<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
This is a translation from English of the "Proxy Statement" that was sent
to all shareholders and holders of depository receipts in Pharmacia & Upjohn
and Monsanto. The English orginal version shall govern this translation. For
details on voting by holders of Swedish depository receipts and how they can
get more information, reference is made to the brochure which has been sent to
the holders of Swedish depository receipts.
[MONSANTO LOGO] [Pharmacia & Upjohn LOGO]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The boards of directors of Monsanto Company and Pharmacia & Upjohn, Inc.
have approved a "merger of equals" of the two companies. We believe the combined
company will be able to create substantially more stockholder value than could
be achieved by the companies individually.
Our combined company will be named Pharmacia Corporation. Its corporate
headquarters, and the headquarters of its pharmaceutical business, will be
located in Peapack, New Jersey. Our agricultural business will retain the
Monsanto name and will be headquartered in St. Louis, Missouri.
Upon completion of the merger, holders of Pharmacia & Upjohn common stock
will receive 1.19 shares of common stock of the combined company for each share
of Pharmacia & Upjohn common stock they own,
and each share of Pharmacia & Upjohn Series A Convertible Perpetual Preferred
Stock will be converted into an equivalent share of a newly created series of
convertible perpetual preferred stock of the combined company. Monsanto
stockholders will continue to hold their existing shares after the merger. We
have filed an application with the New York Stock Exchange to have the combined
company's stock listed on the New York Stock Exchange under the symbol "PHA".
Approximately 619 million shares of common stock of the combined company
will be issued to Pharmacia & Upjohn stockholders in the merger, based on the
number of shares of Pharmacia & Upjohn common stock outstanding on February 17,
2000. These shares will represent approximately 49% of the outstanding common
stock of the combined company after the merger. Monsanto shares held by Monsanto
stockholders before the merger will represent approximately 51% of the
outstanding common stock of the combined company after the merger.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------ ------------------------------------------------------
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 Thursday, March 23, 2000
MONSANTO stockholders will be held: 10:00 a.m., Local Time
Thursday, March 23, 2000 The Playhouse Theatre
1:00 p.m., Local Time DuPont Building
The North Shore Center 10th and Market Streets
for the Performing Arts Wilmington, Delaware
9501 Skokie Blvd. PHARMACIA & UPJOHN'S BOARD OF DIRECTORS
Skokie, Illinois 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.
- ------------------------------------------------------ ------------------------------------------------------
</TABLE>
/s/ ROBERT P. SHAPIRO /s/ FRED HASSAN
Robert B. Shapiro
Fred Hassan
Chairman and Chief Executive Officer, Chief Executive Officer,
Monsanto Company Pharmacia & Upjohn, Inc.
CONSIDER THE RISKS DESCRIBED ON PAGES I-14 THROUGH I-18 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 February 22, 2000 and first mailed to
stockholders on February 22, 2000.
<PAGE> 2
This document incorporates important business and financial information about
Monsanto and Pharmacia & Upjohn that is not included in or delivered with this
document. This information is available without charge to stockholders upon
written or oral request at the applicable company's address and telephone number
listed on page I-3. To obtain timely delivery, stockholders must request the
information no later than March 16, 2000.
<PAGE> 3
[Pharmacia & Upjohn LOGO]
NOTICE OF SPECIAL MEETING
TO BE HELD ON THURSDAY, MARCH 23, 2000
AT 10:00 A.M.
To the Stockholders of Pharmacia & Upjohn, Inc.:
A special meeting of stockholders of Pharmacia & Upjohn, Inc. will be held
on Thursday, March 23, 2000, at 10:00 a.m., local time, at The Playhouse
Theatre, DuPont Building, 10th and Market Streets, Wilmington, Delaware to
consider and vote upon a proposal to adopt the Agreement and Plan of Merger,
dated as of December 19, 1999, as amended, 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 February 17,
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.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR STOCK AT THIS TIME.
/s/Don W. Schmitz
-------------------
Don W. Schmitz
Corporate Secretary
February 22, 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) OR USING THE INTERNET
(WWW.HARRISBANK.COM/WPROXY) AND BY FOLLOWING THE INSTRUCTIONS INCLUDED WITH YOUR
PROXY CARD.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
CHAPTER ONE
THE MERGER.......................... I-1
QUESTIONS AND ANSWERS ABOUT THE
MERGER......................... I-1
SUMMARY........................... I-3
SUMMARY OF FINANCIAL
INFORMATION.................... I-11
RISK FACTORS...................... I-14
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS..... I-19
THE MERGER........................ I-20
General........................... I-20
Background of the Merger.......... I-20
Our Reasons for the Merger;
Recommendations of Our Boards
of Directors................... I-24
Material United States Federal
Income Tax Consequences of the
Merger......................... I-26
Material Swedish Tax Consequences
of the Merger.................. I-28
Regulatory Matters Relating to the
Merger......................... I-29
Appraisal Rights.................. I-30
Federal Securities Laws
Consequences................... I-31
Accounting Treatment.............. I-31
Stock Exchange Listings........... I-32
Monsanto Charter Amendments....... I-32
Amended and Restated Bylaws....... I-34
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-44
Structure of the Merger........... I-44
Timing of Closing................. I-44
Merger Consideration.............. I-44
Treatment of Pharmacia & Upjohn
Stock Options.................. I-44
Exchange of Certificates.......... I-45
The Board of the Combined Company
and Related Matters............ I-45
Intended Agribusiness IPO......... I-46
</TABLE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Covenants......................... I-46
Representations and Warranties.... I-52
Conditions........................ I-53
Termination of the Merger
Agreement...................... I-54
Fees and Expenses Payable Because
of a Termination of the Merger
Agreement...................... I-55
Amendments, Extensions and
Waivers........................ I-57
STOCK OPTION AGREEMENTS........... I-58
The Stock Options................. I-58
When the Stock Options May Be
Exercised...................... I-58
Election to Repurchase Options.... I-58
Limitation on Total Profit........ I-59
Effect of Stock Option
Agreements..................... I-59
OPINIONS OF FINANCIAL ADVISORS
[not translated into Swedish]..
Opinions of Financial Advisors to
Monsanto.......................
Opinion of Goldman Sachs to
Monsanto.......................
Opinion of Morgan Stanley to
Monsanto.......................
Opinions of Financial Advisors to
Pharmacia & Upjohn.............
Opinion of Bear Stearns to
Pharmacia & Upjohn.............
Opinion of J.P. Morgan to
Pharmacia & Upjohn.............
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............................ III-1
Matters Relating to the
Meetings....................... III-1
Shares Entitled to Vote........... III-2
Vote Necessary to Approve Monsanto
and Pharmacia & Upjohn
Proposals...................... III-3
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Voting by Proxy................... III-3
How to Vote by Proxy.............. III-4
Other Business; Adjournments...... III-6
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
</TABLE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Monsanto Preferred Stock.......... IV-5
Description of Rights............. IV-8
Transfer Agent and Registrar...... IV-8
Stock Exchange Listing; Delisting
of Pharmacia & Upjohn Common
Stock.......................... IV-8
LEGAL MATTERS..................... IV-9
INDEPENDENT ACCOUNTANTS........... IV-10
CHAPTER FIVE
ADDITIONAL INFORMATION FOR
STOCKHOLDERS...................... V-1
FUTURE STOCKHOLDER PROPOSALS...... V-1
WHERE YOU CAN FIND MORE
INFORMATION.................... V-I
</TABLE>
ANNEXES [only Annexes F and G are translated]
Annex A -- Agreement and Plan of
Merger, as amended
Annex B -- Monsanto Stock Option
Agreement
Annex C -- Pharmacia & Upjohn Stock
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 -- Monsanto Charter Amendments
Annex I -- Amended and Restated Bylaws
Annex J -- Certificate of Designations
for Series B Convertible
Perpetual Preferred Stock
of Monsanto Company
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 have their shares of common
stock and preferred stock converted into newly-issued shares of common stock
and preferred stock of the combined company and Monsanto stockholders will
retain their existing shares. We expect that upon completion of the merger,
about 51% of the outstanding common stock of the combined company will be
held by former Monsanto stockholders and about 49% of the outstanding common
stock of the combined company will be held by former Pharmacia & Upjohn
stockholders.
Q: WHEN ARE THE STOCKHOLDERS' MEETINGS?
A: Each company's meeting will take place on March 23, 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 or by Internet, as soon as possible, so that your shares may be
represented at your meeting. 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 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: Pharmacia & Upjohn's current regular quarterly dividend is $0.27 per share of
Pharmacia & Upjohn common stock, or $1.08 per share on an annual basis.
Monsanto's current regular 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 regular 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 D. F. King & Co. at
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 page I-24.
OUR RECOMMENDATIONS TO STOCKHOLDERS (SEE PAGE I-24)
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 [not translated in Swedish] 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-44)
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 following business day if the effective date of the merger is
not a business day.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGE I-59) [not translated]
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 February 17, 2000, the most
recent practicable date prior to the mailing of this document, Monsanto common
stock closed at $39.75 and Pharmacia & Upjohn common stock closed at $49.81.
LISTING OF COMMON STOCK OF THE COMBINED COMPANY
We have filed an application to have the common stock of the combined
company listed on the New York Stock Exchange under the ticker symbol "PHA".
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 votes cast on such proposal, provided that the
total votes cast on the proposal represent over 50% in interest of all
securities entitled to vote on such proposal. Approval of the Monsanto charter
amendments requires the approval of the holders of a majority of the outstanding
shares of Monsanto common stock. As of February 17, 2000, directors and
executive officers of Monsanto and their affiliates owned an aggregate of less
than 2% of the outstanding shares of Monsanto common stock, which they have
indicated they intend to vote in favor of the Monsanto proposals.
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 together as a single class. As of
February 17, 2000, directors and executive officers of Pharmacia & Upjohn and
their affiliates owned an aggregate number of shares of Pharmacia & Upjohn
representing approximately 1% of the total votes entitled to be cast, which they
have indicated they intend to vote in favor of adoption of the merger agreement.
OWNERSHIP OF THE COMBINED COMPANY AFTER THE MERGER
The combined company will issue approximately 619 million shares of its
common stock to Pharmacia & Upjohn stockholders in the merger. These shares will
represent approximately 49% of the outstanding common stock of the combined
company. This information is based on the number of shares of Monsanto common
stock and
I-4
<PAGE> 10
Pharmacia & Upjohn common stock outstanding on February 17, 2000 and
does not take into account the Monsanto or Pharmacia & Upjohn convertible
perpetual preferred stock, stock options or other equity-based awards or other
transactions involving the issuance of common stock, including acquisitions.
BOARD AND BOARD COMMITTEES AFTER THE MERGER (SEE PAGE I-35 AND PAGE I-45)
After the merger, the board of directors of the combined company will have
18 members, consisting of nine persons designated by Monsanto and nine persons
designated by Pharmacia & Upjohn. All committees of the board of directors of
the combined company will initially consist of an equal number of Monsanto and
Pharmacia & Upjohn designees.
EXECUTIVE OFFICERS (SEE PAGE I-45)
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 UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE
I-26)
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 common
stock of the combined company. The companies themselves, as well as Monsanto
stockholders, will not recognize gain or loss for United States federal income
tax purposes as a result of the merger.
MATERIAL SWEDISH TAX CONSEQUENCES OF THE MERGER (SEE PAGE I-28)
The conversion of shares of Pharmacia & Upjohn common stock into shares of
common stock of the combined company is a taxable event for Pharmacia & Upjohn's
Swedish depository share holders. However, according to special tax provisions,
capital gains taxation may be deferred on share-for-share exchanges until the
shares received in the exchange are sold if certain conditions are met. Because
the structure of merger contemplated by Pharmacia & Upjohn and Monsanto is not
currently recognized under Swedish corporate law, it is not clear whether the
conditions entitling Swedish depositary share holders to deferred taxation will
be met. Pharmacia & Upjohn has therefore arranged for the filing of an
application for an advance tax ruling with the Swedish Council for Advance Tax
Rulings in order to clarify the matter. We do not expect a ruling until sometime
after March 17, 2000. Pharmacia & Upjohn cannot give any assurances concerning
whether a favorable ruling will be received.
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
I-5
<PAGE> 11
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
waiting period expired at midnight on February 18, 2000.
The merger is also subject to review under the competition laws of the
European Union. We submitted the required formal pre-merger filing on February
16, 2000.
The merger is also subject to regulatory review in jurisdictions other than
the U.S. and the European Union.
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-52)
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, which has occurred, 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 tax counsel to Monsanto and Pharmacia & Upjohn that the
merger will qualify as a tax-free reorganization for United States federal
income tax purposes.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE I-53)
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
I-6
<PAGE> 12
- - before the other party's stockholders' vote, the other party approves or
recommends a superior proposal made by a third party; or
- - before its stockholders' 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 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-55)
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.
I-7
<PAGE> 13
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-58 AND ANNEXES B AND C [these Annexes are
not translated])
In connection with the merger agreement, Monsanto and Pharmacia & Upjohn
entered into reciprocal stock option agreements under which Monsanto granted to
Pharmacia & 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 [these Annexes are not
translated].
THE MONSANTO CHARTER AMENDMENTS AND BYLAWS (SEE PAGES I-32 AND I-34 AND ANNEXES
H AND I [these Annexes are not translated])
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 [these Annexes are not
translated].
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 [this Annex is
not translated].
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 DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------
1999 1998(1) 1997(2) 1996(3) 1995(4) 1994(5)
------------- ------- ------- ------- ------- -------
(AMOUNTS IN MILLION $ EXCEPT PER SHARE INFORMATION)
<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
Ratio of Earnings to Fixed
Charges......................... 3.08 0.77 1.58 3.92 4.89 4.86
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
FINANCIAL POSITION (AT END OF
PERIOD):
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.
(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.
I-9
<PAGE> 15
(4) Income from continuing operations for 1995 included restructuring expenses
and other unusual items of $63 million, or $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, or $0.03 per share, 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.
I-10
<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)
------- ------- ------- ------- ------- ------- -------
(AMOUNTS IN MILLION $ EXCEPT PER SHARE INFORMATION)
<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 -
FINANCIAL POSITION (AT END OF
PERIOD):
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.
I-11
<PAGE> 17
COMPARATIVE PER SHARE DATA
MARKET PRICE DATA
The table below presents the high and low sales 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 February 17, 2000, the
most recent practicable date prior to 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 sales 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. Stockholders should obtain current market quotations
for 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
(PRICE PER SHARE) (PRICE PER SHARE) (PRICE PER 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
February 17, 2000............... 41.38 39.69 51.44 49.63 49.24 47.23
</TABLE>
Following the consummation of the merger, shares of Pharmacia & Upjohn
common stock will cease to be traded on the New York Stock Exchange. An
application has been filed with the New York Stock Exchange to list the combined
company's common stock on the New York Stock Exchange under the symbol "PHA".
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
I-12
<PAGE> 18
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
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 regular 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 regular 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
& 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 company's board of
directors may deem relevant.
I-13
<PAGE> 19
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 taxes of approximately $26
million). 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 incurred in the integration of
our businesses. Although we expect that the
I-14
<PAGE> 20
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
I-15
<PAGE> 21
laboratories. Some of our agribusiness' agricultural competitors 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-16
<PAGE> 22
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 recent claims that genetically modified plant products are
unsafe for consumption, pose risks of damage to the environment and create legal
and ethical dilemmas. In addition, extensive regulatory approvals are required
by numerous governmental authorities. The market success of products developed
through biotechnology could be delayed or impaired in certain geographical areas
because of failures to obtain regulatory approvals or more restrictive
regulations. For instance, some countries have instituted a moratorium on the
planting of certain genetically modified seeds or the import of grain produced
from such seeds, the U.S. Environmental Protection Agency has announced new
restrictions on planting genetically modified corn 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.
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, any failure of our agribusiness to integrate these companies into
its business may prevent us from realizing projected operating gains and
efficiencies and otherwise from implementing our business strategy. 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. The diversion of management's attention to such matters or the
delays or difficulties encountered in connection with integrating these
operations could 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 may negatively influence sales of the agribusiness' herbicide and
seed products.
OUR BUSINESS WILL CONTINUE TO EXPOSE US TO RISKS OF ENVIRONMENTAL LIABILITIES
We use hazardous materials, chemicals, viruses and toxic compounds in our
product development programs and
I-17
<PAGE> 23
manufacturing processes which exposes us to risks of accidental contamination
and personal injury claims. If such an accident occurred or if we were to
discover contamination caused by prior operations, the combined company could be
held liable for any damages 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. Although we will seek to minimize our currency
exposure by engaging in hedging transactions where we deem it appropriate, there
can be no assurance those efforts will be successful.
I-18
<PAGE> 24
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 Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q.
I-19
<PAGE> 25
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, Mr. Fred Hassan, the President and Chief Executive
Officer of Pharmacia & Upjohn, and Mr. 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 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
I-20
<PAGE> 26
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;
I-21
<PAGE> 27
(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
I-22
<PAGE> 28
- 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 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
I-23
<PAGE> 29
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.
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 Stanley each 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.
Effective as of February 18, 2000, Monsanto and Pharmacia & Upjohn entered
into an amendment to the merger agreement to, among other things, specify
"Pharmacia Corporation" as the name of the combined company and to provide that
the combined company's board of directors would initially have 18 members,
consisting of nine persons designated by Monsanto and nine persons designated by
Pharmacia & Upjohn.
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
I-24
<PAGE> 30
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";
- 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
I-25
<PAGE> 31
- 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 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-19.
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 UNITED STATES 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,
I-26
<PAGE> 32
- 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
- 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.
UNITED STATES FEDERAL INCOME TAX TREATMENT OF THE MERGER. The merger will
be treated for United States 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.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO PHARMACIA & UPJOHN
STOCKHOLDERS. For United States 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
I-27
<PAGE> 33
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 (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.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO MONSANTO STOCKHOLDERS.
For United States 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 United States federal income tax consequences
is intended to provide only a general summary, and is not a complete analysis or
description of all potential United States 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 state, local or non-U.S. 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 NON-U.S. INCOME OR OTHER TAX
CONSEQUENCES TO HIM OR HER OF THE MERGER.
MATERIAL SWEDISH TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material Swedish tax consequences
of the merger for holders of Swedish depository shares who, for tax purposes,
are residents of Sweden, and was prepared by Enskilda Juridik, Swedish
I-28
<PAGE> 34
tax counsel to Pharmacia & Upjohn. Swedish depository shares in Pharmacia &
Upjohn trade on the OM Stockholm Exchange. Each Swedish depository share
represents one share of Pharmacia & Upjohn common stock. The shares of Pharmacia
& Upjohn common stock underlying the Swedish depository shares are held in trust
for the Swedish depository share holders. The following discussion does not
cover tax issues in cases where Swedish depository shares are held as current
assets in business operations or by a partnership, nor does it summarize special
tax provisions that apply for certain categories of corporate holders such as
investment companies, mutual funds and companies liable to yield tax
("avkastningsskatt"). Special tax consequences that are not described below may
therefore arise. Each holder of Pharmacia & Upjohn Swedish depository shares
should therefore consult with a tax advisor regarding the special tax
consequences that may arise in each individual case.
CAPITAL GAINS TAXATION
As a consequence of the merger, holders of Swedish depository shares will
be deemed to have disposed of their Pharmacia & Upjohn depository shares for
Pharmacia Corporation depository receipts. A taxable capital gain or a
deductible capital loss will therefore arise as a result of the merger. A
taxable capital gain or a deductible capital loss will also be realized by
Swedish depository receipt holders when the depository receipts and the
fractions of depository receipts of Pharmacia Corporation are sold.
The merger entails no tax liability in the United States for holders of
Swedish depository shares who are residents of Sweden for tax purposes.
DEFERRED CAPITAL GAINS TAXATION
At present, it is unclear if holders of Pharmacia & Upjohn Swedish
depository shares can defer tax on capital gains in accordance with the
provisions of Swedish tax law concerning deferred taxation of share exchanges as
a result of the merger. Therefore, an application for an advance tax ruling with
the Swedish Council for Advance Tax Rulings has been sought.
TAXATION ON DIVIDENDS
Dividends on depository receipts in Pharmacia Corporation will be treated
in the same way as the dividends on depository shares in Pharmacia & Upjohn.
Therefore, withholding tax will be withheld in the United States at a 15 percent
rate. The gross dividend will also be taxable in Sweden at a 30 percent rate for
individuals and at a 28 percent rate for corporations. If U.S. withholding tax
has been withheld at the 15 percent rate, a Swedish preliminary tax of an
additional 15 percent on dividends paid to individuals will be withheld by VPC,
the Swedish Securities Register Center, or, where depository receipts are held
by a nominee, by the nominee. It should be noted that there are new rules to
take effect beginning in 2001 regarding reduction of the withholding tax
directly at the source in the United States.
NET WEALTH TAXATION
When the shares of Pharmacia Corporation common stock underlying Pharmacia
Corporation Swedish depository receipts are listed on the New York Stock
Exchange, the Swedish depository receipts must be included in the taxable net
wealth in Sweden at 80% of their quoted value at the end of the calendar year.
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
I-29
<PAGE> 35
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
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 and the applicable waiting period under the Hart-Scott-Rodino Act
expired 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 APPROVAL
On February 16, 2000, Monsanto notified the Commission of the European
Community of the proposed merger in accordance with Council Regulation No.
4064/89 for reporting concentrations involving the European Community. The
initial one-month period for the European Commission to review the proposed
merger will expire on March 17, 2000. This initial one-month period can be
extended for an additional two weeks if we offer commitments to the Commission
in order to alleviate any of its serious doubts as to the merger's compatibility
with the common market. At the conclusion of this period, the Commission will
either declare the proposed merger compatible with the common market (in which
case the merger may proceed) or initiate formal proceedings to investigate the
proposed merger which must be concluded within four months.
OTHER APPROVALS
Pharmacia & Upjohn and Monsanto each conduct business outside the U.S. 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 shares of Pharmacia & Upjohn convertible perpetual
preferred stock in favor of the merger agreement, it has the right to demand
appraisal of, and to be paid the fair market value for such 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 time the vote is
taken on the merger at the Pharmacia & Upjohn meeting as provided by Delaware
law. Annex K [not translated] 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
I-30
<PAGE> 36
appraisal rights. If the holder of Pharmacia & Upjohn convertible perpetual
preferred stock fails to deliver such a written demand prior to the time the
vote is taken on the merger at 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 shares of Pharmacia & Upjohn convertible perpetual preferred stock
for adoption of the merger agreement, it will lose the right to an appraisal
with respect to such shares. 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 [not translated] 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 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
I-31
<PAGE> 37
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.
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
We have filed an application with the New York Stock Exchange to have the
common stock of the combined company listed on the New York Stock Exchange under
the ticker symbol "PHA". 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 [not translated]
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 February 17, 2000, of the 1,000,000,000 shares of Monsanto common
stock authorized by the Monsanto charter, approximately 637.2 million shares
were issued and outstanding (excluding approximately 209.7 million treasury
shares), approximately 129.0 million shares were reserved for issuance upon
exercise of 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 February 17,
2000, approximately 618.9 million shares of Monsanto common stock will be issued
in the merger to
I-32
<PAGE> 38
holders of Pharmacia & Upjohn common stock, approximately 11.5 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 38.2 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 1.5
billion shares of Monsanto common stock would be authorized, but unissued and
not reserved for issuance.
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 and pursuant to existing options, the 6.50%
Adjustable Conversion-Rate Equity Security Units and Monsanto's rights
agreement, 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-5.
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
I-33
<PAGE> 39
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 [not translated].
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.
I-34
<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 18 members,
consisting of nine persons designated by Monsanto and nine persons designated by
Pharmacia & Upjohn. More information concerning the designees is provided under
the heading "Additional Information Concerning the Designees to the Board of
Directors" beginning on page I-40. All committees of the combined company's
board of directors will initially be composed of an equal number of members
designated by each of Monsanto and Pharmacia & Upjohn. The bylaws of the
combined company will provide that only persons nominated by the nominating
committee of the board of directors or by a stockholder will be eligible to be
elected as directors.
We have also agreed that Mr. Robert B. Shapiro, the chief executive officer
and chairman of Monsanto, will become the chairman of the board of directors and
Mr. Fred Hassan, chief executive officer of Pharmacia & Upjohn, will become the
chief executive officer of the combined company. The bylaws of the combined
company will provide that 18 months after the completion of the merger, Mr.
Hassan, if he is then the chief executive officer of the combined company, will
become the chairman of the board of directors of the combined company, unless
otherwise determined at that time by the affirmative vote of 80% of the members
of the board of directors. The parties intend that at the time of the completion
of the merger, the twenty most senior executive positions in the combined
company, excluding the chairman and the chief executive officer, will be held by
ten executives of Monsanto and ten executives of Pharmacia & Upjohn.
Pursuant to the merger agreement, the combined company will assume
Pharmacia & Upjohn's employment agreement with Mr. Hassan. This agreement
provides, among other things, that Mr. Hassan will serve as chief executive
officer through November 30, 2004, and thereafter the agreement is subject to
cancellation upon six months' prior notice by either party. Pursuant to his
agreement, Mr. Hassan's annual compensation will consist, at a minimum, of a
base salary of $1,200,000 per year. For the year 2000, Mr. Hassan is also
eligible to receive an annual target bonus of up to 100% of his base salary
depending on achievement of performance-based goals. Mr. Hassan's agreement also
provides for welfare benefits, participation in company retirement and incentive
plans, and his use of company-provided transportation for security reasons. Mr.
Shapiro entered into an agreement with Monsanto in connection with the merger
and will serve as chairman of the board of 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
I-35
<PAGE> 41
his services as a senior advisor. Mr. Shapiro's agreement also provides that
during the term of the agreement, Mr. Shapiro will receive health care benefits,
secretarial services and security services, including company-provided
transportation.
OTHER AGREEMENTS AND PLANS WITH RESPECT TO EXECUTIVE OFFICERS
PHARMACIA & UPJOHN
EMPLOYMENT AGREEMENTS
In addition to the salary and bonus described above, the terms of Pharmacia
& Upjohn's employment agreement with Mr. Hassan provide that all stock options
granted to Mr. Hassan under the agreement (including Mr. Hassan's year 2000
annual stock option grant to purchase 350,000 shares under the Pharmacia &
Upjohn, Inc. Long-Term Incentive Plan and an additional option grant to purchase
150,000 shares based on the performance of Pharmacia & Upjohn stock) vest and
become fully exercisable as a result of the merger. Under the terms of the
employment agreement, Mr. Hassan also received a grant of 200,000 restricted
shares of Pharmacia & Upjohn stock, which will not vest as a result of the
merger.
STOCK OPTIONS AND INCENTIVE PLANS
As a result of the merger, all outstanding options, stock appreciation
rights, deferred shares and restricted stock grants awarded under the Pharmacia
& Upjohn, Inc. Long-Term Incentive Plan, the Pharmacia & Upjohn, Inc. Equity
Compensation Plan and the Pharmacia & Upjohn Directors Equity Compensation and
Deferral Plan prior to the consummation of the proposed merger, whether or not
fully vested, will, with regard to options, stock appreciation rights and
deferred shares, accelerate, vest and become fully exercisable, and, will, with
respect to restricted stock (except for restricted stock awarded to Mr. Hassan
under his employment agreement), become unrestricted and freely transferable
(including options and restricted stock awarded to Pharmacia & Upjohn
directors), except as set forth in the affiliate agreements. Any option, stock
appreciation right or deferred share that is not exercised before the date the
merger becomes effective will be converted into an immediately exercisable right
with respect to common stock of Monsanto following the merger, in a manner
intended to maintain the aggregate intrinsic value of the converted options,
stock appreciation rights or deferred shares. The number of shares of Monsanto
stock to which any such converted award will pertain will equal the number of
Pharmacia & Upjohn shares subject to such award multiplied by 1.19, and with
respect to options and stock appreciation rights, the exercise price of such
awards will be the current exercise price of such award divided by 1.19.
I-36
<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(3)..................... $866,665 $7,730,652 0
G.A. Ando........................ 349,999 3,121,991 0
T.G. Rothwell.................... 247,297 2,205,889 7,300
C.J. Coughlin.................... 223,332 1,992,121 25,000
C. Smith Cox..................... 192,631 1,718,269 0
All other Pharmacia & Upjohn
executive officers as a
group.......................... 413,658 3,689,829 0
</TABLE>
- -------------------------
(1) Includes all options granted (including options to be granted in February
2000) that will be unvested and outstanding on June 30, 2000 provided the
merger has not occurred by that date.
(2) Grants valued using Black-Scholes value of $8.92/option. This is the value
used in the 1999 proxy statement.
(3) Includes Performance Stock Option Award of 150,000 options.
In anticipation of the merger, the board of directors of Pharmacia & Upjohn
adopted a resolution that, for purposes of the Pharmacia & Upjohn Pension Plan,
the merger would not be deemed to be a "change in control" (as defined in the
pension plan).
MONSANTO
Change of Control Employment Agreements. Monsanto has entered into change
of control employment agreements with each of its executive officers and certain
other key executives. Each change of control agreement provides for the
continuing employment of the executive after a "change of control" (including as
a result of the consummation of the merger) on terms and conditions no less
favorable than those in effect before the change of control. If the executive's
employment is terminated by the company without "cause" or if the executive
terminates his or her own employment for "good reason" (as each term is defined
in the change of control employment agreement), the executive is entitled to
severance benefits equal to a "multiple" of his or her annual compensation
(including bonus and, in the case of Mr. Gary L. Crittenden and one other
executive, long-term incentives) and continuation of certain benefits for a
number of years equal to the multiple. The multiple is three for 24 executives
and two for 7 other executives (or, in either case, the shorter number of years
until the executive's normal retirement date). In addition, each of the
executives entitled to a severance multiple of three is entitled to receive the
severance benefits if he or she voluntarily terminates his or her own employment
during the 30-day period beginning on the first anniversary of certain changes
of control, including the merger. Moreover, the executives are entitled to an
additional payment, if necessary, to make them whole as a result of any excise
tax imposed by the Internal Revenue Code on certain change of control payments.
Monsanto believes that no such additional payments will be necessary as a result
of the merger. Finally, in the event that Mr. De Schutter's employment
I-37
<PAGE> 43
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.
As a result of ceasing to be the chief executive officer of Monsanto
immediately following the merger, Mr. Shapiro will become entitled to receive
the severance benefits provided for in his change of control employment
agreement, including cash severance of approximately $7,020,000. If the
employment of the other four most highly compensated executive officers of
Monsanto were terminated immediately following the merger under circumstances
entitling them to benefits under the change of control employment agreements,
the approximate total cash severance benefit that would be paid under such
agreements would be as follows: Mr. De Schutter $4,950,000; Mr. Gary L.
Crittenden $8,400,000; Mr. Philip Needleman $5,100,000; and Mr. Verfaillie
$4,800,000. The approximate maximum aggregate total cash amount that could be
paid under such agreements to the other 11 executive officers of Monsanto who
have change of control employment agreements under such circumstances would be
approximately $32,206,000 (15 individuals who are not executive officers also
have change of control employment agreements). Monsanto would also be
responsible for continuing certain benefits and the additional excise
tax-related payments described above, if applicable. Monsanto, however,
currently believes that the aggregate amounts indicated above significantly
exceed amounts that will actually be paid under such agreements.
STOCK OPTIONS. In accordance with the terms of the applicable stock option
agreements and except as described below, all Monsanto stock options will become
exercisable at the effective time of the merger. In addition, for certain
Monsanto stock options which were issued with exercise prices above the fair
market value of Monsanto common stock on the date such options were issued, at
the effective time of the merger, in accordance with their terms, the exercise
price of such premium options will be reduced to equal the fair market value on
the date of issuance. Purchased options and Year 2000 options granted in 1999
will be vested and exercisable on the later of the effective time of the merger
or the date the employee-option holder pays the required purchase price through
reduction of salary or by a direct payment. Employees who might otherwise
forfeit the options they have not paid for if they terminate employment can
complete payment within 30 days after termination and have their unvested
purchased options and Year 2000 options vest. The following table indicates the
number of Monsanto stock options for which exercisability will accelerate as a
result of the merger, the value of such options, and the amount by which the
exercise price of premium options will be reduced. The value of the Monsanto
stock options for which exercisability will accelerate was calculated based on
the difference between the per share exercise price and the closing price of
Monsanto common stock on the NYSE Composite Transactions Tape on February 17,
2000 ($39.75) and assumes the effective time of the merger is no later than June
30, 2000.
I-38
<PAGE> 44
<TABLE>
<CAPTION>
VALUE OF OPTIONS
NUMBER OF FOR WHICH
OPTIONS FOR WHICH EXERCISABILITY INCREASE IN
EXERCISABILITY WILL WILL BE VALUE OF
BE ACCELERATED ACCELERATED(1) PREMIUM OPTIONS
------------------- ---------------- ---------------
<S> <C> <C> <C>
R. B. Shapiro......................... 425,988 $194,736 $21,623,500(2)
G. L. Crittenden...................... 397,041 0 0
R. U. De Schutter..................... 174,305 85,193 2,441,825
P. Needleman.......................... 185,479 76,677 1,832,500
H. A. Verfaillie...................... 236,081 85,193 5,864,000
All other Monsanto executive officers
as a group (11 persons)............. 1,197,024 277,135 11,803,948
</TABLE>
- -------------------------
(1) These values exclude options having an exercise price above $39.75.
(2) Mr. Shapiro has indicated that he intends to donate a substantial portion of
the increase in value of his premium options, when realized, to a charitable
foundation for the benefit of communities in which Monsanto has major
facilities.
EXECUTIVE STOCK PURCHASE INCENTIVE PLAN. Thirty-four of Monsanto's senior
management group participate in the Monsanto Executive Stock Purchase Incentive
Plan ("ESPIP"), which permits executives to purchase Monsanto common stock with
the proceeds of a full-recourse loan from Monsanto. The purchase loans are
generally payable in three equal installments beginning on December 31, 2001, or
over a three-year period following a change of control, including the merger.
Executives who purchase stock through the ESPIP receive a deferred cash
incentive award in the maximum amount of the full-recourse loan plus accrued
interest. The participant receives up to two-thirds of the maximum award based
on Monsanto's stock performance relative to that of a specified comparative
stock index over a performance period which will end December 31, 2000 (the
"Shareowner Return Incentive Award"), and up to one-third is based on continued
employment with Monsanto over the performance period (the "Service Award"). In
order to receive any Shareowner Return Incentive Award, Monsanto's shareowner
return through the performance period must be above the 50th percentile of the
index. In order for an executive to earn the maximum Shareowner Return Incentive
Award, Monsanto's shareowner return through the performance period must be at or
above the 75th percentile of the index.
Under the ESPIP, following the merger, participating executives will be
entitled to receive the full Service Award, of which 87.5% would have been
vested as of May 31, 2000, even in the absence of the merger. Additionally,
participating executives may be eligible to receive a Shareowner Return
Incentive Award, calculated based upon performance through the tenth business
day prior to the effective time of the merger. The following table shows the
incremental cash payment under the ESPIP that will result from a change of
control and that would not have been vested as of May 31, 2000 in the absence of
a change of control and assumes, based upon the relative stock price performance
of Monsanto and the relevant index through December 31, 1999, that no Shareowner
Return Incentive Award will be payable.
I-39
<PAGE> 45
<TABLE>
<CAPTION>
INCREMENTAL CASH PAYMENT
------------------------
<S> <C>
R. B. Shapiro............................................... $226,410
G. L. Crittenden............................................ $ 0
R. U. De Schutter........................................... $ 62,379
P. Needleman................................................ $ 25,157
H. A. Verfaillie............................................ $ 81,759
All other Monsanto executive officers as a group
(11 persons)............................................... $262,858
</TABLE>
RESTRICTED STOCK. Restricted Monsanto common stock is occasionally granted
to Monsanto employees, usually in connection with job offers or to recognize
significant accomplishments. At the effective time of the merger, the
restrictions on all such shares previously awarded will lapse and the shares
will become fully vested and no longer subject to forfeiture. As of February 17,
2000, executive officers of Monsanto owned a total of 47,410 restricted shares
of Monsanto common stock, together with 2,400 shares of Solutia Inc. common
stock issued with respect to such restricted shares when Monsanto spun off its
chemical businesses in September 1997. The Solutia Inc. restricted shares are
subject to the same restrictions as the restricted shares of Monsanto common
stock. The restricted shares of Monsanto common stock (and the related
restricted shares of Solutia Inc. common stock) will vest at the effective time
of the merger. The aggregate value of such restricted shares on February 17,
2000 was $1,913,347, calculated based on the closing price of Monsanto common
stock of $39.75 and Solutia Inc. common stock of $12.00, each as reported on the
NYSE composite transactions tape on that date.
OWNERSHIP OF COMMON STOCK; STOCK OPTIONS
As of February 17, 2000, directors and executive officers of Pharmacia &
Upjohn beneficially owned an aggregate of 5,231,220 shares of Pharmacia & Upjohn
common stock and no shares of Pharmacia & Upjohn convertible perpetual preferred
stock, including options to purchase 1,733,844 shares of Pharmacia & Upjohn
common stock exercisable within 60 days. Such shares of common stock
collectively constitute approximately 1% of the outstanding shares of Pharmacia
& Upjohn common stock.
As of February 17, 2000, directors and executive officers of Monsanto
beneficially owned an aggregate of approximately 11,256,001 shares of Monsanto
common stock, including options to purchase 9,048,549 shares of Monsanto common
stock exercisable within 60 days. Such shares of common stock collectively
constitute fewer than 2% of the outstanding shares of Monsanto common stock.
ADDITIONAL INFORMATION CONCERNING THE DESIGNEES TO THE BOARD OF DIRECTORS
Following the merger, the combined company's board of directors will have
18 members, consisting of nine individuals designated by Monsanto and nine
individuals designated by Pharmacia & Upjohn. All committees of the combined
company's board of directors will consist of an equal number of Monsanto and
Pharmacia & Upjohn designees.
PHARMACIA & UPJOHN DESIGNEES. The following current directors of Pharmacia
& Upjohn are Pharmacia & Upjohn's designees for the combined company's board of
directors. Certain of these directors were directors either of The Upjohn
Company or Pharmacia Aktiebolag prior to the 1995 combination of Upjohn and
Pharmacia.
I-40
<PAGE> 46
FRANK C. CARLUCCI, AGE 69, CHAIRMAN, THE CARLYLE GROUP, A MERCHANT
BANK. Mr. Carlucci served as U.S. Secretary of Defense from 1987 to 1989. Mr.
Carlucci is currently on the board of directors of Ashland, Inc., Kaman
Corporation, Neurogen Corporation, Northern Telecom Limited, The Quaker Oats
Company, SunResorts, Ltd., N.V. and Texas Biotechnology Corporation. He also
serves on the board of trustees for the nonprofit Rand Corporation. He had
served as a director of Upjohn before the combination with Pharmacia.
M. KATHRYN EICKHOFF, AGE 60, PRESIDENT, EICKHOFF ECONOMICS INCORPORATED,
ECONOMIC CONSULTANTS. Ms. Eickhoff is the former associate director for Economic
Policy, United States Office of Management and Budget. She also serves as a
director of AT&T Corp., Tenneco Inc. and Fleet Bank, NA. Ms. Eickhoff is a
member of several business organizations including the Conference of Business
Economists, the Economic Club of New York and the National Association of
Business Economists. She had served as a director of Upjohn before the
combination with Pharmacia.
FRED HASSAN, AGE 54, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF PHARMACIA &
UPJOHN. Mr. Hassan had been Executive Vice President and a member of the board
of directors of American Home Products Corporation immediately prior to joining
Pharmacia & Upjohn in May 1997, and he had been senior vice president of
American Home Products Corporation before that. He joined Pharmacia & Upjohn's
board of directors in 1997.
BERTHOLD LINDQVIST, AGE 61, FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
GAMBRO AB, A GLOBAL MEDICAL TECHNOLOGY COMPANY. Mr. Lindqvist is also a member
of the board of directors of Gambro AB, Trelleborg AB, PLM AB, Munters AB and
Securitas AB. Mr. Lindqvist is also a member of the Royal Swedish Academy of
Sciences. He had served as a director of Pharmacia before the combination with
Upjohn.
OLOF LUND, AGE 69, FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER OF CELSIUS
INDUSTRIER AB, A DEFENSE MANUFACTURING COMPANY. Mr. Lund is the chairman of
Tieto-Enator Corp., SIAR Foundation and the Swedish Financial Accounting
Standards Council, and is a member of the board of directors of FPG/AMFK, LKAB
and the Federation of Swedish Industries. Mr. Lund is also a member of the Royal
Academy of War Sciences. He had served as a director of Pharmacia before the
combination with Upjohn.
C. STEVEN MCMILLAN, AGE 54, PRESIDENT AND CHIEF OPERATING OFFICER OF SARA
LEE CORPORATION, A CONSUMER GOODS COMPANY. Mr. McMillan previously held other
management positions at Sara Lee before assuming his current position. Mr.
McMillan is a member of the board of directors of Sara Lee Corporation and
Illinova Corporation. He also serves on the boards of several not-for-profit and
civic organizations. He joined Pharmacia & Upjohn's board of directors in 1998.
WILLIAM U. PARFET, AGE 53, CO-CHAIRMAN OF MPI RESEARCH, LLC, A PRECLINICAL
TOXICOLOGY AND CLINICAL PHARMACEUTICAL TESTING LABORATORY. Mr. Parfet assumed
his current position in November 1995 and had previously served from October
1993 to January 1996 as president and chief executive officer of Richard Allan
Medical Industries, a medical device manufacturer. Prior to that, he had served
as vice chairman of the board of directors of Upjohn. Mr. Parfet serves as a
member of the board of directors of CMS Energy Corporation, the Financial
Accounting Foundation, Stryker Corporation and Sybron International. He had
served as a director of Upjohn before the combination with Upjohn. From time to
time, Pharmacia & Upjohn has retained MPI Research, LLC to conduct pre-clinical
and clinical testing work for Pharmacia & Upjohn. In addition, MPI Research
conducts pre-clinical and clinical testing work for independent entities with
whom Pharmacia & Upjohn has contractual and business relationships. Mr. Parfet
is the brother of Donald R. Parfet, senior vice president of Pharmacia & Upjohn.
ULLA REINIUS, AGE 62, PRESIDENT OF U. REINIUS FINANSFAKTA AB, PUBLISHER AND
FINANCIAL INFORMATION CONSULTANT. Ms. Reinius is also a member of the board of
directors of the Swedish Association for Share Promotion and a member of the
Ethical Advisory Board of the Swedish County Pension Funds and of the Swedish
Royal Opera. She is a former member of the Swedish Government Ethical Committee.
She had served as a director of Pharmacia before the combination with Upjohn.
I-41
<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.
MONSANTO DESIGNEES. The following current directors of Monsanto are
Monsanto's designees for the combined company's board of directors.
RICHARD U. DE SCHUTTER, AGE 59, VICE CHAIRMAN AND CHIEF OPERATING OFFICER,
MONSANTO. Chief administrative officer, Monsanto, since 1999; vice chairman,
Monsanto, since 1997; president and chief executive officer, G.D. Searle & Co.,
since 1994; chief operating officer, G.D. Searle & Co., 1993-94; president, G.D.
Searle & Co., 1991-93; chairman of international operations, G.D. Searle & Co.,
1989-91; president of international operations, G.D. Searle & Co., 1986-89;
corporate executive vice president, G.D. Searle & Co., 1985-86. Director:
Evanston Northwestern Healthcare board of directors; Northwestern University
board of trustees; Pharmaceutical Research and Manufacturers of America.
MICHAEL KANTOR, AGE 60, PARTNER, MAYER, BROWN & PLATT. Partner, Mayer,
Brown & Platt, since 1997; U.S. Secretary of Commerce, 1996-97; U.S. Trade
Representative, 1993-96; national chairman for the Clinton/Gore Campaign, 1992;
partner, Manatt, Phelps, Phillips and Kantor, 1975-92.
GWENDOLYN S. KING, AGE 59, RETIRED SENIOR VICE PRESIDENT, CORPORATE AND
PUBLIC AFFAIRS, PECO ENERGY COMPANY. Senior vice president, Corporate and
Public Affairs, PECO Energy Company (formerly Philadelphia Electric Company),
1992-98; commissioner, Social Security Administration, 1989-92. Director: Eric
Indemnity Co.; Lockheed Martin Corp.; Marsh & McLennan Companies, Inc.
PHILIP LEDER, AGE 65, CHAIRMAN, DEPARTMENT OF GENETICS, HARVARD MEDICAL
SCHOOL, AND SENIOR INVESTIGATOR, HOWARD HUGHES MEDICAL INSTITUTE. Chairman,
Department of Genetics, Harvard Medical School, since 1980; John Emory Andrus
Professor of Genetics since 1980; senior investigator, Howard Hughes Medical
Institute, since 1986. Director: Genome Therapeutics Corporation. Trustee: The
General Hospital Corporation; The Hadassah Medical Organization; Massachusetts
General Hospital; The Charles A. Revson Foundation.
JACOBUS F.M. PETERS, AGE 68, RETIRED CHAIRMAN OF THE EXECUTIVE BOARD AND
CHIEF EXECUTIVE OFFICER, AEGON N.V. Chairman of the Executive Board and chief
executive officer, AEGON N.V., 1984-93. Director: Kleinwort Endowment Policy
Trust Plc. Chairman of Supervisory Board: Bank Dutch Municipalities. Member of
Supervisory Board: AEGON N.V.; Amsterdam Company for Town Restoration Ltd.;
Gilde Investment Funds; KEMA; Randstad Holding N.V.; SAMAS Group N.V.; United
Flower Auctions Aalsmeer.
JOHN S. REED, AGE 60, CHAIRMAN AND CO-CHIEF EXECUTIVE OFFICER, CITIGROUP
INC. Chairman and co-chief executive officer, Citigroup Inc., since 1998.
Chairman and chief executive officer Citicorp and Citibank, N.A., 1984-98.
Director: Citigroup Inc.; Philip Morris Companies, Inc. Member: The Business
Council.
JOHN E. ROBSON, AGE 69, SENIOR ADVISOR, ROBERTSON STEPHENS INC. Senior
advisor, Robertson Stephens Inc., since 1993; distinguished faculty fellow, Yale
University School of Management and Visiting Fellow, The Heritage Foundation,
1993; deputy secretary of the U.S. Department of the Treasury, 1989-92; dean,
Emory University Business School, 1986-89; president and chief executive
officer, G.D. Searle & Co., 1985-86; executive vice president and
I-42
<PAGE> 48
chief operating officer, G.D. Searle & Co., 1978-85. Director:
Northrop Grumman Corp.; ProLogis Trust (formerly Security Capital Industrial
Trust (REIT)); Horizon Pharmaceutical Company.
WILLIAM D. RUCKELSHAUS, AGE 67, PRINCIPAL, MADRONA INVESTMENT GROUP
L.L.C. Principal, Madrona Investment Group L.L.C., since 1996; chairman,
Browning-Ferris Industries, Inc., 1995-99; chairman and chief executive officer,
Browning-Ferris Industries, Inc., 1988-95; of counsel, Perkins Coie, 1985-88;
administrator, Environmental Protection Agency, 1983-85. Director: Coinstar,
Inc.; Cummins Engine Co., Inc.; Nordstrom, Inc.; Solutia Inc.; Weyerhaeuser
Company.
ROBERT B. SHAPIRO, AGE 61, CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
MONSANTO. Chairman and chief executive officer, Monsanto, since 1997; chairman,
president and chief executive officer, Monsanto, 1995-97; president and chief
operating officer, Monsanto, 1993-95; executive vice president and advisory
director, Monsanto, and president, The Agricultural Group of Monsanto, 1990-93.
Director: Citigroup Inc.; NorthWestern Memorial Hospital; Silicon Graphics,
Inc.; Rockwell International Corporation. Trustee: Washington University.
Member: The Business Council; American Society of Corporate Executives; The
Business Roundtable.
I-43
<PAGE> 49
THE MERGER AGREEMENT
The following summary of the merger agreement is qualified by reference to
the complete text of the merger agreement dated as of December 19, 1999, as
amended by Amendment No. 1 dated as of February 18, 2000, which is incorporated
by reference and attached as Annex A [not translated].
STRUCTURE OF THE MERGER
Under the merger agreement, a newly formed Monsanto subsidiary will merge
into Pharmacia & Upjohn so that Pharmacia & Upjohn becomes a wholly owned
subsidiary of the combined company.
TIMING OF CLOSING
The closing of the merger will take place on the second business day after
all closing conditions set forth in the merger agreement have been satisfied or
waived, unless Monsanto and Pharmacia & Upjohn agree to a different date. We
expect that immediately upon the closing of the merger, we will file a
certificate of merger with the Secretary of State of the State of Delaware. The
effective time of the merger will either be the time the certificate of merger
is filed, or at such later time as may be specified in the certificate of
merger.
MERGER CONSIDERATION
The merger agreement provides that each share of Pharmacia & Upjohn common
stock outstanding immediately prior to the effective time of the merger will at
the effective time be converted into 1.19 shares of common stock of the combined
company. However, any shares of Pharmacia & Upjohn common stock issued and owned
or held by Pharmacia & Upjohn or Monsanto or any of their subsidiaries will be
canceled without any payment for those shares.
In addition, each outstanding share of Pharmacia & Upjohn convertible
perpetual preferred stock (other than shares as to which appraisal rights have
been exercised) will, at the effective time, be converted into one share of
convertible perpetual preferred stock of the combined company having, to the
extent possible, terms identical to those of the Pharmacia & Upjohn convertible
perpetual preferred stock.
The combined company will not issue any fractional shares in the merger.
Holders of Pharmacia & Upjohn common stock who would otherwise receive
fractional shares will instead receive a cash payment based upon the value of
such fractional shares of the common stock of the combined company.
As a result of the merger, all shares of Pharmacia & Upjohn common stock
and convertible perpetual preferred stock will no longer be outstanding and
shall be canceled.
TREATMENT OF PHARMACIA & UPJOHN STOCK OPTIONS
At the effective time, each outstanding option granted by Pharmacia &
Upjohn to purchase shares of Pharmacia & Upjohn common stock will be converted
into an immediately exercisable option with respect to common stock of the
combined company following the merger, in a manner intended to maintain the
aggregate intrinsic value of the converted options. The number of shares of
common stock of the combined company which any such converted award will pertain
to will equal the number of Pharmacia & Upjohn shares subject to such award
multiplied by 1.19, and the exercise price of such award will be the current
exercise price of such award divided by 1.19.
Any other stock-based award already granted by Pharmacia & Upjohn under its
employee or directors plans or arrangements prior to the effective time will be
converted, as of the effective time,
I-44
<PAGE> 50
into similar stock-based awards of the combined company, adjusted as appropriate
to preserve the award's intrinsic value. Pursuant to their terms, all Pharmacia
& Upjohn stock-based awards outstanding at the effective time will vest and
become immediately exercisable or, in the case of restricted stock grants other
than 200,000 restricted shares of common stock granted to Mr. Hassan, become
freely transferrable upon the occurrence of the merger. For additional
information on the Pharmacia & Upjohn stock-based awards, see "Interests of
Officers and Directors in the Merger" on page I-35.
EXCHANGE OF CERTIFICATES
Monsanto will appoint an exchange agent to handle the exchange of Pharmacia
& Upjohn stock certificates for stock certificates of the combined company in
the merger and the payment of cash for fractional shares that would otherwise
have been issued pursuant to the merger. Soon after the effective time of the
merger, the exchange agent will send to each former Pharmacia & Upjohn
stockholder a letter of transmittal to be used to exchange Pharmacia & Upjohn
stock certificates for shares of the combined company (which will be in
uncertificated book-entry form unless a physical certificate is requested) and
to receive cash instead of any fractional shares. The letter of transmittal will
contain instructions explaining the procedure for surrendering Pharmacia &
Upjohn stock certificates. YOU SHOULD NOT RETURN ANY STOCK CERTIFICATES WITH THE
ENCLOSED PROXY CARD.
Holders of Pharmacia & Upjohn stock who surrender their stock certificates
to the exchange agent, together with a properly completed letter of transmittal,
will receive the appropriate merger consideration. Holders of unexchanged shares
of Pharmacia & Upjohn stock will not be entitled to receive any dividends or
other distributions payable by the combined company after the effective time of
the merger until they surrender their stock certificates in accordance with the
exchange agent's instructions.
Stockholders of Monsanto will not be required to exchange their Monsanto
certificates as a result of the merger. At the effective time, these
certificates will automatically represent an equal number of shares in the
combined company.
THE BOARD OF THE COMBINED COMPANY AND RELATED MATTERS
BOARD OF DIRECTORS OF THE COMBINED COMPANY. Monsanto and Pharmacia &
Upjohn have agreed to take the necessary action so that, as of the effective
time of the merger, the board of directors of the combined company will consist
of 18 members, nine of whom will be designated by Monsanto and nine of whom will
be designated by Pharmacia & Upjohn. In addition, each board committee will
initially have an equal number of members designated by each of Monsanto and
Pharmacia & Upjohn.
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS OF THE
COMBINED COMPANY. The merger agreement provides that, as of the effective time
of the merger, Mr. Robert B. Shapiro, chairman and chief executive officer of
Monsanto, will serve as the chairman of the board of directors of the combined
company and that Mr. Fred Hassan, president and chief executive officer of
Pharmacia & Upjohn, will serve as chief executive officer of the combined
company. If Mr. Hassan is still chief executive officer of the combined company
18 months after the merger, he will then become chairman of the board, unless
otherwise determined at that time by the affirmative vote of 80% of the members
of the board of directors of the combined company. If Mr. Shapiro is not the
chief executive officer of Monsanto and/or Mr. Hassan is not the chief executive
officer of Pharmacia & Upjohn, in each case immediately prior to the merger, we
have agreed to use our 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.
I-45
<PAGE> 51
EXECUTIVE OFFICERS OF THE COMBINED COMPANY. We agreed in the merger
agreement that it is our intention that the twenty most senior positions of the
combined company, excluding the chairman and the chief executive officer, will
be held by ten executives from each of Monsanto and Pharmacia & Upjohn.
HEADQUARTERS OF THE COMBINED COMPANY. We agreed in the merger agreement
that it is our intention that following the effective time of the merger the
principal corporate offices of the combined company and the headquarters of its
pharmaceuticals business will be located in Peapack, New Jersey and that the
headquarters of its agribusiness will be in St. Louis, Missouri.
NAME OF THE COMBINED COMPANY. We agreed in the merger agreement that the
name of the combined company will be Pharmacia Corporation.
INTENDED AGRIBUSINESS IPO
The merger agreement includes a description of our plans with respect to
Monsanto's agribusiness unit. It states that our intention is that as promptly
as practicable following the merger, the combined company will reorganize the
agribusiness unit under the Monsanto name as a direct or indirect subsidiary and
sell up to 19.9% of that subsidiary by means of an initial public offering of
its common stock to be listed on the New York Stock Exchange. At the time of the
agribusiness initial public offering, we intend that the agribusiness subsidiary
will have a sound capital structure.
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
I-46
<PAGE> 52
- recommend approval of such acquisition proposal and withdraw the
recommendation to approve this merger.
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
I-47
<PAGE> 53
(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 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;
I-48
<PAGE> 54
- 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;
- 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, bylaws 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 restricts us
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
I-49
<PAGE> 55
- 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 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
I-50
<PAGE> 56
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 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 bylaws 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.
I-51
<PAGE> 57
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, bylaws, law or
material agreements as a result of the merger;
- filings with the SEC;
- financial statements;
- 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.
I-52
<PAGE> 58
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, which expired on February
18, 2000;
- 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 material
adverse effect on the combined company and its subsidiaries, taken
together, after the merger;
- the approval for listing on the NYSE of the common stock of the combined
company 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:
- nine 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.
I-53
<PAGE> 59
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;
(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
I-54
<PAGE> 60
(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 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
I-55
<PAGE> 61
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 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.
I-56
<PAGE> 62
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 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
- 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.
I-57
<PAGE> 63
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 [not translated].
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 17, 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 17, 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.
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
I-58
<PAGE> 64
- 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-20 and "Our Reasons for the Merger; Recommendations of Our Boards of
Directors" on page I-24, for a more complete description of the factors
considered by each board.
I-59
<PAGE> 65
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 declared 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
MONSANTO COMMON STOCK(1) COMMON STOCK
---------------------------- -----------------------------------------------------
STOCKHOLM
NYSE NYSE STOCK EXCHANGE
---------------------------- ---------------------------- ---------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND HIGH LOW
------- ------- -------- ------- ------- -------- -------- --------
(SEK PER SWEDISH
DEPOSITARY SHARE)(2)
<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(3).... 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 February
17, 2000).......... 42.750 34.250 0.03 53.438 43.500 0.27(4) 457.0 360.0
</TABLE>
- -------------------------
(1) Stock prices and dividend amounts are not restated to reflect the spinoff of
Monsanto's chemical business on September 1, 1997.
II-1
<PAGE> 66
(2) On February 17, 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 8.6800.
(3) 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.
(4) In addition, on February 11, 2000, the board of directors of Pharmacia &
Upjohn declared a cash dividend of $0.25 per share payable on May 1, 2000 to
holders of record of Pharmacia & Upjohn common stock as of March 30, 2000.
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 February 17, 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 $39.75 and $49.81,
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 regular quarterly dividend is $0.27 per share of
Pharmacia & Upjohn common stock, or $1.08 per share on an annual basis.
Monsanto's current regular 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 regular 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> 67
MONSANTO COMPANY
SELECTED FINANCIAL DATA
The table below shows 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 DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------
1999 1998(1) 1997(2) 1996(3) 1995(4) 1994(5)
------------- ------- ------- ------- ------- -------
(AMOUNTS IN MILLION $ EXCEPT PER SHARE INFORMATION)
<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
Ratio of Earnings to Fixed
Charges......................... 3.08 0.77 1.58 3.92 4.89 4.86
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
FINANCIAL POSITION (AT END OF
PERIOD):
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> 68
(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, or $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, or $0.03 per share, 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> 69
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)
------- ------- ------- ------- ------- ------- -------
(AMOUNTS IN MILLION $ EXCEPT PER SHARE INFORMATION)
<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 --
FINANCIAL POSITION (AT END OF PERIOD):
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> 70
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
Dividends per common share............... 0.81 0.81 1.08 1.08 1.08
Book value per common share.............. 10.71 -- 10.81 -- --
</TABLE>
II-6
<PAGE> 71
<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>
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 regular 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 regular 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
& Upjohn's current regular 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> 72
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 condensed consolidated
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 condensed combined 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 condensed combined 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> 73
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLION $ 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> 74
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (LOSS)
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS IN MILLION $ 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> 75
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(AMOUNTS IN MILLION $ 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> 76
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(AMOUNTS IN MILLION $ 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> 77
PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL POSITION
SEPTEMBER 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLION $)
<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 70(d) 1,789
(1,240)(g)(l)
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>
See accompanying notes to unaudited pro forma condensed combined financial
information.
II-13
<PAGE> 78
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 condensed consolidated 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 condensed consolidated 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 taxes of approximately $26
million). 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 (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.
II-14
<PAGE> 79
(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.
Each outstanding Pharmacia & Upjohn option will be converted into an option
with respect to common stock of the combined company, in a manner that maintains
the intrinsic value of the converted option. The number of shares of common
stock of the combined company to which any such converted option will pertain
will equal the number of Pharmacia & Upjohn shares subject to the option
multiplied by 1.19 (the exchange ratio for the merger), and the exercise price
of such award will be its current exercise price divided by 1.19.
(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> 80
(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> 81
CHAPTER THREE
INFORMATION ABOUT THE MEETINGS
AND VOTING
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 February 22, 2000.
MATTERS RELATING TO THE MEETINGS
TIME AND PLACE
<TABLE>
<CAPTION>
MONSANTO MEETING PHARMACIA & UPJOHN MEETING
---------------- --------------------------
<S> <C>
Thursday, March 23, 2000 Thursday, March 23, 2000
1:00 p.m., 10:00 a.m.,
The North Shore Center The Playhouse Theatre
for the Performing Arts DuPont Building
9501 Skokie Blvd. 10th & Market Streets
Skokie, Illinois Wilmington, Delaware
</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 adopt the merger
common stock and convertible perpetual 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> 82
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 February 17, common stock and Pharmacia & Upjohn
2000, will be entitled to vote. convertible perpetual preferred stock at
the close of business on February 17, 2000,
will be entitled to vote.
</TABLE>
OUTSTANDING SHARES HELD ON RECORD DATE
<TABLE>
<CAPTION>
MONSANTO MEETING PHARMACIA & UPJOHN MEETING
---------------- --------------------------
<S> <C>
As of February 17, 2000, there were As of February 17, 2000, there were
approximately 637,182,125 outstanding approximately 520,103,359 outstanding
shares of Monsanto common stock. shares of Pharmacia & Upjohn common stock
and approximately 6,663.365 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.
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 and broker "non-votes" count as Abstentions count as present for
present for establishing a quorum. Shares establishing a quorum. Shares held by
held by Monsanto in its treasury do not Pharmacia & Upjohn in its treasury and
count toward a quorum. broker "non-votes" do not count toward a
quorum.
A broker non-vote occurs on a proposal when A broker non-vote occurs on a proposal when
a broker is not permitted to vote on that a broker is not permitted to vote on that
proposal without instruction from the proposal without instruction from the
beneficial owner of the shares and no beneficial owner of the shares and no
instruction is given. instruction is given.
</TABLE>
III-2
<PAGE> 83
SHARES BENEFICIALLY OWNED BY MONSANTO AND PHARMACIA & UPJOHN DIRECTORS AND
EXECUTIVE OFFICERS AS OF FEBRUARY 17, 2000
<TABLE>
<CAPTION>
MONSANTO MEETING PHARMACIA & UPJOHN MEETING
---------------- --------------------------
<S> <C>
Monsanto directors and executive officers Pharmacia & Upjohn directors and executive
beneficially own 11,256,001 shares of officers beneficially own 5,231,220 shares
Monsanto common stock, including of Pharmacia & Upjohn common stock,
exercisable options. These shares represent including exercisable options and no shares
in total less than 2% of the shares of of Pharmacia & Upjohn convertible perpetual
Monsanto common stock outstanding as of preferred stock. These shares represent
February 17, 2000. approximately 1% of the votes entitled to
be cast as of February 17, 2000.
These individuals have indicated that they
intend to vote in favor of the Monsanto These individuals have indicated that they
proposals. intend to vote in favor of the Pharmacia &
Upjohn proposal.
</TABLE>
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 votes cast by holders of Pharmacia & Upjohn
cast on such proposal, provided that the common stock and Pharmacia & Upjohn
total votes cast on the proposal represent convertible perpetual preferred stock,
over 50% in interest of all securities voting together as a single class.
entitled to vote on such proposal. Abstentions and broker non-votes will have
Abstentions and broker non-votes will not the same effect as votes against the
be treated as votes cast and have no effect Pharmacia & Upjohn proposal.
on the outcome of the vote on the issuance
of shares of common stock and convertible
perpetual preferred stock.
Approval of the Monsanto charter amendments
requires the affirmative vote of the
holders of a majority of the outstanding
shares of Monsanto common stock.
Abstentions and broker non-votes will have
the same effect as votes against the
Monsanto charter amendments.
</TABLE>
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.
III-3
<PAGE> 84
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 Or, go to www.harrisbank.com/wproxy and
instructions. You will need to give the follow the instructions. You will need to
personal identification number contained on give the personal identification number
your proxy card. 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.
VOTING BY PHARMACIA & UPJOHN PLAN PARTICIPANTS. If you are a participant
in the Pharmacia & Upjohn Stock Fund or the Employee Stock Ownership Plan of the
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. Each participant in the plan may direct State Street Bank and Trust
Company, as the trustee of the plan, how to vote the shares allocated to the
participant's account under the plan. The trustee will vote the shares which
have not been allocated to participant accounts or for which no instructions
were timely received in the same proportion as the shares voted by participants
who do provide such instruction. If a participant is also a shareholder of
record, the proxy card given by such person will govern the voting of shares
held by the participant both directly and through
III-4
<PAGE> 85
the plan. 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 AGREEMENT.
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 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 February 17, 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.
The extent to which these proxy soliciting efforts will be necessary
depends upon how promptly proxies are submitted. You should submit your proxy by
mail, telephone or 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.
III-5
<PAGE> 86
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> 87
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-20.
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.
As of the date of this document no shares If the merger is completed, the authorized
of any series of Pharmacia & Upjohn capital stock of the combined company will
preferred stock are outstanding, other than consist of 3 billion shares of common stock
6,663.365 shares of Series A Convertible and 10 million shares of preferred stock,
Perpetual Preferred Stock. including 1,500,000 shares of Series A
Junior Participating Preferred Stock and
7,500 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 6,663.365 shares of Series B
Convertible Perpetual Preferred Stock will
be issued in the merger.
</TABLE>
IV-1
<PAGE> 88
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
increased from 10 to 18. The Monsanto board
- - the chairman of the board and the of directors will initially consist of nine
president and chief executive officer may members designated by Monsanto and nine
not both be citizens of the United States members designated by Pharmacia & Upjohn.
or Canada and may not both be nationals
of EU member states or Sweden, If the merger is completed, Monsanto's
bylaws will be amended to provide that only
- - the chairman of the board and the persons nominated by the nominations
president and chief executive officer may committee of the Monsanto board of
not be the same person unless approved by directors or by a stockholder in accordance
80% of the directors and with the procedures specified in the bylaws
will be eligible to be elected as a
- - one-half of the directors must be director.
citizens of the United States or Canada
and one-half must be nationals from EU
member states or Sweden.
</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 only
for due cause by vote of the holders of a for cause by the affirmative vote of
majority of the shares entitled to vote. holders of at least 80% of the voting power
Proper notice of any intended removal is of all voting stock, voting together as a
required. single 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> 89
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
the affirmative vote of holders of at least
- - any change in (a) the name of the 80% of Monsanto's voting stock, voting
corporation or (b) the provisions of the together as a single class, are required to
charter relating to certain business make any change relating to (a) the number
combinations must be approved by 80% of of directors constituting the board of
all the directors and 66 2/3% of the directors, (b) the classification of the
outstanding shares entitled to vote; board of directors, (c) the removal of
directors, (d) procedures for filing
- - any change in classification of the board vacancies on the board of directors and (e)
must be approved by 80% of all the the prohibitions on stockholder action by
directors; and written consent; and (2) the affirmative
vote of holders of at least 66 2/3% of the
- - any change in the charter that alters the outstanding shares of Monsanto's Series A
powers, preferences, or special rights of Preferred Stock, voting together as a
the Series A Convertible Perpetual single class, is required to materially
Preferred Stock so as to affect them adversely change the rights of the Series A
adversely must be approved by 66 2/3% of Preferred Stock.
the holders of that preferred stock.
The Monsanto bylaws may be amended by the
The Pharmacia & Upjohn bylaws may be affirmative vote of at least 80% of
amended by the holders of a majority of the Monsanto's voting stock, voting together as
shares entitled to vote or by a majority of a single class. However, the bylaws may
the directors, except that a vote of 80% of also be amended by the affirmative vote of
all the directors is required to change the a majority of the entire board of
provisions of the bylaws relating to (a) directors.
the location of the global corporate
management center or operational
headquarters, (b) the number,
qualifications
</TABLE>
IV-3
<PAGE> 90
<TABLE>
<CAPTION>
PHARMACIA & UPJOHN STOCKHOLDER RIGHTS MONSANTO STOCKHOLDER RIGHTS
------------------------------------- ---------------------------
<S> <C>
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 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 December 19, 1999, with
dated as of March 4, 1997, with Harris EquiServe Trust Company N.A., as Rights
Trust and Savings Bank, as Rights Agent, as Agent, pursuant to which Monsanto issued
amended, pursuant to which Pharmacia & rights, exercisable only upon the
Upjohn has issued rights, exercisable only occurrence of certain events, to purchase
upon the occurrence of certain events, to its Series A Junior Participating Preferred
purchase its Series A Junior Participating Stock. The rights expire on February 5,
Preferred Stock. 2010. These rights replaced substantially
similar rights which expired on February 5,
The rights have no effect upon the 2000. See "Description of Monsanto Capital
consummation of the merger and stock option Stock -- Description of Rights."
agreements.
The rights have no effect upon the
consummation of the merger and the stock
option agreements.
</TABLE>
IV-4
<PAGE> 91
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 February 17,
2000, there were 637,182,125 shares issued and outstanding (excluding
209,745,095 treasury shares) and 10 million shares of preferred stock, no par
value per share, none of which, as of February 17, 2000, were outstanding and
700,000 shares of which, as of February 17, 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 February 17, 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 97.6
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-58,
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". We have filed an application to have the common stock of the
combined company listed on the New York Stock Exchange under the ticker symbol
"PHA."
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
IV-5
<PAGE> 92
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 by amending the charter as described in "Chapter III
- -- Information about the Meetings and Voting." 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 new 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 convertible perpetual
preferred stock will be 7,500. The terms of the new convertible perpetual
preferred stock are essentially the same as those of the Pharmacia & Upjohn
convertible perpetual preferred stock issued to the trustee of Pharmacia &
Upjohn's employee stock ownership trust except that the conversion ratio for the
new convertible perpetual preferred stock will be changed to reflect that 1.19
shares of Monsanto common stock will be issued for each share of Pharmacia &
Upjohn common stock and the number of votes per share will increase from 1,450
to 1,725.5.
Rank. With respect to dividend rights and rights on liquidation,
dissolution and winding-up, the new convertible perpetual 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 convertible perpetual preferred stock.
Dividends. The holders of new convertible perpetual 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 of the
new convertible perpetual preferred stock. Holders of shares of new convertible
perpetual preferred stock will not be entitled to any other dividends.
Redemption. Upon the giving of specified notice, the combined company, at
its option, will be entitled to redeem any or all shares of new convertible
perpetual preferred stock, at a redemption price of $40,300.00 per share, plus
an amount equal to all accrued and unpaid dividends thereon to and including the
date of redemption.
The combined company must redeem all shares of new convertible perpetual
preferred stock at the redemption price plus an amount equal to all accrued and
unpaid dividends thereon to and including the date of redemption
IV-6
<PAGE> 93
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.
In addition, the combined company must redeem the new convertible perpetual
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 convertible perpetual
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 convertible perpetual 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 convertible perpetual preferred stock has
voting rights equal to that number of shares of common stock of the combined
company into which such new convertible perpetual 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.
Initially, the number of votes per share of new convertible perpetual preferred
stock will be 1,725.5.
The vote of at least 66 2/3% of the outstanding new convertible perpetual
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 convertible
perpetual 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
convertible perpetual preferred stock will be entitled to receive liquidating
distributions in the amount of $40,300 per share, plus an amount equal to all
accrued and unpaid dividends thereon to the date fixed for distribution, before
any distribution or payment is made to holders of common stock of the combined
company or on any other class of the company stock ranking junior to the new
convertible perpetual 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 converted solely into stock of any successor or resulting
corporation that constitutes "qualifying employer securities" with respect to a
holder of new convertible perpetual preferred stock within the meaning of the
Internal Revenue Code and the Employee Retirement Income Security Act, the new
convertible perpetual preferred stock of such holder will be assumed by and will
become preferred stock of such successor or resulting corporation, having in
respect of such corporation the same powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions that the new convertible perpetual 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
IV-7
<PAGE> 94
convertible perpetual preferred stock will be automatically converted into
the number of shares of common stock of the combined company into which such
shares of new convertible perpetual preferred stock could have been converted
at such time.
Certain Potential Antitakeover Effects of the New Convertible Perpetual
Preferred Stock. Although the issuance of shares of new convertible perpetual
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 convertible
perpetual 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. [not
translated]
DESCRIPTION OF RIGHTS
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 that
expired on February 5, 2000. 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 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 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.
IV-8
<PAGE> 95
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 Wachtell, Lipton, Rosen & Katz. It is a condition to the
completion of the merger that Monsanto and Pharmacia & Upjohn receive opinions
from their respective tax counsel that the merger will qualify as a tax-free
reorganization for United States federal income tax purposes.
IV-9
<PAGE> 96
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.
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.
IV-10
<PAGE> 97
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 has also already passed.
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
room at 450 Fifth Street, N.W., Washington, D.C., 20549. 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.
V-1
<PAGE> 98
<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,
January 25, 2000, as amended by Form
8-K/A filed on February 11, 2000, and
February 11, 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,
January 25, 2000 and February 18,
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 incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit
V-2
<PAGE> 99
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) 694-3155 (888) 768-5501
</TABLE>
If you would like to request documents from us, please do so by March 16,
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 FEBRUARY 22, 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.
V-3
<PAGE> 100
THE LEGENDS BELOW MUST BE ADDED TO THIS TRANSACTION PURSUANT TO UNITED STATES
SECURITIES LEGISLATION. THUS, THESE LEGENDS ARE NOT A PART OF THE ORIGINAL
VERSION OF THE PROXY STATEMENT.
Pharmacia & Upjohn and Monsanto have filed the Proxy Statement and other
relevant documents with the Securities and Exchange Commission in the USA, SEC.
Such documents can be obtained free of charge at SEC's web site, www.sec.gov. In
accordance with United States securities laws, STOCKHOLDERS/HOLDERS OF
DEPOSITORY RECEIPTS ARE URGED TO READ THE PROXY STATEMENT AND OTHER RELEVANT
DOCUMENTS FILED WITH THE SEC CAREFULLY BEFORE MAKING A DECISION BECAUSE THESE
DOCUMENTS CONTAIN IMPORTANT INFORMATION.
In addition thereto, documents filed with the SEC by Monsanto are available free
of charge from the Secretary of Monsanto, 800 North Lindbergh Blvd., St. Louis,
Missouri 63167, USA (phone +1-413-694-1600). Documents filed with the SEC by
Pharmacia & Upjohn can be obtained free of charge from the Corporate Secretary
of Pharmacia & Upjohn, 100 Route 206 North, Peapack, NJ 07977, USA (phone
+1-886-768-5501).
Directors, executive officers and certain other members of management and
employees will be soliciting proxies on behalf of Pharmacia & Upjohn from
shareholders/holders of depository receipts in Pharmacia & Upjohn in favor of
the adoption of the merger agreement. Details on such participants are included
in the document filed under Rule 425 of the Securities Act of 1933 with the SEC
by Pharmacia & Upjohn on January 27, 2000, and is accessible through the SEC's
web site referred to above. Monsanto, its directors, executive officers and
certain other members of management and employees may be soliciting proxies from
Monsanto stockholders in favor of the combination. 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.
At the prospect of the voting, stockholders should consider the risks described
on pages I-14 to I-18 in this translation of the Proxy Statement. The SEC has
neither approved nor disapproved the stock to be issued in connection with the
combination nor determined whether the information in this translation is
adequate and accurate. Any representation to the contrary is a criminal offense.
This brochure contains certain forward-looking statements, including among other
things, statements regarding each of the company's or the combined company's
financial position, product performance, products under development, plans for
growth, expected cost savings from the combination and other statements relating
to future events. These statements are based on current expectations, but the
actual results may differ materially from anticipated future events or results.
Certain factors which could cause each company's individual or the combined
company's actual results to differ materially from expected and historical
results are described in Pharmacia & Upjohn's and Monsanto's reports filed with
the SEC, including among other things, Pharmacia & Upjohn's and Monsanto's 1998
annual reports, on Forms 10-K and Exhibits 99 thereto, respectively, and the
preliminary Proxy Statement relating to the combination filed with the SEC by
Pharmacia & Upjohn and Monsanto, respectively, on Schedule 14A on January 28,
2000.
The forward-looking information included in this material is based on
information prepared by the managements of Monsanto and Pharmacia & Upjohn and
it is adjusted to give effect to the combination. The forward-looking
information is not intended to comply with the presentation and disclosure
guidelines for prospective financial information of the SEC or the American
Institute of Certified Public Accountants.
The forward-looking information included in this material has been prepared by
the managements of Monsanto and Pharmacia & Upjohn, respectively, which
managements are also responsible for the material. Deloitte & Touch LLP and
PricewaterhouseCoopers LLP have not examined, compiled or performed any
procedures with respect to the forward-looking information and, accordingly,
Deloitte & Touch LLP and PricewaterhouseCoopers LLP do not express an opinion or
any form of assurance with respect to this information.
<PAGE> 101
ANNEX F
[BEAR STEARNS LETTERHEAD]
Attached is a translation into Swedish of the fairness opinion of Bear, Stearns
& Co. Inc., dated as of December 19, 1999, which was delivered in English to
the Board of Directors of Pharmacia & Upjohn, Inc. in connection with the
proposed merger between Pharmacia & Upjohn, Inc. and Monsanto Company pursuant
to the Agreement and Plan of Merger, dated as of December 19, 1999. The English
version of the fairness opinion shall govern in all cases.
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;
<PAGE> 102
Pharmacia & Upjohn, Inc.
December 19, 1999
Page 2
- 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;
- 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.
F-2
<PAGE> 103
Pharmacia & Upjohn, Inc.
December 19, 1999
Page 3
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 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.
/s/ Alan Schwartz
By:
--------------------------------------
Executive Vice President
F-3
<PAGE> 104
ANNEX G
[JP MORGAN LETTERHEAD]
Attached is a translation into Swedish of the fairness opinion of J.P. Morgan
Securities Inc., dated as of December 19, 1999, which was delivered in English
to the Board of Directors of Pharmacia & Upjohn, Inc. in connection with the
proposed merger between Pharmacia & Upjohn, Inc. and Monsanto Company pursuant
to the Agreement and Plan of Merger, dated as of December 19, 1999. The English
version of the fairness opinion shall govern in all cases.
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
<PAGE> 105
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 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.
G-2
<PAGE> 106
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
G-3
<PAGE> 107
[MONSANTO LOGO] [Pharmacia & Upjohn LOGO]
(LOGO)
