergency, the officers of the Company
who are present shall be deemed, in order of rank and within the same rank
in order of seniority, Directors for such meeting. Two Directors (including
persons deemed to be Directors) in attendance at the meeting shall
constitute a quorum.
(c) The Board of Directors, either before or during any such
emergency, may provide, and from time to time modify, lines of succession
in the event that during such an emergency any or all officers or agents of
the Company shall for any reason be rendered incapable of discharging their
duties.
(d) The Board of Directors, either before or during any such
emergency, may, effective in the emergency, change the principal offices or
designate several alternative principal offices or regional offices, or
authorize an officer, or officers, so to do.
No officer, Director or employee acting in accordance with these Emergency
By-Laws shall be liable except for willful misconduct.
These Emergency By-Laws shall be subject to repeal or change by further
action of the Board of Directors or by action of the stockholders, but no such
repeal or change shall modify the provisions of the next preceding paragraph
with regard to action taken prior to the time of such repeal or change. Any
amendment of these Emergency By-Laws may make any further or different provision
that may be practical and necessary for the circumstances of the emergency.
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ANNEX J
CERTIFICATE OF DESIGNATIONS
FOR
SERIES B CONVERTIBLE PERPETUAL PREFERRED STOCK
OF
MONSANTO COMPANY
(PURSUANT TO SECTION 151 OF THE DELAWARE CORPORATION LAW)
------------------------
Monsanto Company, a corporation organized and existing under the General
Corporation Law of the State of Delaware (hereinafter called the "Corporation"),
hereby certifies that the following resolution was adopted by the Board of
Directors of the Corporation as required by Section 151 of the General
Corporation Law at a meeting duly called and held on December 19, 1999:
This Board hereby RESOLVES that pursuant to the authority granted to and
vested in the Board of Directors of this Corporation in accordance with the
provisions of the Restated Certificate of Incorporation ("Certificate of
Incorporation"), and subject to the effectiveness of the Charter Amendments, the
Board of Directors hereby creates a series of preferred stock of the
Corporation, and hereby states the designation and number of shares of such
series, and fixes the relative, participating, optional or other special rights,
preferences, and limitations thereof as follows:
Series B Convertible Perpetual Preferred Stock:
SECTION 1. Designation and Amount; Special Purpose Restricted Transfer
Issue. (a) The shares of such series shall be designated as shares of "Series B
Convertible Perpetual Preferred Stock, par value $.01 per share" (the
"Convertible Perpetual Preferred Shares"), and the number of shares constituting
such series shall be 7,500. Each Convertible Perpetual Preferred Share shall
have a stated value of $40,300.00 per share.
(b) Convertible Perpetual Preferred Shares shall be issued only to State
Street Bank and Trust Company, its successors and assigns, as trustee (the
"Trustee") of the Corporation Employee Stock Ownership Trust forming a part of
the Corporation Employee Stock Ownership Plan, or any successor to such plan
(the "Plan" or "ESOP"). All references to the holder of Convertible Perpetual
Preferred Shares shall mean the Trustee or any corporation with which or into
which the Trustee may merge or any successor trustee under the trust agreement
with respect to the Plan. In the event of any transfer of record ownership of
Convertible Perpetual Preferred Shares to any person other than any successor
trustee under the Plan, the Convertible Perpetual Preferred Shares so
transferred, upon such transfer and without any further action by the
Corporation or the holder thereof, shall be automatically converted into shares
of Common Stock on the terms otherwise provided for the conversion of
Convertible Perpetual Preferred Shares into shares of Common Stock pursuant to
Section 5 and no such transferee shall have any of the voting powers,
preferences and relative, participating, optional or special rights ascribed to
Convertible Perpetual Preferred Shares hereunder but, rather, only the powers
and rights pertaining to the Common Stock into which such Convertible Perpetual
Preferred Shares shall be so converted. In the event of such a conversion, the
transferee of the Convertible Perpetual Preferred Shares shall be treated for
all purposes as the record holder of the
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shares of Common Stock into which such Convertible Perpetual Preferred Shares
have been automatically converted as of the date of such transfer. Certificates
representing Convertible Perpetual Preferred Shares shall bear a legend to
reflect the foregoing provisions. Notwithstanding the foregoing provisions of
this Section 1(b), Convertible Perpetual Preferred Shares (i) may be converted
into shares of Common Stock as provided by Section 5 and the shares of Common
Stock issued upon such conversion may be transferred by the holder thereof as
permitted by law and (ii) shall be redeemable by the Corporation upon the terms
and conditions provided by Sections 6, 7 and 8.
SECTION 2. Dividends and Distributions. (a) Subject to the provisions for
adjustment hereinafter set forth, the holders of Convertible Perpetual Preferred
Shares shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available therefor, cash dividends ("Convertible
Perpetual Preferred Dividends") in an amount per share not to exceed $2,518.75
per share per annum, payable quarterly in arrears, one-quarter on the 1st day of
January, one-quarter on the 1st day of April, one-quarter on the 1st day of July
and one-quarter on the 1st day of October of each year (each a "Dividend Payment
Date"), to holders of record at the start of business on such Dividend Payment
Date. In the event that any Dividend Payment Date shall fall on any day other
than a "Business Day" (as hereinafter defined), the dividend payment due on such
Dividend Payment Date shall be paid on the Business Day immediately following
such Dividend Payment Date. Convertible Perpetual Preferred Dividends shall
begin to accrue on outstanding Convertible Perpetual Preferred Shares from the
date of issuance of such Convertible Perpetual Preferred Shares. Convertible
Perpetual Preferred Dividends shall accrue on a daily basis whether or not the
Corporation shall have earnings or surplus at the time, but Convertible
Perpetual Preferred Dividends accrued after issuance on the Convertible
Perpetual Preferred Shares for any period less than a full quarterly period
between Dividend Payment Dates (or, in the case of the first dividend payment,
from the date of issuance through the first Dividend Payment Date) shall be
computed on the basis of a 360-day year of twelve 30-day months. Accrued but
unpaid Convertible Perpetual Preferred Dividends shall cumulate as of the
Dividend Payment Date on which they first become payable, but no interest shall
accrue on accumulated but unpaid Convertible Perpetual Preferred Dividends.
(b) So long as any Convertible Perpetual Preferred Shares shall be
outstanding, no dividend shall be declared or paid or set apart for payment on
any other series of stock ranking on a parity with the Convertible Perpetual
Preferred Shares as to dividends, unless there shall also be or have been
declared and paid or set apart for payment on the Convertible Perpetual
Preferred Shares dividends for all dividend payment periods of the Convertible
Perpetual Preferred Shares ending on or before the dividend payment date of such
parity stock, ratably in proportion to the respective amounts of dividends
accumulated and unpaid through such dividend period on the Convertible Perpetual
Preferred Shares and accumulated and unpaid on such parity stock through the
dividend payment period on such parity stock next preceding such dividend
payment date. In the event that full cumulative dividends on the Convertible
Perpetual Preferred Shares have not been declared and paid or set apart for
payment when due, the Corporation shall not declare or pay or set apart for
payment any dividends or make any other distributions on, or make any payment on
account of the purchase, redemption or other retirement of any other class of
stock or series thereof of the Corporation ranking, as to dividends or as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Convertible Perpetual Preferred Shares until full
cumulative dividends on the Convertible Perpetual Preferred Shares shall have
been paid or declared and set apart for payment;
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provided, however, that the foregoing shall not apply to (i) any dividend
payable solely in any shares of any stock ranking, as to dividends and as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Convertible Perpetual Preferred Shares or (ii) the
acquisition of shares of any stock ranking, as to dividends or as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Convertible Perpetual Preferred Shares in exchange
solely for shares of any other stock ranking, as to dividends and as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Convertible Perpetual Preferred Shares.
SECTION 3. Voting Rights. The holders of Convertible Perpetual Preferred
Shares shall have the following voting rights:
(a) The holders of Convertible Perpetual Preferred Shares shall be
entitled to vote on all matters submitted to a vote of the stockholders of
the Corporation, voting together with the holders of Common Stock as one
class. The holder of each Convertible Perpetual Preferred Share shall be
entitled to a number of votes equal to the number of shares of Common Stock
into which such Convertible Perpetual Preferred Share could be converted on
the record date for determining the stockholders entitled to vote, rounded
to the nearest one one-hundredth of a vote; it being understood that
whenever the "Conversion Price" (as defined in Section 5(a)) is adjusted as
provided in Section 9, the number of votes of the Convertible Perpetual
Preferred Shares shall also be similarly adjusted.
(b) Except as otherwise required by law or set forth herein, holders
of Convertible Perpetual Preferred Shares shall have no special voting
rights and their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth herein) for
the taking of any corporate action; provided, however, that the vote of at
least 66 2/3% of the outstanding Convertible Perpetual Preferred Shares,
voting separately as a series, shall be necessary to adopt any alteration,
amendment or repeal of any provision of the Restated Certificate of
Incorporation of the Corporation (including any such alteration, amendment
or repeal effected by any merger or consolidation in which the Corporation
is the surviving or resulting corporation), if such amendment, alteration
or repeal would alter or change the powers, preferences, or special rights
of the Convertible Perpetual Preferred Shares so as to affect them
adversely.
SECTION 4. Liquidation, Dissolution or Winding-Up. (a) Upon any voluntary
or involuntary liquidation, dissolution or winding-up of the Corporation, the
holders of Convertible Perpetual Preferred Shares shall be entitled to receive
out of assets of the Corporation that remain after satisfaction in full of all
valid claims of creditors of the Corporation and that are available for payment
to stockholders, and subject to the rights of the holders of any stock of the
Corporation ranking senior to or on a parity with the Convertible Perpetual
Preferred Shares in respect of distributions upon liquidation, dissolution or
winding-up of the Corporation, before any amount shall be paid or distributed
among the holders of Common Stock or any other shares ranking junior to the
Convertible Perpetual Preferred Shares in respect of distributions upon
liquidation, dissolution or winding-up of the Corporation, liquidating
distributions in the amount of $40,300.00 per share, plus an amount equal to all
accrued and unpaid dividends thereon to the date fixed for distribution, and no
more. If upon any liquidation, dissolution or winding-up of the Corporation, the
amounts payable with respect to the Convertible Perpetual Preferred Shares and
any other stock ranking as to any such distribution on a
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parity with the Convertible Perpetual Preferred Shares are not paid in full, the
holders of the Convertible Perpetual Preferred Shares and such other stock shall
share ratably in any distribution of assets in proportion to the full respective
preferential amounts to which they are entitled. After payment of the full
amounts to which they are entitled as provided by the foregoing provisions of
this Section 4(a), the holders of Convertible Perpetual Preferred Shares shall
not be entitled to any further right or claim to any of the remaining assets of
the Corporation.
(b) Written notice of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, stating the payment date or dates when, and
the place or places where, the amounts distributable to holders of Convertible
Perpetual Preferred Shares in such circumstances shall be payable, shall be
given by hand delivery, by courier, by standard form of telecommunication or by
first-class mail (postage prepaid), delivered, sent or mailed, as the case may
be, not less than 20 days prior to any payment date stated therein, to the
holders of Convertible Perpetual Preferred Shares, at the address shown on the
books of the Corporation or any transfer agent for the Convertible Perpetual
Preferred Shares.
SECTION 5. Conversion into Common Stock. (a) A holder of shares of
Convertible Perpetual Preferred Shares shall be entitled, at any time prior to
the close of business on the date fixed for redemption of such shares pursuant
to Sections 6, 7 and 8, to cause any or all of such shares to be converted into
shares of Common Stock, initially at a conversion price equal to $23.3555 per
share of Common Stock, with each Convertible Perpetual Preferred Share being
valued at $40,300.00 for such purpose, and which price shall be adjusted as
hereinafter provided (and, as so adjusted, is hereinafter sometimes referred to
as the "Conversion Price") (that is, a conversion rate initially equivalent to
1,725.5 shares of Common Stock for each Convertible Perpetual Preferred Share so
converted, which is subject to adjustment as the Conversion Price is adjusted as
hereinafter provided in Section 9); provided, however, that in no event shall
the Conversion Price be less than $1.00.
(b) Any holder of Convertible Perpetual Preferred Shares desiring to
convert such shares into shares of Common Stock shall surrender the certificate
or certificates representing the Convertible Perpetual Preferred Shares being
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer agent for the
Convertible Perpetual Preferred Shares or such office or offices in the
continental United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Convertible Perpetual Preferred
Shares by the Corporation or the transfer agent for the Convertible Perpetual
Preferred Shares, accompanied by written notice of conversion. Such notice of
conversion shall specify (i) the number of shares of Convertible Perpetual
Preferred Shares to be converted and the name or names in which such holder
wishes the certificate or certificates for Common Stock and for any Convertible
Perpetual Preferred Shares not to be so converted to be issued and (ii) the
address to which such holder wishes delivery to be made of such new certificates
to be issued upon such conversion.
(c) Upon surrender of a certificate representing a Convertible Perpetual
Preferred Share or Shares for conversion, the Corporation shall issue and send
by hand delivery, by courier or by first-class mail (postage prepaid) to the
holder thereof or to such holder's designee, at the address designated by such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled upon
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conversion. In the event that there shall have been surrendered a certificate or
certificates representing Convertible Perpetual Preferred Shares, only part of
which are to be converted, the Corporation shall issue and send to such holder
or such holder's designee, in the manner set forth in the preceding sentence, a
new certificate or certificates representing the number of Convertible Perpetual
Preferred Shares which shall not have been converted.
(d) The issuance by the Corporation of shares of Common Stock upon a
conversion of Convertible Perpetual Preferred Shares into shares of Common Stock
made at the option of the holder thereof shall be effective as of the earlier of
(i) the delivery to such holder or such holder's designee of the certificates
representing the shares of Common Stock issued upon conversion thereof or (ii)
the commencement of business on the second Business Day after the surrender of
the certificate or certificates for the Convertible Perpetual Preferred Shares
to be converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto) and accompanied by
all documentation required to effect the conversion, as provided herein. On and
after the effective date of conversion, the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock, but no
allowance or adjustments shall be made in respect of dividends payable to
holders of Common Stock in respect of any period prior to such effective date.
The Corporation shall not be obligated to pay any dividends that shall have been
declared and shall be payable to holders of Convertible Perpetual Preferred
Shares on a Dividend Payment Date if the record date for such dividend is
subsequent to the effective date of conversion of such shares.
(e) The Corporation shall not be obligated to deliver to holders of
Convertible Perpetual Preferred Shares any fractional share of Common Stock
issuable upon any conversion of such Convertible Perpetual Preferred Shares, but
in lieu thereof may make a cash payment in respect thereof in any manner
permitted by law.
(f) The Corporation shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for issuance upon the
conversion of Convertible Perpetual Preferred Shares as herein provided, free
from any preemptive rights, such number of shares of Common Stock as shall from
time to time be issuable upon the conversion of all the Convertible Perpetual
Preferred Shares then outstanding. Nothing contained herein shall preclude the
Corporation from issuing shares of Common Stock held in its treasury upon the
conversion of Convertible Perpetual Preferred Shares into Common Stock pursuant
to the terms hereof. The Corporation shall prepare and shall use its best effort
to obtain and keep in force such governmental or regulatory permits or other
authorizations as may be required by law, and shall comply with all requirements
as to registration or qualification of the Common Stock, in order to enable the
Corporation lawfully to issue and deliver to each holder of record of
Convertible Perpetual Preferred Shares such number of shares of its Common Stock
as from time to time is sufficient to effect the conversion of all Convertible
Perpetual Preferred Shares then outstanding and convertible into shares of
Common Stock.
SECTION 6. Redemption At the Option of the Corporation. (a) The
Convertible Perpetual Preferred Shares shall be redeemable, in whole or in part,
at the option of the Corporation at any time at the redemption price of
$40,300.00 per share, plus an amount equal to all accrued and unpaid dividends
thereon to the date fixed for redemption. Payment of the redemption price shall
be made by the Corporation in cash or shares of Common Stock, or a combination
thereof, as permitted by Section 6(e). From and after
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the date fixed for redemption, dividends on Convertible Perpetual Preferred
Shares called for redemption will cease to accrue, such Convertible Perpetual
Preferred Shares will no longer be deemed to be outstanding and all rights in
respect of such Convertible Perpetual Preferred Shares shall cease, except the
right to receive the redemption price. If fewer than all of the outstanding
Convertible Perpetual Preferred Shares are to be redeemed, the Corporation shall
redeem a portion of the Convertible Perpetual Preferred Shares of each holder
determined pro rata based on the number of Convertible Perpetual Preferred
Shares held by each holder.
(b) Unless otherwise required by law, notice of redemption will be sent to
the holders of Convertible Perpetual Preferred Shares at the address shown on
the books of the Corporation or any transfer agent for the Convertible Perpetual
Preferred Shares by hand delivery, by courier, by standard form of
telecommunication or by first-class mail (postage prepaid) delivered, sent or
mailed, as the case may be, not less than twenty (20) days nor more than sixty
(60) days prior to the redemption date. Each such notice shall state: (i) the
redemption date; (ii) the total number of Convertible Perpetual Preferred Shares
to be redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such Convertible Perpetual Preferred Shares to be
redeemed from such holder; (iii) the redemption price; (iv) whether the
redemption price shall be paid in cash or in shares of Common Stock, or in a
combination of such Common Stock and cash, as permitted by Section 6(e); (v) the
place or places where certificates for such Convertible Perpetual Preferred
Shares are to be surrendered for payment of the redemption price; (vi) that
dividends on the Convertible Perpetual Preferred Shares to be redeemed will
cease to accrue on such redemption date; and (vii) the conversion rights of the
Convertible Perpetual Preferred Shares to be redeemed, the period within which
conversion rights may be exercised, and the Conversion Price and number of
shares of Common Stock issuable upon conversion of a Convertible Perpetual
Preferred Share at the time. Upon surrender of the certificate for any
Convertible Perpetual Preferred Shares so called for redemption and not
previously converted (properly endorsed or assigned for transfer, if the Board
shall so require and the notice shall so state), such shares shall be redeemed
by the Corporation at the date fixed for redemption and at the redemption price
set forth in this paragraph (6).
(c) Within thirty (30) days after the later of (i) the effective date, (ii)
the enactment date or (iii) if the Corporation contests in good faith in a
judicial or administrative proceeding the legality of the change referred to in
this Section 6(c), the date such matter is finally determined (the time for
appeal having expired and no appeal having been filed) against the Corporation,
of a change in any statute, rule or regulation of the United States of America
which has the effect of limiting or making unavailable to the Corporation all or
any of the tax deductions for amounts paid (including dividends) on the
Convertible Perpetual Preferred Shares when such amounts are used as provided
under Section 404(k)(2) of the Internal Revenue Code of 1986, as amended (the
"Code") and in effect on July 21, 1989 (other than a change pursuant to H.R.
2572 which is subject to Section 6(c) below), the Corporation may, in its sole
discretion and notwithstanding anything to the contrary in Section 6(a), elect
to either (a) redeem any or all of such Convertible Perpetual Preferred Shares
for cash or, if the Corporation so elects, in shares of Common Stock, or a
combination of such shares of Common Stock and cash, any such shares of Common
Stock to be valued for such purpose at their Fair Market Value (as defined in
Section 9(g)), at a redemption price equal to the higher of (x) $40,300.00 per
share or (y) the Fair Market Value of the number of shares of Common Stock into
which each Convertible Perpetual Preferred Share is convertible at the time the
notice of such
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redemption is given, plus in either case accrued and unpaid dividends thereon to
the date fixed for redemption, or (b) exchange any or all of such Convertible
Perpetual Preferred Shares for securities of comparable value (as determined by
an independent appraiser) that constitute "qualifying employer securities" with
respect to a holder of Convertible Perpetual Preferred Shares within the meaning
of Section 409(l) of the Code and Section 407(d)(5) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or any successor provisions
of law.
(d) In the event that the Plan is terminated or the ESOP is terminated or
eliminated from the Plan in accordance with its terms, the Corporation shall, as
soon thereafter as practicable, call for redemption all the then outstanding
Convertible Perpetual Preferred Shares in accordance with Section 6(a).
(e) The Corporation, at its option, may make payment of the redemption
price required upon redemption or Convertible Perpetual Preferred Shares in cash
or in shares of Common Stock, or in a combination of such Common Stock and cash,
any such shares of Common Stock to be valued for such purposes at their Fair
Market Value (as defined in Section 9(g)).
SECTION 7. Other Redemption Rights. Convertible Perpetual Preferred
Shares shall be redeemed by the Corporation for cash or, if the Corporation so
elects, in shares of Common Stock, or a combination of such shares of Common
Stock and cash, any such shares of Common Stock to be valued for such purpose at
their Fair Market Value, at a redemption price of $40,300.00 per share plus
accrued and unpaid dividends thereon to the date fixed for redemption, at the
option of the holder, at any time and from time to time upon notice to the
Corporation given not less than five (5) business days prior to the date fixed
by the holder in such notice for such redemption, upon certification by such
holder to the Corporation of the following events: (i) when and to the extent
necessary for such holder to make any payments of principal, interest or premium
due and payable (whether as scheduled, upon acceleration or otherwise) under the
note from the Trustee to the Corporation or any indebtedness, expenses or costs
incurred by the holder for the benefit of the Plan; or (ii) in the event that
the Plan is not initially determined by the Internal Revenue Service to be
qualified within the meaning of Sections 401(a) and 4975(e)(7) of the Code.
Convertible Perpetual Preferred Shares shall be redeemed by the Corporation for
cash or, if the Corporation so elects, in shares of Common Stock, or a
combination of such shares of Common Stock and cash, any such shares of Common
Stock to be valued for such purpose at their Fair Market Value (as defined in
Section 9(g)), at a redemption price equal to the higher of (x) $40,300.00 per
share or (y) the Fair Market Value of the number of shares of Common Stock into
which each Convertible Perpetual Preferred Share is convertible at the time the
notice of such redemption is given, plus in either case accrued and unpaid
dividends thereon to the date fixed for redemption, at the option of the holder,
at any time and from time to time upon notice to the Corporation given not less
than five (5) business days prior to the date fixed by the holder in such notice
for such redemption, upon certification by such holder to the Corporation that
it is necessary for such holder to provide for distributions required to be made
to the Participants under, or to satisfy an investment election of the
Participants in accordance with, the Plan.
SECTION 8. Consolidation, Merger, etc. (a) In the event that the
Corporation shall consummate any consolidation or merger or similar business
combination, pursuant to which the outstanding shares of Common Stock are by
operation of law exchanged solely for or changed, reclassified or converted
solely into stock of any successor or resulting corporation (including the
Corporation) that constitutes "qualifying employer securities"
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with respect to a holder of Convertible Perpetual Preferred Shares within the
meaning of Section 409(1) of the Code and Section 407(d)(5) of ERISA or any
successor provisions of law, and, if applicable, for a cash payment in lieu of
fractional shares, if any, the Convertible Perpetual Preferred Shares of such
holder shall, in connection with such consolidation, merger or similar business
combination, be assumed by and shall become preferred stock of such successor or
resulting corporation, having in respect of such corporation, insofar as
possible, the same powers, preferences and relative, participating, optional or
other special rights (including the redemption rights provided by Sections 6, 7
and 8), and the qualifications, limitations or restrictions thereon, that the
Convertible Perpetual Preferred Share had immediately prior to such transaction,
except that after such transaction each Convertible Perpetual Preferred Share
shall be convertible, otherwise on the terms and conditions provided by Section
5, into the number and kind of qualifying employer securities so receivable by a
holder of the number of shares of Common Stock into which such Convertible
Perpetual Preferred Shares could have been converted immediately prior to such
transaction; provided, however, that if by virtue of the structure of such
transaction, a holder of Common Stock is required to make an election with
respect to the nature and kind of consideration to be received in such
transaction, which election cannot practicably be made by the holders of the
Convertible Perpetual Preferred Shares, then the Convertible Perpetual Preferred
Shares shall, by virtue of such transaction and on the same terms as apply to
the holders of Common Stock, be converted into or exchanged for the aggregate
amount of stock, securities, cash or other property (payable in kind) receivable
by a holder of the number of shares of Common Stock into which such Convertible
Perpetual Preferred Shares could have been converted immediately prior to such
transaction if such holder of Common Stock failed to exercise any rights of
election to receive any kind or amount of stock, securities, cash or other
property (other than such qualifying employer securities and a cash payment, if
applicable, in lieu of fractional shares) receivable upon such transaction
(provided that, if the kind or amount of qualifying employer securities
receivable upon such transaction is not the same for each non-electing share,
then the kind and amount so receivable upon such transaction for each
non-electing share shall be the kind and amount so receivable per share by the
plurality of the non-electing shares). The rights of the Convertible Perpetual
Preferred Shares as preferred stock of such successor or resulting corporation
shall successively be subject to adjustments pursuant to Section 9 after any
such transaction as nearly equivalent as practicable to the adjustment provided
for by such section prior to such transaction. The Corporation shall not
consummate any such merger, consolidation or similar transaction unless all then
outstanding Convertible Perpetual Preferred Shares shall be assumed and
authorized by the successor or resulting corporation as aforesaid.
(b) In the event that the Corporation shall consummate any consolidation or
merger or similar business combination, pursuant to which the outstanding shares
of Common Stock are by operation of law exchanged for or changed, reclassified
or converted into other stock or securities or cash or any other property, or
any combination thereof, other than any such consideration which is constituted
solely of qualifying employer securities (as referred to in Section 8(a)) and
cash payments, if applicable, in lieu of fractional shares, outstanding
Convertible Perpetual Preferred Shares shall, without any action on the part of
the Corporation or any holder thereof (but subject to Section 8(c)), be
automatically converted by virtue of such merger, consolidation or similar
transaction immediately prior to such consummation into the number of shares of
Common Stock into which such Convertible Perpetual Preferred Shares could have
been converted at such time so that each Convertible Perpetual Preferred Share
shall, by virtue of such transaction and on the same terms as apply to the
holders of Common Stock, be converted
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into or exchanged for the aggregate amount of stock, securities, cash or other
property (payable in like kind) receivable by a holder of the number of shares
of Common Stock into which such Convertible Perpetual Preferred Shares could
have been converted immediately prior to such transaction; provided, however,
that if by virtue of the structure of such transaction, a holder of Common Stock
is required to make an election with respect to the nature and kind of
consideration to be received in such transaction, which election cannot
practicably be made by the holder of the Convertible Perpetual Preferred Shares,
then the Convertible Perpetual Preferred Shares shall, by virtue of such
transaction and on the same terms as apply to the holders of Common Stock, be
converted into or exchanged for the aggregate amount of stock, securities, cash
or other property (payable in kind) receivable by a holder of the number of
shares of Common Stock into which such Convertible Perpetual Preferred Shares
could have been converted immediately prior to such transaction if such holder
of Common Stock failed to exercise any rights of election as to the kind or
amount of stock, securities, cash or other property receivable upon such
transaction (provided that, if the kind or amount of stock, securities, cash or
other property receivable upon such transaction is not the same for each
non-electing share, then the kind and amount of stock, securities, cash or other
property receivable upon such transaction for each non-electing share shall be
the kind and amount so receivable per share by a plurality of the non-electing
shares).
(c) In the event the Corporation shall enter into any agreement providing
for any consolidation or merger or similar business combination described in
Section 8(b), then the Corporation shall as soon as practicable thereafter (and
in any event at least ten (10) business days before consummation of such
transaction) give notice of such agreement and the material terms thereof to
each holder of Convertible Perpetual Preferred Shares and each such holder shall
have the right to elect, by written notice to the Corporation, to receive, upon
consummation of such transaction (if and when such transaction is consummated),
from the Corporation or the successor of the Corporation in redemption and
retirement of such Convertible Perpetual Preferred Shares, a cash payment equal
to the amount payable in respect of Convertible Perpetual Preferred Shares upon
liquidation of the Corporation pursuant to Section 4. No such notice of
redemption shall be effective unless given to the Corporation prior to the close
of business on the second business day prior to consummation of such
transaction, unless the Corporation or the successor of the Corporation shall
waive such prior notice, but any notice of redemption so given prior to such
time may be withdrawn by notice of withdrawal given to the Corporation prior to
the close of business on the fifth business day prior to consummation of such
transaction.
SECTION 9. Anti-dilution Adjustments. (a) In the event the Corporation
shall, at any time or from time to time while any of the Convertible Perpetual
Preferred Shares are outstanding, (i) pay a dividend or make a distribution in
respect of the Common Stock in shares of Common Stock, (ii) subdivide the
outstanding shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, in each case whether by
reclassification of shares, recapitalization of the Corporation (including a
recapitalization effected by a merger or consolidation to which Section 8 does
not apply) or otherwise, the Conversion Price in effect immediately prior to
such action shall be adjusted by multiplying such Conversion Price by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately before such event, and the denominator of which is the
number of shares of Common Stock outstanding immediately after such event. An
adjustment made pursuant to this Section 9(a) shall be given effect, upon
payment of such a dividend or distribution, as of
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the record date for the determination of stockholders entitled to receive such
dividend or distribution (on a retroactive basis) and in the case of a
subdivision or combination shall become effective immediately as of the
effective date thereof.
(b) In the event that the Corporation shall, at any time or from time to
time while any of the Convertible Perpetual Preferred Shares are outstanding,
issue to holders of shares of Common Stock as a dividend or distribution,
including by way of a reclassification of shares or a recapitalization of the
Corporation, any right or warrant to purchase shares of Common Stock (but not
including as such a right or warrant any security convertible into or
exchangeable for shares of Common Stock) at a purchase price per share less than
the Fair Market Value (as hereinafter defined) of a share of Common Stock on the
date of issuance of such right or warrant, then, subject to the provisions of
Sections 9(e) and (f), the Conversion Price shall be adjusted by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately before such issuance of rights
or warrants plus the number of shares of Common Stock which could be purchased
at the Fair Market Value of a share of Common Stock at the time of such issuance
for the maximum aggregate consideration payable upon exercise in full of all
such rights or warrants, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately before such issuance of rights or
warrants plus the number of shares of Common Stock that could be acquired upon
exercise in full of all such rights and warrants.
(c) In the event the Corporation shall, at any time or from time to time
while any of the Convertible Perpetual Preferred Shares are outstanding, issue,
sell or exchange shares of Common Stock (other than pursuant to any right or
warrant to purchase or acquire shares of Common Stock (including as such a right
or warrant any security convertible into or exchangeable for shares of Common
Stock) and other than pursuant to any employee or director incentive or benefit
plan or arrangement, including any employment, severance or consulting
agreement, of the Corporation or any subsidiary of the Corporation heretofore or
hereafter adopted) for a consideration having a Fair Market Value, on the date
of such issuance, sale or exchange, less than the Fair Market Value of such
shares on the date of issuance, sale or exchange, then, subject to the
provisions of Sections 9(e) and (f), the Conversion Price shall be adjusted by
multiplying such Conversion Price by a fraction the numerator of which shall be
the sum of (i) the Fair Market Value of all the shares of Common Stock
outstanding on the day immediately preceding the first public announcement of
such issuance, sale or exchange plus (ii) the Fair Market Value of the
consideration received by the Corporation in respect of such issuance, sale or
exchange of shares of Common Stock, and the denominator of which shall be the
product of (a) the Fair Market Value of a share of Common Stock on the day
immediately preceding the first public announcement of such issuance, sale or
exchange multiplied by (b) the sum of the number of shares of Common stock
outstanding on such day plus the number of shares of Common Stock so issued,
sold or exchanged by the Corporation. In the event the Corporation shall, at any
time or from time to time while any Convertible Perpetual Preferred Shares are
outstanding, issue, sell or exchange any right or warrant to purchase or acquire
shares of Common Stock (including as such a right or warrant any security
convertible into or exchangeable for shares of Common Stock), other than any
such issuance to holders of shares of Common Stock as a dividend or distribution
(including by way of a reclassification of shares or a recapitalization of the
Corporation) and other than pursuant to any employee or director incentive or
benefit plan or arrangement (including any employment, severance or consulting
agreement) of the Corporation or any subsidiary
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of the Corporation heretofore or hereafter adopted, for a consideration having a
Fair Market Value, on the date of such issuance, sale or exchange, less than the
Non-Dilutive Amount (as hereinafter defined), then, subject to the provisions of
Sections 9(e) and (f), the Conversion Price shall be adjusted by multiplying
such Conversion Price by a fraction the numerator of which shall be the sum of
(I) the Fair Market Value of all the shares of Common Stock outstanding on the
day immediately preceding the first public announcement of such issuance, sale
or exchange plus (II) the Fair Market Value of the consideration received by the
Corporation in respect of such issuance, sale or exchange of such right or
warrant plus (III) the Fair Market Value at the time of such issuance of the
consideration which the Corporation would receive upon exercise in full of all
such rights or warrants, and the denominator of which shall be the product of
(i) the Fair Market Value of a share of Common Stock on the day immediately
preceding the first public announcement of such issuance, sale or exchange
multiplied by (ii) the sum of the number of shares of Common Stock outstanding
on such day plus the maximum number of shares of Common Stock which could be
acquired pursuant to such right or warrant at the time of the issuance, sale or
exchange of such right or warrant (assuming shares of Common Stock could be
acquired pursuant to such right or warrant at such time).
(d) In the event the Corporation shall, at any time or from time to time
while any of the Convertible Perpetual Preferred Shares are outstanding, make an
Extraordinary Distribution (as hereinafter defined) in respect of the Common
Stock, whether by dividend, distribution, reclassification of shares or
recapitalization of the Corporation (including a recapitalization or
reclassification effected by a merger or consolidation to which Section 8 does
not apply) or effect a Pro Rata Repurchase (as hereinafter defined) of Common
Stock, the Conversion Price in effect immediately prior to such Extraordinary
Distribution or Pro Rata Repurchase shall, subject to Sections 9(e) and (f), be
adjusted by multiplying such Conversion Price by the fraction, the numerator of
which is the difference between (i) the product of (x) the number of shares of
Common Stock outstanding immediately before such Extraordinary Distribution or
Pro Rata Repurchase multiplied by (y) the Fair Market Value of a share of Common
Stock on the day before the ex-dividend date with respect to an Extraordinary
Distribution which is paid in cash and on the distribution date with respect to
an Extraordinary Distribution which is paid other than in cash, or on the
applicable expiration date (including all extensions thereof) of any tender
offer which is a Pro Rata Repurchase, or on the applicable expiration date
(including all extensions thereof) of any tender offer which is a Pro Rata
Repurchase, or on the date of purchase with respect to any Pro Rata Repurchase
which is not a tender offer, as the case may be, and (ii) the Fair Market Value
of the Extraordinary Distribution minus the aggregate amount of regularly
scheduled quarterly dividends declared by the Board and paid by the Corporation
in the twelve months immediately preceding such Extraordinary Distribution or
the aggregate purchase price of the Pro Rata Repurchase, as the case may be, and
the denominator of which shall be the product of (a) the number of shares of
Common Stock outstanding immediately before such Extraordinary Dividend or Pro
Rata Repurchase minus, in the case of a Pro Rata Repurchase, the number of
shares of Common Stock repurchased by the Corporation multiplied by (b) the Fair
Market Value of a share of Common Stock on the day before the ex-dividend date
with respect to an Extraordinary Distribution which is paid in cash and on the
distribution date with respect to an Extraordinary Distribution which is paid
other than in cash, or on the applicable expiration date (including all
extensions thereof) of any tender offer which is a Pro Rata Repurchase or on the
date of purchase with respect to any Pro Rata Repurchase which is not a tender
offer, as the case may be. The Corporation shall send each holder of Convertible
Perpetual Preferred Shares (i) notice of its intent to make any dividend or
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distribution and (ii) notice of any offer by the Corporation to make a Pro Rata
Repurchase, in each case at the same time as, or as soon as practicable after,
such offer is first communicated (including by announcement of a record date in
accordance with the rules of any stock exchange on which the Common Stock is
listed or admitted to trading) to holders of Common Stock. Such notice shall
indicate the intended record date and the amount and nature of such dividend or
distribution, or the number of shares subject to such offer for a Pro Rata
Repurchase and the purchase price payable by the Corporation pursuant to such
offer, as well as the Conversion Price and the number of shares of Common Stock
into which a Convertible Perpetual Preferred Share may be converted at such
time.
(e) Notwithstanding any other provision of this Section 9, the Corporation
shall not be required to make any adjustment to the Conversion Price unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the Conversion Price. Any lesser adjustment shall be carried forward and shall
be made no later than the time of, and together with, the next subsequent
adjustment which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least one percent (1%) in
the Conversion Price.
(f) If the Corporation shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other security of
the Corporation or any rights or warrants to purchase or acquire any such
security, which transaction does not result in an adjustment to the Conversion
Price pursuant to the foregoing provisions of this Section 9, the Board shall
consider whether such action is of such a nature that an adjustment to the
Conversion Price should equitably be made in respect of such transaction. If in
such case the Board determines that an adjustment to the Conversion Price should
be made, an adjustment shall be made effective as of such date, as determined by
the Board. The determination of the Board as to whether an adjustment to the
Conversion Price should be made pursuant to the foregoing provisions of this
Section 9(f), and, if so, as to what adjustment should be made and when, shall
be final and binding on the Corporation and all shareholders of the Corporation.
The Corporation shall be entitled to make such additional adjustments in the
Conversion Price, in addition to those required by the foregoing provisions of
this Section 9, as shall be necessary in order that any dividend or distribution
in shares of capital stock of the Corporation, subdivision, reclassification or
combination of shares of stock of the Corporation or any recapitalization of the
Corporation shall not be taxable to the holders of the Common Stock.
(g) The following definitions shall apply herein:
"Business Day" shall mean each day that is not a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York
are not required to be open.
"Current Market Price" of publicly traded shares of Common Stock or
any other class of capital stock or other security of the Corporation or
any other issuer for any day shall mean the last reported sales price,
regular way, or, in the event that no sale takes place on such day, the
average of the reported closing bid and asked prices, regular way, in
either case as reported on the New York Stock Exchange Composite Tape or,
if such security is not listed or admitted to trading on the New York Stock
Exchange, on the principal national securities exchange on which such
security is listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, on the NASDAQ National Market
System or, if such security is
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not quoted on such National Market System, the average of the closing bid
and asked prices on each such day in the over-the-counter market as
reported by NASDAQ or, if bid and asked prices for such security on each
such day shall not have been reported through NASDAQ, the average of the
bid and asked prices for such day as furnished by any New York Stock
Exchange member firm regularly making a market in such security selected
for such purpose by the Board of Directors of the Corporation or a
committee thereof.
"Extraordinary Distribution" shall mean any dividend or other
distribution to holders of Common Stock (effected while any of the
Convertible Perpetual Preferred Shares are outstanding) (i) of cash, where
the aggregate amount of such cash dividend or distribution together with
the amount of all cash dividends and distributions made during the
preceding period of 12 months, when combined with the aggregate amount of
all Pro Rata Repurchases (for this purpose, including only that portion of
the aggregate purchase price of such Pro Rata Repurchase which is in excess
of the Fair Market Value of the Common Stock repurchased as determined on
the Business Day immediately following the applicable expiration date
(including all extensions thereof) of any tender offer or exchange offer
which is a Pro Rata Repurchase, or the date of purchase with respect to any
other Pro Rata Repurchase which is not a tender offer or exchange offer
made during such period), exceeds ten percent (10%) of the aggregate Fair
Market Value of all shares of Common Stock outstanding on the day before
the ex-dividend date with respect to such Extraordinary Distribution which
is paid in cash and on the distribution date with respect to an
Extraordinary Distribution which is paid other than in cash, and/or (ii) of
any shares of capital stock of the Corporation (other than shares of Common
Stock), other securities of the Corporation (other than securities of the
type referred to in Section 9(b) or (c)), evidences of indebtedness of the
Corporation or any other person or any other property (including shares of
any subsidiary of the Corporation) or any combination thereof. The Fair
Market Value of an Extraordinary Distribution for purposes of Section 9(d)
shall be equal to the sum of the Fair Market Value of such Extraordinary
Distribution plus the amount of any cash dividends which are not
Extraordinary Distributions made during such 12-month period and not
previously included in the calculation of an adjustment pursuant to Section
9(d).
"Fair Market Value" shall mean, as to shares of Common Stock or any
other class of capital stock or securities of the Corporation or any other
issuer which are publicly traded, (i) for purposes of Sections 6 and 7, the
Current Market Price on the date as of which the Fair Market Value is to be
determined, and (ii) for all other purposes hereof, the average of the
Current Market Prices of such shares or securities for each day of the
Adjustment Period.
"Adjustment Period" shall mean the period of five (5) consecutive
trading days preceding, and including, the date as of which the Fair Market
Value of a security is to be determined. The Fair Market Value of any
security which is not publicly traded (other than the Convertible Perpetual
Preferred Shares) or of any other property shall mean the fair value
thereof as determined by an independent investment banking or appraisal
firm experienced in the valuation of such securities or property selected
in good faith by the Board or a committee thereof, or, if no such
investment banking or appraisal firm is in the good faith judgment of the
Board or such committee available to make such determination, as determined
in good faith by the Board or such committee.
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<PAGE> 253
"Non-Dilutive Amount" in respect of an issuance, sale or exchange by
the Corporation of any right or warrant to purchase or acquire shares of
Common Stock (including any security convertible into or exchangeable for
shares of Common Stock) shall mean the difference between (i) the product
of the Fair Market Value of a share of Common Stock on the day preceding
the first public announcement of such issuance, sale or exchange multiplied
by the maximum number of shares of Common Stock which could be acquired on
such date upon the exercise in full of such rights and warrants (including
upon the conversion or exchange of all such convertible or exchangeable
securities), whether or not exercisable (or convertible or exchangeable) at
such date, and (ii) the aggregate amount payable pursuant to such right or
warrant to purchase or acquire such maximum number of shares of Common
Stock; provided, however, that in no event shall the Non-Dilutive Amount be
less than zero. For purposes of the foregoing sentence, in the case of a
security convertible into or exchangeable for shares of Common Stock, the
amount payable pursuant to a right or warrant to purchase or acquire shares
of Common Stock shall be the Fair Market Value of such security on the date
of the issuance, sale or exchange of such security by the Corporation.
"Pro Rata Repurchase" shall mean any purchase of shares of Common
Stock by the Corporation or any subsidiary thereof, whether for cash,
shares of capital stock of the Corporation, other securities of the
Corporation, evidences of indebtedness of the Corporation or any other
person or any other property (including shares of a subsidiary of the
Corporation), or any combination thereof, affected while any of the
Convertible Perpetual Preferred Shares are outstanding, pursuant to any
tender offer or exchange offer subject to Section 13(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any successor
provision of law, or pursuant to any other offer available to substantially
all holders of Common Stock; provided, however, that no purchase of shares
by the Corporation or any subsidiary thereof made in open market
transactions shall be deemed a Pro Rata Repurchase. For purposes of this
Section 9(g), shares shall be deemed to have been purchased by the
Corporation or any subsidiary thereof "in open market transactions" if they
have been purchased substantially in accordance with the requirements of
Rule 10b-18 as in effect under the Exchange Act on July 21, 1989, or on
such other terms and conditions as the Board or a committee thereof shall
have determined are reasonably designed to prevent such purchases from
having a material effect on the trading market for the Common Stock.
(h) Whenever an adjustment to the Conversion Price and the related voting
rights of the convertible Perpetual Preferred Shares is required hereunder, the
Corporation shall forthwith place on file with the transfer agent for the Common
Stock and the Convertible Perpetual Preferred Shares, and with the Secretary of
the Corporation, a statement signed by two officers of the Corporation stating
the adjusted Conversion Price determined as provided herein and the resulting
conversion ratio, and the voting rights (as appropriately adjusted), of the
Convertible Perpetual Preferred Shares. Such statement shall set forth in
reasonable detail such facts as shall be necessary to show the reason and the
manner of computing such adjustment, including any determination of Fair Market
Value involved in such computation. Promptly after each adjustment to the
Conversion Price and the related voting rights of the Convertible Perpetual
Preferred Shares, the Corporation shall mail a notice thereof and of the then
prevailing conversion ratio to each holder of Convertible Perpetual Preferred
Shares.
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SECTION 10. Ranking; Attributable Capital And Adequacy of Surplus;
Retirement of Shares. (a) The Convertible Perpetual Preferred Shares shall rank
senior to the Common Stock as to the payment of dividends and the distribution
of assets on liquidation, dissolution and winding-up of the Corporation, and,
unless otherwise provided in the Restated Certificate of Incorporation of the
Corporation, as the same may be amended, or a Certificate of Designations
relating to a subsequent series of Preferred Stock, without par value, of the
Corporation, the Convertible Perpetual Preferred Shares shall rank junior to all
series of the Corporation's Preferred Stock, without par value, as to the
payment of dividends and the distribution of assets on liquidation, dissolution
or winding-up.
(b) In addition to any vote of stockholders required by law or by Section
3(b), the vote of the holders of a majority of the outstanding Convertible
Perpetual Preferred Shares shall be required to increase the par value of the
Common Stock or otherwise increase the capital of the Corporation allocable to
the Common Stock for the purpose of the General Corporation Law if, as a result
thereof, the surplus of the Corporation for purposes of the General Corporation
Law would be less than the amount of Convertible Perpetual Preferred Dividends
that would accrue on the then outstanding Convertible Perpetual Preferred Shares
during the following three years.
(c) Any Convertible Perpetual Preferred Shares acquired by the Corporation
by reason of the conversion or redemption of such shares as provided by Section
2, or otherwise so acquired, shall be retired as Convertible Perpetual Preferred
Shares and restored to the status of authorized but unissued shares of Preferred
Stock, without par value, of the Corporation, undesignated as to series, and may
thereafter be reissued as part of a new series of such Preferred Stock as
permitted by law.
SECTION 11. Miscellaneous. (a) All notices referred to in Section 2 shall
be in writing, and all notices hereunder shall be deemed to have been given upon
the earlier of delivery thereof if by hand delivery, by courier or by standard
form of telecommunication or three (3) Business Days after the mailing thereof
if sent by registered mail (unless first-class mail shall be specifically
permitted for such notice under the terms of Section 2) with postage prepaid,
addressed: (i) if to the Corporation, to its office at 800 North Lindbergh
Blvd., St. Louis, MO 63167 (Attention: Secretary), or to the transfer agent for
the Convertible Perpetual Preferred Shares, or other agent of the Corporation
designated as permitted by Section 2 or (ii) if to any holder of the Convertible
Perpetual Preferred Shares or Common Stock, as the case may be, to such holder
at the address of such holder as listed in the stock record books of the
Corporation (which may include the records of any transfer agent for the
Convertible Perpetual Preferred Shares or Common Stock, as the case may be) or
(iii) to such other address as the Corporation or any such holder, as the case
may be, shall have designated by notice similarly given.
(b) The term "Common Stock" as used in Section 2 means the Corporation's
Common Stock, par value $2.00 per share, as the same exists at the date of
filing of a Certificate of Designations relating to Convertible Perpetual
Preferred Shares or any other class of stock resulting from successive changes
or reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that, at any time as a result of an adjustment made pursuant to
Section 9, the holder of any Convertible Perpetual Preferred Shares upon
thereafter surrendering such shares for conversion, shall become entitled to
receive any shares or other securities of the Corporation other than shares of
Common Stock, the Conversion Price in respect of such other shares or securities
so receivable upon conversion
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of Convertible Perpetual Preferred Shares shall thereafter be adjusted, and
shall be subject to further adjustment from time to time, in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to
Common Stock contained in Section 9, and the provisions of Sections 1 through 8,
10 and 11 with respect to the Common Stock shall apply on like or similar terms
to any such other shares or securities.
(c) The Corporation shall pay any and all stock transfer and documentary
stamp taxes that may be payable in respect of any issuance or delivery of
Convertible Perpetual Preferred Shares or shares of Common Stock or other
securities issued on account of Convertible Perpetual Preferred Shares pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax which may be payable in
respect of any transfer involved in the issuance or delivery of Convertible
Perpetual Preferred Shares or Common Stock or other securities in a name other
than that in which the Convertible Perpetual Preferred Shares with respect to
which such shares or other securities are issued or delivered were registered,
or in respect of any payment to any person with respect to any such shares or
securities other than a payment, to the registered holder thereof, and shall not
be required to make any such issuance, delivery or payment unless and until the
person otherwise entitled to such issuance, delivery or payment has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid or is not payable.
(d) In the event that a holder of Convertible Perpetual Preferred Shares
shall not by written notice designate the name in which shares of Common Stock
to be issued upon conversion of such shares should be registered or to whom
payment upon redemption of Convertible Perpetual Preferred Shares should be made
or the addresses to which the certificate or certificates representing such
shares, or such payment, should be sent, the Corporation shall be entitled to
register such shares and make such payment, in the name of the holder of such
Convertible Perpetual Preferred Shares as shown on the records of the
Corporation and to send the certificate or certificates representing such
shares, or such payment, to the address of such holder shown on the records of
the Corporation.
(e) Unless otherwise provided in the Restated Certificate of Incorporation,
as the same may be amended, of the Corporation, all payments in the form of
dividends, distributions on voluntary or involuntary dissolution, liquidation or
winding-up or otherwise made upon the Convertible Perpetual Preferred Shares and
any other stock ranking on a parity with the Convertible Perpetual Preferred
Shares with respect to such dividend or distribution shall be pro rata, so that
amounts paid per Convertible Perpetual Preferred Share and such other stock
shall in all cases bear to each other the same ratio that the required
dividends, distributions or payments, as the case may be, then payable per share
on the Convertible Perpetual Preferred Share and such other stock bear to each
other.
(f) Any determination required or permitted to be made by the Board
hereunder may be made by a committee appointed by the Board which need not
include members of the Board.
(g) The Corporation may appoint, and from time to time discharge and
change, a transfer agent for the Convertible Perpetual Preferred Shares. Upon
any such appointment or discharge of a transfer agent, the Corporation shall
send notice thereof by hand delivery, by courier, by standard form of
telecommunication or by first-class mail (postage prepaid), to each holder of
record of Convertible Perpetual Preferred Shares.
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IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its Chairman of the Board and attested by its Secretary
this day of , 2000.
--------------------------------------
Chairman of the Board
Attest:
- ---------------------------------------------------
Secretary
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<PAGE> 257
ANNEX K
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
<PAGE> 258
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or
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consolidation, shall, also notify such stockholders of the effective date
of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand
in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders
on or within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such
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a duly verified list. The Register in Chancery, if so ordered by the Court,
shall give notice of the time and place fixed for the hearing of such petition
by registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other
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distributions on the stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition for an
appraisal shall be filed within the time provided in subsection (e) of this
section, or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of such stockholder's demand for an appraisal
and an acceptance of the merger or consolidation, either within 60 days after
the effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation, then
the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
K-5
