10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

OR

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM               TO              

COMMISSION FILE NUMBER 1-2516

PHARMACIA CORPORATION

(Exact name of registrant as specified in its charter)

Delaware
(State of incorporation)

43-0420020
(I. R. S. Employer
Identification No.)

Pharmacia Corporation, 100 Route 206 North, Peapack, NJ 07977
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number 908/901-8000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

The number of shares of Common Stock, $2 Par Value, outstanding as of August 6, 2002 was 1,290,198,878.

PHARMACIA CORPORATION
QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED JUNE 30, 2002

INDEX OF INFORMATION INCLUDED IN REPORT

	Page
PART I - FINANCIAL INFORMATION		3
Items 1. Financial Statements		3
Consolidated Statements of Earnings		3
Condensed Consolidated Statements of Cash Flows		4
Condensed Consolidated Balance Sheets		5
Notes to Consolidated Financial Statements		6
Items 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Items 3. Quantitative and Qualitative Disclosures about Market Risk		32
PART II - OTHER INFORMATION		32
Items 1. Legal Proceedings		32
Items 5. Other Information		34
Items 6. Exhibits and Reports on Form 8-K		35

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PHARMACIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in millions, except per-share data)
(Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2002			2001			2002			2001
Net sales	$	3,553		$	3,413		$	6,680		$	6,623
Cost of products sold		779			746			1,476			1,496
Research and development		618			553			1,166			1,191
Selling, general and administrative		1,590			1,428			2,985			2,808
Amortization of goodwill		—			25			—			55
Merger and restructuring		11			175			31			299
Interest expense		40			72			95			140
Interest income		(18	)		(39	)		(37	)		(83	)
All other, net		(719	)		(27	)		(806	)		(16	)
Earnings from continuing operations before income taxes		1,252			480			1,770			733
Provision for income taxes		370			62			495			107
Earnings from continuing operations		882			418			1,275			626
Income from discontinued operations, net of tax		—			334			—			380
Gain (loss) on disposal of discontinued operations, net of tax		25			(3	)		89			(8	)
Earnings before extraordinary items and cumulative effect of    accounting change		907			749			1,364			998
Extraordinary items, net of tax		—			(12	)		649			(12	)
Cumulative effect of accounting change, net of tax		—			—			(1,541	)		1
Net earnings	$	907		$	737		$	472		$	987
Net earnings per common share:
Basic
Earnings from continuing operations	$	.68		$	.32		$	.98		$	.48
Net earnings		.70			.57			.36			.76
Diluted
Earnings from continuing operations	$	.67		$	.31		$	.97		$	.47
Net earnings		.69			.55			.36			.74

See accompanying notes.

3

PHARMACIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)

	For the Six Months Ended June 30,
	2002			2001
Net cash provided by continuing operations	$	338		$	470
Net cash provided by discontinued operations		53			46
Net cash provided by operations		391			516
Cash flows provided (required) by investment activities:
Purchases of property, plant and equipment		(410	)		(348	)
Other acquisitions and investments		(615	)		(97	)
Investment and property disposal proceeds		56			81
Proceeds from sale of equity investments		1,671			—
Discontinued operations, net		45			(186	)
Net cash provided (required) by investment activities		747			(550	)
Cash flows provided (required) by financing activities:
Repayment of long-term debt		(47	)		(7	)
Repayment of ESOP debt		(47	)		(62	)
Net increase in short-term borrowings		93			79
Issuance of stock		70			124
Treasury stock purchases		(620	)		—
Dividend payments		(358	)		(301	)
Net cash (required) by financing activities		(909	)		(167	)
Effect of exchange rate changes on cash		140			(70	)
Increase (decrease) in cash and cash equivalents		369			(271	)
Cash and cash equivalents, beginning of year		1,276			2,035
Cash and cash equivalents, end of period	$	1,645		$	1,764

See accompanying notes.

4

PHARMACIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(Unaudited)

	June 30, 2002			December 31, 2001
ASSETS
Current Assets:
Cash and cash equivalents	$	1,645		$	1,276
Short-term investments		621			119
Short-term notes receivable-Monsanto		194			254
Trade accounts receivable, less allowance of $142 (2001: $132)		2,753			2,434
Inventories		1,929			1,684
Receivables-Monsanto		19			87
Other current assets		1,948			1,812
Total Current Assets		9,109			7,666
Long-term investments		206			288
Properties, net		5,159			4,875
Goodwill, net		1,116			1,059
Other intangible assets, net		429			425
Other noncurrent assets		1,555			1,748
Net assets of discontinued operations		4,717			6,316
Total Assets	$	22,291		$	22,377
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	559		$	484
Short-term notes payable-Monsanto		16			30
Trade accounts payable		847			1,048
Income taxes payable		1,130			685
Payables-Monsanto		13			44
Other accrued liabilities		2,561			2,712
Total Current Liabilities		5,126			5,003
Long-term debt and guarantee of ESOP debt		2,642			2,731
Other noncurrent liabilities		2,371			2,253
Total Liabilities		10,139			9,987
Shareholders’ Equity:
Preferred stock, one cent par value; at stated value; authorized 10 million shares; issued    6,305 shares (2001: 6,401 shares)		254			258
Common stock, two dollar par value; authorized 3 billion shares; issued 1.485 billion    shares		2,970			2,970
Capital in excess of par value		3,585			3,499
Retained earnings		11,703			11,586
ESOP-related accounts		(242	)		(294	)
Treasury stock, at cost		(3,330	)		(2,789	)
Accumulated other comprehensive loss		(2,788	)		(2,840	)
Total Shareholders’ Equity		12,152			12,390
Total Liabilities and Shareholders’ Equity	$	22,291		$	22,377

See accompanying notes.

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Dollars in millions, except per-share data
unless otherwise indicated)

The term “the company” is used to refer to Pharmacia Corporation or to Pharmacia Corporation and its subsidiaries, as appropriate to the context. The term “former Monsanto” is used to refer to pre-merger operations of the former Monsanto Company and “Monsanto” refers to the agricultural subsidiary.

As outlined in Note E, beginning in the fourth quarter of 2001, the company began treating its agricultural subsidiary, Monsanto, as a discontinued operation. Accordingly, the focus of these financial statements and related notes is on the company’s pharmaceutical businesses unless otherwise indicated. The results of operations and net assets of Monsanto are reflected on one line of the consolidated statements of earnings and the condensed consolidated balance sheets, respectively. Similar adjustments were made to the consolidated statements of cash flows.

As outlined in Note K, Pharmacia has entered into a merger agreement with Pfizer Inc. (Pfizer) expected to be effective in the fourth quarter of 2002, pending necessary approvals.

Trademarks owned by, or licensed to, Pharmacia Corporation are indicated in all upper case letters. In the notes that follow, per-share amounts are presented on a diluted, after-tax basis, unless otherwise indicated.

A - INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial information presented herein is unaudited, other than the condensed balance sheet at December 31, 2001, which is derived from audited financial statements. The interim financial statements and notes thereto do not include all disclosures required by U. S. generally accepted accounting principles and should be read in conjunction with the financial statements and notes thereto included in Pharmacia Corporation’s annual report filed on Form 10-K for the year ended December 31, 2001.

In the opinion of management, the interim consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year.

Prior year data have been reclassified for discontinued operations treatment of Monsanto and certain other reclassifications were made to conform the prior period’s data to the current presentation.

B - NEW ACCOUNTING STANDARDS AND CHANGES IN ACCOUNTING PRINCIPLE

Exit or Disposal Activities

In July 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 146 “Accounting for Costs Associated with Exit or Disposal Activities”. The new rules amend existing accounting for these costs by requiring that a liability be recorded at fair value when incurred. The liability would be reviewed regularly for changes in fair value with adjustments recorded in the consolidated financial statements. Previous rules permitted certain types of costs to be recognized when future settlement was probable. SFAS No. 146 also provides specific guidance for lease termination costs and one-time employee termination benefits when incurred as part of an exit or disposal activity. The company is currently evaluating the effects the new rules may have on its consolidated financial statements and expects to adopt SFAS No. 146 on January 1, 2003.

Classification of the Extinguishment of Debt

On May 1, 2002, the FASB issued SFAS No. 145, “Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS 13, and Technical Corrections”. Under the current rules, SFAS No. 4 “Reporting Gains and Losses from Extinguishment of Debt” requires that all gains and losses from the extinguishment of debt be classified as extraordinary on the company’s consolidated statements of earnings net of applicable taxes. SFAS No. 145 rescinds the automatic classification as extraordinary and requires that the company evaluate whether the gains or losses qualify as extraordinary under Accounting Principles Board Opinion No. 30 “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently

6

Occurring Events and Transactions”. The company is evaluating the effects the new rules may have on its consolidated financial statements and expects to adopt SFAS No. 145 on January 1, 2003.

Asset Impairments

On January 1, 2002, SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” became effective. It provides guidance on the accounting for the impairment or disposal of long-lived assets. For long-lived assets to be held and used, the new rules are similar to previous guidance which required the recognition of an impairment when the undiscounted cash flows would not recover its carrying amount. The impairment to be recognized will continue to be measured as the difference between the carrying amount and fair value of the asset. The computation of fair value now removes goodwill from consideration and incorporates a probability-weighted cash flow estimation approach as an alternative to the traditional present value method. The previous guidance provided in SFAS No. 121 is to be applied to assets that are to be disposed of by sale. Additionally, assets qualifying for discontinued operations treatment have been expanded beyond the former major line of business or class of customer approach. Long-lived assets to be disposed of by other than sale are now considered assets to be held and used until the disposal date, at which time an impairment will be recognized. There was no material impact on the company’s consolidated financial statements due to the adoption of these rules.

Asset Retirements

In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. The company is currently evaluating the effects the new rules may have on its consolidated financial statements and expects to adopt SFAS No. 143 on January 1, 2003 in accordance with these rules.

Business Combinations, Goodwill and Intangibles

In June 2001, the FASB issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” The provisions of SFAS No. 141 require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and set out specific criteria for the initial recognition and measurement of intangible assets apart from goodwill. SFAS No. 141 also requires that, upon adoption of SFAS No. 142, unamortized negative goodwill be written off immediately as a change in accounting principle instead of being deferred and amortized, and that certain intangible assets be reclassified into or out of goodwill. The provisions of SFAS No. 142 prohibit the amortization of goodwill and indefinite-lived intangible assets and require that they be tested annually for impairment or on an interim basis if indications of a possible impairment arise. If the book value of goodwill or an indefinite-lived intangible is greater tha n its fair value, an impairment loss is recognized for the difference. In addition, SFAS No. 142 requires that reporting units be identified for purposes of assessing potential future impairments of goodwill, and removes the 40-year limitation on the amortization period of intangible assets that have finite lives.

The company adopted the provisions of SFAS No. 141 on January 1, 2002 (requirement to use the purchase method of accounting for all business combinations initiated after June 30, 2001 became effective with the issuance of the standard). The provisions of SFAS No. 142 were adopted effective as of January 1, 2002 with no impairment losses recognized related to its continuing operations.

Monsanto also adopted SFAS No. 142 as of January 1, 2002, and an impairment analysis resulted in the recognition of a $1,822 net-of-tax loss related to the corn and wheat reporting units. As required by the accounting pronouncement, the loss was recorded as a cumulative effect of accounting change, net of tax effective as of January 1, 2002. Earnings results for Pharmacia have been restated for the first quarter of 2002 to reflect its $1,541 portion of the loss. The impairment charge had no effect on Pharmacia’s or Monsanto’s liquidity or cash flow.

7

The following tables reflect information pertaining to other intangible assets relating to the continuing operations of the company.

	June 30, 2002									December 31, 2001
			Amortized									Amortized
	Not Subject to Amortization		Gross		Accumulated Amortization			Net		Not Subject to Amortization		Gross		Accumulated Amortization			Net
Patents and trademarks	$	58	$	422	$	(285	)	$	195	$	58	$	413	$	(263	)	$	208
Rights and licenses		—		503		(279	)		224		—		441		(256	)		185
Other		—		38		(28	)		10		—		74		(42	)		32
Total	$	58	$	963	$	(592	)	$	429	$	58	$	928	$	(561	)	$	425

Intangible assets acquired during the six months ended June 30, 2002 totaled $10, and consisted of rights and licenses.

Intangible Assets Amortization Expense

Year ended December 31, 2001	$	59
Three months ended June 30, 2002	$	16
Six months ended June 30, 2002	$	31

Annual amortization expense for the years ending 2002 through 2006 is estimated to be $67, $68, $61, $53 and $34, respectively.

Goodwill

The changes in the carrying amount of goodwill relating to continuing operations for the six months ended June 30, 2002, are as follows:

	Total			Prescription Pharmaceuticals			All Other
Balance December 31, 2001	$	1,059		$	954		$	105
Net intangible reclassifications		(6	)		(6	)		—
Purchase acquisitions		14			—			14
Foreign exchange		49			51			(2	)
Balance June 30, 2002	$	1,116		$	999		$	117

8

Earnings Excluding Goodwill Amortization

	For the Three Months Ended June 30,
	2002				2001
	Earnings Before Items*		Net Earnings		Earnings Before Items*		Net Earnings
Earnings as reported	$	907	$	907	$	749	$	737
Adjust for goodwill, net of tax		—		—		24		24
Adjusted earnings	$	907	$	907	$	773	$	761
Basic earnings per share:
Earnings as reported	$	0.70	$	0.70	$	0.58	$	0.57
Adjust for goodwill		—		—		0.02		0.02
Adjusted earnings	$	0.70	$	0.70	$	0.60	$	0.59
Diluted earnings per share:
Earnings as reported	$	0.69	$	0.69	$	0.56	$	0.55
Adjust for goodwill		—		—		0.02		0.02
Adjusted earnings	$	0.69	$	0.69	$	0.58	$	0.57

	For the Six Months Ended June 30,
	2002				2001
	Earnings Before Items*		Net Earnings		Earnings Before Items*		Net Earnings
Earnings as reported	$	1,364	$	472	$	998	$	987
Adjust for goodwill, net of tax		—		—		52		52
Adjusted earnings	$	1,364	$	472	$	1,050	$	1,039
Basic earnings per share:
Earnings as reported	$	1.05	$	0.36	$	0.77	$	0.76
Adjust for goodwill		—		—		0.04		0.04
Adjusted earnings	$	1.05	$	0.36	$	0.81	$	0.80
Diluted earnings per share:
Earnings as reported	$	1.04	$	0.36	$	0.75	$	0.74
Adjust for goodwill		—		—		0.04		0.04
Adjusted earnings	$	1.04	$	0.36	$	0.79	$	0.78

* Excludes extraordinary items and cumulative effect of accounting change as applicable.

Other

The Emerging Issues Task Force Issue No. 01-09 “Accounting for Consideration Given by a Vendor to a Customer” codified several individual issues regarding the recognition and classification of payments between a vendor and a customer. Of the codified issues, only two topics were applicable to the company: sales incentives and payments to resellers. The company adopted the guidance for sales incentives (coupons) prospectively, as allowed under the rules on January 1, 2001 and for payments to resellers on January 1, 2002. In both cases, the impact of adoption to the company was insignificant and, accordingly, prior period financial statements were not reclassified.

The following does not constitute a change in Pharmacia accounting policies. Rather, it is an expansion and clarification of existing policies and should be read in conjunction with Note 1—Significant Accounting Policies and Other—Research and Development as disclosed in the company’s annual report on Form 10-K for the year ended December 31, 2001. Upfront and milestone payments made to third parties that constitute the acquisition of in-process research and development (R&D) are expensed as incurred. Generally, the intangibles being acquired have not been approved by the U.S. Food and Drug Administration or comparable regulatory body and, as such, are not complete. Once the intangible has been approved, it is considered an asset resulting from R&D and is capitalized subject to impairment testing.

C - COMPREHENSIVE INCOME

Comprehensive income for the three months ended June 30, 2002 and 2001 was $1,007 and $608, respectively. Comprehensive income for the six months ended June 30, 2002 and 2001 was $524 and $663, respectively.

9

D - EXTRAORDINARY ITEMS

During the first quarter of 2002, the company sold its 45 percent minority interest in Amersham Biosciences to Amersham plc for $1,000. The investment basis as of March 2002 was $227. The sale resulted in a gain of $649 (net of taxes of $124). The gain on the sale has been classified as an extraordinary item in the accompanying consolidated statements of earnings in accordance with Accounting Principles Board Opinion No. 16 “Business Combinations” because the sale of this investment took place within the two-year period following the merger of Pharmacia & Upjohn and former Monsanto, which was accounted for under the pooling of interests accounting method. The sale of this investment was not contemplated at the time of the pooling.

On June 28, 2001, the company retired certain debt obligations relating to one of the employee stock ownership plans. The principal amount of the debt was $65. Certain costs related to the transaction, including a premium to retire the debt and other direct costs, were $4 (net of taxes of $2) and have been classified as an extraordinary item on the company’s consolidated statements of earnings.

Through a private transaction entered into on June 29, 2001, the company retired debt related to adjustable conversion-rate equity securities in the principal amount of $700. Premium on the debt and other direct costs of $8 (net of taxes of $5) were accrued as an extraordinary item.

E - DISCONTINUED OPERATIONS

Monsanto

On November 28, 2001, the board of directors approved a formal plan to distribute to Pharmacia shareholders the remaining outstanding shares held of Monsanto, in a tax-free spin-off transaction.

On July 18, 2002, the Pharmacia board of directors approved the completion of the spin-off of Monsanto through the distribution of shares of Monsanto common stock to Pharmacia common shareholders of record on July 29, 2002. In order to effect the distribution, the Pharmacia board of directors declared a special dividend on the company’s common stock comprised of 220 million shares of Monsanto common stock currently held which, at July 29, 2002, represented approximately 84% of Monsanto’s outstanding stock. Each Pharmacia shareholder will be entitled to receive .170593 shares of Monsanto common stock for each share of Pharmacia stock owned on the record date. The shares will be distributed at the close of business on August 13, 2002.

On August 9, 2002, Monsanto entered into third-party agreements to issue $600 of debt due August 15, 2012. The transaction is scheduled to close on August 14, 2002, and proceeds will be used to reduce Monsanto’s commercial paper borrowings. Pharmacia has not underwritten or guaranteed this debt, however, as of August 13, 2002 Monsanto has $150 of short-term debt outstanding with Pharmacia which may remain outstanding as such until November 15, 2002.

Pharmacia has guaranteed approximately $360 of bank debt and $60 of environmental guarantees to state governments on behalf of Monsanto and will continue to guarantee these obligations after the spin-off, but not later than December 2004. The company is currently working to have these guarantees assigned to Monsanto or replaced by letters of credit at which time Pharmacia would be released from further liability. Pharmacia will not extend further bank guarantees or loans to Monsanto or to third parties on behalf of Monsanto.

On August 13, 2002, the distribution date, Pharmacia must compare the recorded amount of Monsanto shares on its books to the value based on Monsanto’s closing stock price on the New York Stock Exchange that day. The difference between the recorded amount and the market value, if lower, would be considered an impairment loss to Pharmacia. This amount would be included in the company’s consolidated statements of earnings as a loss from discontinued operations during the third quarter of 2002. Based on the August 9, 2002 closing price of Monsanto common shares, an impairment loss would approximate $1,100.

The results of operations, financial position and cash flows of Monsanto have been reclassified in the consolidated financial statements as discontinued operations. Income from discontinued operations has been reduced for amounts allocable to the minority interest. The company estimates that net income will be realized from Monsanto operations during the disposal period, net of seasonal net operating losses during the third quarter of 2002 and transaction costs. Seasonal losses provided for at June 30, 2002 increased by approximately $100 due to a change in Monsanto’s forecasted operating results and the acceleration in the timing of the spin-off. During the second quarter and first half of 2002, the accumulated income of Monsanto exceeded anticipated seasonal net losses and transaction costs and therefore, amounts above this estimate have been recognized in discontinued operations as realized. The net gain realized for the second quarter and year-to-date period ended June 30, 2002 was $25 and $89, net of taxes of $12 and $41, respectively.

10

On September 1, 2000, the company entered into a Transition Services Agreement with Monsanto. Under the agreement, Pharmacia primarily provides information technology support for Monsanto while Monsanto provides certain administrative support services for Pharmacia. Pharmacia and Monsanto also rent research and office space from each other. Since the initiation of the agreement, each party has charged the other entity rent based on a percentage of occupancy multiplied by the cost to operate the facilities. These services will continue beyond August 13, 2002. In addition, the two companies pay various payroll charges, taxes and travel costs that are associated with the business activities of the other. At June 30, 2002 and December 31, 2001 the company had receivable balances of $19 and $87 reported on the consolidated balance sheets, respectively. Similarly, payables of $13 and $44 were recorded at June 30, 2002 and December 31, 2001 respectively.

Since October 23, 2000, Pharmacia Treasury Services AB, a wholly-owned subsidiary of Pharmacia, has managed the loans and deposits of Monsanto. Interest rates and fees are comparable to the Commercial Paper (CP) rate and fees that Monsanto would have incurred with an independent CP dealer. Net interest income recorded by the company was $5 and $11 and $9 and $18 for the quarters and year-to-date periods ended June 30, 2002 and 2001, respectively.

As of June 30, 2002 and December 31, 2001, related-party notes receivable of $194 and $254 were separately stated on the company’s consolidated balance sheets, respectively. Additionally, the company had recorded balances of $16 and $30 in related-party short-term debt at June 30, 2002 and December 31, 2001, respectively. Pharmacia will not invest in or lend any additional funds to Monsanto or to third parties on behalf of Monsanto.

Net Assets of Monsanto:	June 30, 2002		December 31, 2001
Current assets	$	5,239	$	4,797
Noncurrent assets		4,605		6,676
Total assets		9,844		11,473
Current liabilities		2,563		2,367
Noncurrent liabilities		1,664		1,695
Total liabilities		4,227		4,062
Net assets of Monsanto before minority interest		5,617		7,411
Minority interest		900		1,095
Net assets of discontinued operations	$	4,717	$	6,316

The reduction in noncurrent assets and net assets of discontinued operations relates primarily to Monsanto’s goodwill impairment charge discussed in Note B above.

Other

The majority of the $3 and $8 loss from other discontinued operations recorded in the second quarter and year-to-date periods of 2001 consisted of legal and related costs in connection with the sale of the artificial sweetener ingredient business that occurred in 2000. There were no sales included in the company’s consolidated financial statements during the quarters or year-to-date periods ended June 30, 2002 and 2001 related to other discontinued businesses.

	For The Three Months Ended June 30,
	2002				2001
	Monsanto		Other		Monsanto		Other
Net sales	$	1,553	$	—	$	2,011	$	—
Income (loss) from discontinued operations, before tax		37		—		534		(4	)
Income tax expense (benefit)		12		—		200		(1	)
Net income (loss) from discontinued operations	$	25	$	—	$	334	$	(3	)

11

	For The Six Months Ended June 30,
	2002				2001
	Monsanto		Other		Monsanto		Other
Net sales	$	2,774	$	—	$	3,317	$	—
Income (loss) from discontinued operations, before tax		130		—		608		(13	)
Income tax expense (benefit)		41		—		228		(5	)
Net income (loss) from discontinued operations	$	89	$	—	$	380	$	(8	)

F - MERGER AND RESTRUCTURING CHARGES

The company recorded $11 of merger and restructuring charges during the second quarter of 2002 in connection with the merger and integration of former Monsanto and Pharmacia & Upjohn companies into Pharmacia Corporation. These charges are part of the comprehensive integration plan approved by the board of directors during 2000. The $11 in the second quarter recorded on the merger and restructuring line of the consolidated statements of earnings is comprised of $4 in merger costs and $7 of restructuring costs. During the second quarter of 2001, the company recorded $175 in merger and restructuring charges. The $175 recorded on the merger and restructuring line of the consolidated statements of earnings is made up of $138 in merger costs and $37 in restructuring charges.

For the six months ended June 30, 2002, the company recorded a total of $31 in merger and restructuring costs. This total is comprised of $14 in merger costs and $17 of restructuring costs, all of which were recorded on the merger and restructuring line of the consolidated statements of earnings. For the six-months ended June 30, 2001, the company reported a total of $299 in merger and restructuring expense. This total is comprised of $194 in merger costs and $105 in restructuring charges.

Merger Costs

The $4 of merger costs for the second quarter and the $14 of merger costs year-to-date 2002 include costs necessary to integrate the former companies into a single organization, such as consultant and information technology integration costs. The $138 in second quarter merger costs and the $194 in year-to-date 2001 merger costs relate to costs incurred to integrate the former companies into a single organization such as consultant fees for system and process integration, information technology integration costs, contract termination fees, employee relocation costs and other costs necessary to complete the merger.

Restructuring Costs

The $7 of restructuring charges for the second quarter of 2002 relate entirely to prescription pharmaceuticals. The $37 of restructuring charges for the second quarter of 2001 are comprised of $28 associated with prescription pharmaceuticals and $9 in connection with corporate and administrative functions.

The year-to-date 2002 restructuring amount of $17 is comprised of $14 relating to prescription pharmaceuticals and $3 relating to other pharmaceuticals. The $105 of aggregate 2001 restructuring charges is comprised of $88 associated with prescription pharmaceuticals, $15 associated with corporate and administrative functions and $2 in connection with other pharmaceuticals.

The $7 of second quarter of 2002 charges is comprised of $5 relating to contract and lease termination fees and $2 relating to other exit costs within prescription pharmaceuticals. The $28 of second quarter of 2001 charges relating to prescription pharmaceuticals consists of $17 in connection with the involuntary separation of approximately 70 employees and $11 relating to asset impairments. The $14 of year-to-date 2002 expense relating to prescription pharmaceuticals consists of $5 relating to the involuntary separation of approximately 45 employees, $6 relating to contract terminations and $3 relating to other exit costs. For the six months ended June 30, 2001, the $88 of restructuring charges relating to prescription pharmaceuticals is comprised of $63 in connection with the separation of approximately 360 employees, $17 resulting from asset impairments and $8 associated with other exit costs.

The $9 associated with corporate and administrative functions for the second quarter of 2001 includes $4 relating to the involuntary separation of approximately 30 employees. The June 30, 2001 year-to-date total of $15 for corporate and administrative functions includes $10 relating to the separation of approximately 90 employees and $5 of asset impairments.

12

The $3 associated with other pharmaceutical operations for year-to-date June 30, 2002 is in connection with the involuntary separation of approximately 35 employees. Although there were no charges associated with the other pharmaceutical operations during the second quarter of 2001, the year-to date 2001 restructuring balance includes $2 associated with the separation of approximately 10 employees.

A roll-forward from year-end 2001 of restructuring charges and spending associated with the current restructuring plans relating to the integration of the former Monsanto and Pharmacia & Upjohn companies is included in the table below. As of June 30, 2002, the company has paid a total of $412 relating to the separation of approximately 2,740 employees associated with these restructuring plans.

	Workforce Reductions			Other Exit Costs			Total
December 31, 2001	$	115		$	10		$	125
Year-to-date charges		8			9			17
Year-to-date spending		(72	)		(4	)		(76	)
June 30, 2002	$	51		$	15		$	66

G - EARNINGS PER SHARE

Basic earnings per share is computed by dividing the earnings measure by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed assuming the exercise of stock options, conversion of preferred stock, and the issuance of stock as incentive compensation to certain employees. Also in the diluted computation, earnings from continuing operations and net earnings are reduced by an incremental contribution to the Employee Stock Ownership Plan (ESOP). This contribution is the after-tax difference between the income that the ESOP would have received in preferred stock dividends and the dividend on the common shares assumed to have been outstanding.

The following table reconciles the numerators and denominators of the basic and diluted earnings per share computations:

	For the Three Months Ended June 30,
	2002 Basic			2002 Diluted			2001 Basic			2001 Diluted
EPS numerator:
Earnings from continuing operations	$	882		$	882		$	418		$	418
Less: Preferred stock dividends, net of tax		(3	)		—			(3	)		—
Less: ESOP contribution, net of tax		—			(2	)		—			(2	)
Earnings from continuing operations available to common shareholders	$	879		$	880		$	415		$	416
EPS denominator:
Average common shares outstanding		1,292			1,292			1,300			1,300
Effect of dilutive securities:
Stock options and stock warrants		—			8			—			13
Convertible instruments and incentive compensation		—			12			—			13
Total shares (in millions)		1,292			1,312			1,300			1,326
Earnings (loss) per share:
Continuing operations	$	.68		$	.67		$	.32		$	.31
Discontinued operations		.02			.02			.26			.25
Extraordinary items		—			—			(.01	)		(.01	)
Net earnings	$	.70		$	.69		$	.57		$	.55

13

	For the Six Months Ended June 30,
	2002 Basic			2002 Diluted			2001 Basic			2001 Diluted
EPS numerator:
Earnings from continuing operations	$	1,275		$	1,275		$	626		$	626
Less: Preferred stock dividends, net of tax		(6	)		—			(6	)		—
Less: ESOP contribution, net of tax		—			(4	)		—			(4	)
Earnings from continuing operations available to common shareholders	$	1,269		$	1,271		$	620		$	622
EPS denominator:
Average common shares outstanding		1,294			1,294			1,299			1,299
Effect of dilutive securities:
Stock options and stock warrants		—			8			—			16
Convertible instruments and incentive compensation		—			12			—			12
Total shares (in millions)		1,294			1,314			1,299			1,327
Earnings (loss) per share:
Continuing operations	$	.98		$	.97		$	.48		$	.47
Discontinued operations		.07			.07			.29			.28
Extraordinary items		.50			.49			(.01	)		(.01	)
Cumulative effect of accounting change		(1.19	)		(1.17	)		—			—
Net earnings	$	.36		$	.36		$	.76		$	.74

H - INVENTORIES

	June 30, 2002			December 31, 2001
Estimated replacement cost (FIFO basis):
Finished products	$	242		$	202
Raw materials, supplies and work-in-process		1,925			1,662
Inventories (FIFO basis)		2,167			1,864
Less reduction to LIFO cost		(238	)		(180	)
Total	$	1,929		$	1,684

Inventories valued on the LIFO method had an estimated replacement cost (FIFO basis) of $1,173 at June 30, 2002, and $1,060 at December 31, 2001.

I - COMMITMENTS, CONTINGENT LIABILITIES AND LITIGATION

The consolidated balance sheets include accruals for estimated product, intellectual property and other litigation and environmental liabilities. The latter includes exposures related to discontinued operations, including the industrial chemical facility referred to below and several sites that, under the Comprehensive Environmental Response, Compensation and Liability Act, are commonly known as Superfund sites. The company’s ultimate liability in connection with Superfund sites depends on many factors, including the number of other responsible parties and their financial viability and the remediation methods and technology to be used. Actual costs to be incurred may vary from the estimates, given the inherent uncertainties in evaluating environmental exposures.

Environmental Matters

With regard to the company’s discontinued industrial chemical facility in North Haven, Connecticut, the company will be required to submit a corrective measures study report to the U.S. Environmental Protection Agency. It is reasonably possible that a material increase in accrued liabilities will be required. It is not possible, however, to estimate a range of potential losses. Accordingly, it is not possible to determine what, if any, additional exposure exists at this time.

14

Litigation Matters

The company has been a defendant, along with a number of other manufacturers and wholesalers, in several civil antitrust lawsuits, including a federal class action, brought by retail pharmacies alleging that the defendants violated the law by providing discounts to hospitals, nursing homes, mail-order pharmacies and health maintenance organizations that were not offered on equal terms to retail pharmacies. Pharmacia & Upjohn, a subsidiary of the company, settled the federal class action for $103, and G.D. Searle & Co. (Searle), another subsidiary of the company, received a favorable verdict in the federal class action in 1999. State class action lawsuits seeking damages based on the same alleged conduct were filed in 14 states and the District of Columbia, all but one of which have been settled or dismissed. A number of the federal cases brought by plaintiffs who opted out of the federal class action are still pending.

The company and Pfizer are defendants in a lawsuit brought by the University of Rochester in Federal Court in New York alleging infringement of the University’s U.S. patent by the sale and use of CELEBREX. The University’s patent has claims directed to a method of treating human patients by administering a selective COX-2 inhibitor. The case, which seeks injunctive relief and monetary damages, is expected to be tried during the first half of 2003.

The company is a defendant in a lawsuit brought by CP Kelco in Federal Court in Delaware seeking compensatory and punitive damages for alleged breach of contract, fraud and securities law violations arising out of the purchase of the company’s Kelco biogums business in 2000 by Lehman Brothers Merchant Bank Partners II, L.P. (Lehman), which combined the company’s Kelco biogums business with a business purchased from Hercules, Inc. to form CP Kelco. The company has asserted counterclaims against the plaintiff for the return of certain payments and specific performance of plaintiff’s contractual obligation to provide severance benefits to certain employees of the company who were transferred to CP Kelco. The company has also asserted indemnification claims against Lehman and Hercules in a third-party complaint. Discovery has been completed in the lawsuit. A trial date has not been set.

The company, Searle and Pfizer are defendants in a purported class action complaint filed in Federal Court in New Jersey seeking damages based on the claim that the defendants misrepresented and over-promoted CELEBREX in violation of state law and misled and defrauded the U.S. Food and Drug Administration during the CELEBREX approval process. The complaint seeks economic damages and claims no specific medical injury. The company, Searle and Pfizer were also sued in State Court in New Jersey by a purported class alleging the same set of facts and seeking the same relief as the federal case.

The company, Pfizer and Merck & Co., Inc. are defendants in a purported class action complaint filed in Federal Court in New York alleging medical concerns related to Vioxx and CELEBREX and seeking reimbursement of the purchase price, for the Vioxx and CELEBREX used by the plaintiffs, medical expenses and attorneys’ fees. The complaint also seeks revised labeling for the products, emergency notice to the class and a medical monitoring program funded by defendants.

Pursuant to the amended Separation Agreement between Monsanto and Pharmacia, Monsanto assumed and agreed to indemnify Pharmacia for liabilities primarily related to the agriculture business. Therefore, Pharmacia may remain the named party in certain legal proceedings, but Monsanto will manage the litigation, including indemnifying Pharmacia for costs, expenses and any judgments or settlements. In addition, Monsanto has assumed, and agreed to indemnify Pharmacia for, any liabilities primarily related to old Monsanto’s former chemical businesses, including any liabilities that Solutia Inc. (Solutia) has assumed from Pharmacia in connection with the spin-off of Solutia on September 1, 1997, to the extent Solutia fails to pay, perform or discharge these liabilities. This includes litigation and environmental liabilities assumed by Solutia, which are not discussed herein. Pursuant to a Protocol agreement dated as of July 1, 2002, Pharmacia, Monsanto and Solutia have agreed that, if Solutia does not post a bond sufficient to stay the execution of any judgment in the litigation pending an appeal, Pharmacia will post such a bond if it is able to do so on commercially reasonable terms. Solutia shall pay the expenses incurred in connection with obtaining any such bond.

With respect to the matters described above, the company cannot estimate a range of potential losses or what, if any, additional exposure exists at this time. The company believes it has valid defenses to these matters and intends to vigorously contest them.

The company is involved in other legal proceedings arising in the ordinary course of its business. While the results of litigation cannot be predicted with certainty, management’s belief is that any potential remaining liability from

15

such proceedings that might exceed amounts already accrued will not have a material adverse effect on the company’s consolidated financial position, profitability or liquidity.

J - AGREEMENTS WITH SANOFI~SYNTHELABO

Pursuant to existing agreements, the company had rights from Sanofi~Synthelabo (Sanofi) to manufacture, sell and market two products in North America: Ambien and Kerlone. On April 16, 2002, Sanofi exercised its right to acquire all rights to the products in North America in accordance with the agreements. In connection with such acquisition, the company received a payment of $671 ($661 net pretax gain) for its interest that was recorded in the second fiscal quarter of 2002 and has been recorded in all other, net on the consolidated statements of earnings. See Pharmacia Corporation Form 8-K filed with the Securities and Exchange Commission on April 30, 2002.

K - SUBSEQUENT EVENT

On July 13, 2002, the company entered into a definitive merger agreement with Pfizer. In accordance with the agreement, each Pharmacia shareholder of record on the closing date will receive 1.4 shares of Pfizer stock for each share of Pharmacia stock owned. It is estimated that the shares of Pfizer common stock to be issued to Pharmacia shareholders in the merger will represent approximately 23 percent of the outstanding Pfizer common stock after the merger on a fully diluted basis, which is expected to occur in the fourth quarter of 2002. The closing is contingent upon an affirmative vote by Pharmacia and Pfizer shareholders and approval by certain regulatory authorities including the U.S. Federal Trade Commission. Until the closing date, Pharmacia will continue to operate independently of Pfizer.

L - SEGMENT INFORMATION

The company’s core business is the development, manufacture and sale of pharmaceutical products. Prescription pharmaceuticals is the company’s only reportable segment and includes primary care, hospital care, cancer care, ophthalmology and endocrine care products.

The company also operates several business units that do not constitute reportable business segments. These operating units include consumer health care, animal health, diagnostics, contract manufacturing and bulk pharmaceutical chemicals. Due to the size of these operating units, they have been grouped into the other pharmaceuticals category.

Corporate amounts represent general and administrative expenses of corporate support functions, restructuring charges and other corporate items such as litigation accruals, merger costs and non-operating income and expense. Certain goodwill (prior year) and intangible assets and associated amortization are not allocated to categories.

The following table shows revenues and earnings by category and reconciling items necessary to total to the amounts reported in the consolidated financial statements. Information about interest income and expense, and income taxes is not provided on a segment level as the segments are reviewed based on earnings before interest and income taxes (EBIT). There are no inter-category revenues. Long-lived assets are not allocated to categories and, accordingly, depreciation is not available at that level.

	For The Three Months Ended June 30,
	Sales				Earnings
	2002		2001		2002			2001
Prescription pharmaceuticals	$	3,076	$	2,943	$	700		$	682
Other pharmaceuticals		477		470		121			93
Corporate		—		—		453			(262	)
Total Pharmacia - Sales	$	3,553	$	3,413
- EBIT *						1,274			513
Interest expense, net						(22	)		(33	)
Income tax provision						(370	)		(62	)
Net earnings from continuing operations					$	882		$	418

16

	For The Six Months Ended June 30,
	Sales				Earnings
	2002		2001		2002			2001
Prescription pharmaceuticals	$	5,729	$	5,672	$	1,258		$	1,081
Other pharmaceuticals		951		951		239			195
Corporate		—		—		331			(486	)
Total Pharmacia - Sales	$	6,680	$	6,623
- EBIT*						1,828			790
Interest expense, net						(58	)		(57	)
Income tax provision						(495	)		(107	)
Net earnings from continuing operations					$	1,275		$	626

______________

* Earnings before interest and taxes (EBIT) is presented here to provide additional information about the company’s operations. This item should be considered in addition to, but not as a substitute for or superior to, net earnings, cash flow or other measures of financial performance prepared in accordance with U.S. generally accepted accounting principles. Determination of EBIT may vary from company to company.

17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The term “the company” is used to refer to Pharmacia Corporation or to Pharmacia Corporation and its subsidiaries, as appropriate to the context. The term “former Monsanto” is used to refer to pre-merger operations of the former Monsanto Company and “Monsanto” refers to the agricultural subsidiary.

Product names indicated in all upper case letters are trademarks owned by, or licensed to, Pharmacia Corporation. In the following discussion of consolidated results, per-share amounts are presented on a diluted, after-tax basis, unless otherwise indicated.

On July 13, 2002, Pharmacia entered into a definitive merger agreement with Pfizer Inc. (Pfizer). The closing of the transaction is contingent upon an affirmative vote by Pharmacia and Pfizer shareholders and approval by certain regulatory authorities including the U.S. Federal Trade Commission. The transaction is expected to close during the fourth quarter of 2002 and until that time Pharmacia will continue to operate independently of Pfizer.

On November 28, 2001, the board of directors approved a formal plan to distribute to Pharmacia shareholders the remaining outstanding shares held of Monsanto, the company’s agricultural subsidiary, in a tax-free spin-off transaction. On July 18, 2002, the Pharmacia board of directors approved the completion of the spin-off of Monsanto through the distribution of shares of Monsanto common stock on August 13, 2002 to Pharmacia common shareholders of record on July 29, 2002.

FINANCIAL REVIEW

Overview

The table below provides a comparative overview of consolidated results for the second quarter and first six-month periods of 2002 and 2001.

	For the Three Months Ended June 30,							For the Six Months Ended June 30,
(Dollars in millions, except per share data)	2002		% Change			2001		2002		% Change			2001
Sales	$	3,553		4	%	$	3,413	$	6,680		1	%	$	6,623
Earnings from continuing operations before    income taxes		1,252		162			480		1,770		141			733
Earnings from continuing operations		882		112			418		1,275		104			626
Net earnings		907		23			737		472		(52	)		987
Net earnings per common share (EPS):
Basic	$	.70		23	%	$	.57	$	.36		(53	)%	$	.76
Diluted		.69		25			.55		.36		(51	)		.74

18

The company has six key growth products: CELEBREX, BEXTRA, XALATAN, DETROL LA/DETROL, CAMPTOSAR and ZYVOX. Sales for these key prescription products increased 23 percent in the second quarter of 2002 as compared with the second quarter of 2001. On a year-to-date basis, sales of these key growth drivers increased 15 percent compared to the same period of 2001. The increase in sales is partially due to the launch of BEXTRA during April of 2002.

On December 31, 2001, the company relinquished control over Ambien to Sanofi~Synthelabo, Inc. (Sanofi) and ceased recording sales and expenses of Ambien. In the second quarter and year-to-date 2001 results, Ambien was included in sales and the company reported related payments to Sanofi as an expense. During the year-to-date period ended June 30, 2002, the company recorded its final share of profits of $73 million and a gain on the transfer of its interests of $661 million ($424 million net of tax or $0.32 per share) in all other, net. Excluding Ambien from prior year data, sales of continuing products rose 8 percent over the second quarter of 2001 and 6 percent over year-to-date 2001. Excluding Ambien and the impact of foreign exchange, sales rose 7 percent for both the quarter and year-to-date periods.

Earnings from continuing operations increased 112 percent to $882 million or $0.68 per share during the second quarter of 2002. On a year-to-date basis, earnings from continuing operations increased 104 percent to $1.3 billion or $0.98 per share. Quarter-to-quarter and year-to-year comparisons are impacted by special charges in research and development (R&D), selling, general and administrative (SG&A), merger and restructuring and all other, net.

Second quarter and year-to-date 2002 include a $30 million ($19 million net of tax or $0.02 per share) payment to Altana AG, which was recorded in R&D, related to the co-promotion and co-development agreement for the compound roflumilast. Year-to-date 2001 includes a $67 million ($42 million net of tax or $0.03 per share) charge associated with the Sensus purchase acquisition and a $50 million ($31 million net of tax or $0.02 per share) upfront R&D payment relating to the agreement with Celltech Group plc. for the compound CDP 870.

Second quarter and year-to-date 2002 include a $75 million ($46 million net of tax or $0.04 per share) charge to SG&A relating to a charitable contribution to the Pharmacia Foundation.

Merger and restructuring charges totaled $11 million ($7 million net of tax with no per share impact) and $175 million ($66 million net of tax or $0.05 per share) during the second quarter of 2002 and 2001, respectively. Year-to-date merger and restructuring charges for 2002 and 2001 total $31 million ($20 million net of tax or $0.01 per share) and $299 million ($151 million net of tax or $0.12 per share), respectively.

All other, net for the second quarter and year-to-date 2002 periods include the aforementioned $661 million gain for the return of product rights to Sanofi and a $28 million gain ($17 million net of tax or $0.02 per share) relating to the sale of clinical data to Boehringer Ingelheim.

Net earnings increased 23 percent to $907 million for the second quarter of 2002. The increase in second quarter net earnings is primarily due to the items mentioned above. On a year-to-date basis, net earnings decreased 52 percent to $472 million. The decrease in net earnings on a year-to-year basis is due to a cumulative effect of an accounting change of $1.5 billion, which relates to the write-down of Monsanto goodwill in accordance with the adoption of SFAS No. 142 on January 1, 2002. Also affecting the year-to-year comparability is the $649 million net of tax ($0.49 per share) gain on the sale of Amersham Biosciences Corporation (Amersham) recorded in March 2002.

Net Sales

Sales by Segment

	For the Three Months Ended June 30,							For the Six Months Ended June 30,
(Dollars in millions)	2002		% Change			2001		2002		% Change			2001
Prescription pharmaceuticals	$	3,076		5	%	$	2,943	$	5,729		1	%	$	5,672
Other pharmaceuticals		477		2			470		951		—			951
Total consolidated sales	$	3,553		4	%	$	3,413	$	6,680		1	%	$	6,623

The increase in consolidated sales for both the quarter and first half of 2002 is the result of volume increases of 3 percent and 1 percent, respectively, and price increases of 1 percent for both periods. Volume and price increases were driven primarily by sales of CELEBREX. Volume was also impacted by the launch of BEXTRA, which

19

occurred during the second quarter of 2002. For the first half of the year, price and volume increases were partially offset by a 1 percent negative impact of currency exchange. This is largely due to weakening Latin American currencies versus the U.S. dollar.

Geographic Sales

	For the Three Months Ended June 30,										For the Six Months Ended June 30,
(Dollars in millions)	2002		% Change			%Chg. Excl. Ex.*			2001		2002		% Change			%Chg. Excl. Ex.*			2001
United States	$	1,981		5	%		5	%	$	1,891	$	3,648		2	%		2	%	$	3,562
Japan		207		(9	)		(5	)		227		391		(7	)		—			421
Italy		159		5			—			151		310		6			6			293
Germany		129		9			4			118		255		4			5			244
France		123		(7	)		(11	)		132		242		(12	)		(11	)		273
United Kingdom		118		14			11			103		239		8			7			222
Rest of world		836		6			7			791		1,595		(1	)		2			1,608
Net sales	$	3,553		4	%		4	%	$	3,413	$	6,680		1	%		2	%	$	6,623

* Underlying growth reflects the percentage change excluding currency exchange effects.

Sales of Top Products

	For the Three Months Ended June 30,							For the Six Months Ended June 30,
(Dollars in millions)	2002		% Change			2001		2002		% Change			2001
CELEBREX	$	807		14	%	$	710	$	1,414		4	%	$	1,359
BEXTRA		89		—			—		147		—			—
XALATAN		209		22			171		429		16			371
DETROL LA/DETROL		191		21			158		365		24			293
CAMPTOSAR		193		7			180		284		(11	)		317
GENOTROPIN		133		1			131		250		1			248
DEPO-PROVERA		94		19			79		174		20			144
XANAX		87		(5	)		91		173		3			167
NICORETTE Line		92		47			63		172		34			129
PHARMORUBICIN/ELLENCE		98		44			68		169		32			128
MEDROL		78		(11	)		87		144		(9	)		159
CLEOCIN		63		(15	)		74		137		(8	)		149
FRAGMIN		67		16			58		128		16			111
ARTHROTEC		50		(35	)		77		114		(7	)		122
CABASER/DOSTINEX		61		43			43		113		41			80
ZYVOX		48		55			30		105		97			53
MIRAPEX		46		13			41		97		22			80
ALDACTONE/Spiro Line		49		(5	)		50		92		(1	)		92
COVERA/CALAN		38		(36	)		59		90		7			84
PLETAL		22		16			20		66		47			46
Total	$	2,515		15	%	$	2,190	$	4,663		13	%	$	4,132

20

Costs and Expenses

	For The Three Months Ended June 30,										For The Six Months Ended June 30,
(Dollars in millions)	2002		% of Sales			2001		% of Sales			2002		% of Sales			2001		% of Sales
Cost of products sold	$	779		21.9	%	$	746		21.8	%	$	1,476		22.1	%	$	1,496		22.6	%
Research and development		618		17.4			553		16.2			1,166		17.4			1,191		18.0
Selling, general and administrative		1,590		44.7			1,428		41.9			2,985		44.7			2,808		42.4
Merger and restructuring		11		0.3			175		5.1			31		0.5			299		4.5

Cost of products sold for the quarter and year-to-date periods ended June 30, 2002 and 2001 was $779 million and $746 million and $1.5 billion and $1.5 billion, respectively. Cost of products sold as a percentage to net sales was mainly unchanged for the current year quarter, but improved slightly for the year-to-date period. Favorable shifts in the product mix and lower royalty costs were the main contributors to the year-to-date improvement. An unfavorable foreign exchange impact relating to the Argentinean peso and Japanese yen partially offset the product mix improvements.

R&D spending increased by $65 million to $618 million in the second quarter of 2002 compared to $553 million in the second quarter of 2001. Increases in external development costs was the main contributor to the quarter-to-quarter change. Year-to-date expenditures for 2002 and 2001 were $1.2 billion and $1.2 billion, respectively. The ratio of expense as a percent to sales was lowered fractionally to 17 percent. Increased development costs offset by fewer one-time payments for R&D agreements resulted in largely unchanged spending for the period.

SG&A expense of $1.6 billion in the second quarter of 2002 increased $162 million or 11 percent compared to the second quarter of 2001. For the year-to-date periods ended June 30, 2002 and 2001, SG&A expenses were $3.0 billion and $2.8 billion, respectively. The increases in both periods are largely attributable to co-marketing payments as well as promotional and sales force spending for key products including CELEBREX and BEXTRA. Additionally, the company committed to a contribution of $75 million to the Pharmacia Foundation, a charitable organization, during the second quarter of 2002.

Prescription Pharmaceuticals

	For the Three Months Ended June 30,							For the Six Months Ended June 30,
(Dollars in millions)	2002		% Change			2001		2002		% Change			2001
Net sales	$	3,076		5	%	$	2,943	$	5,729		1	%	$	5,672
Cost of products sold		551		3			535		1,069		(1	)		1,082
Research and development		584		15			509		1,104		—			1,104
Selling, general and administrative		1,293		9			1,190		2,427		4			2,333
EBIT, before merger and restructuring *		700		3			682		1,258		16			1,081

______________

* Earnings before interest and taxes (EBIT) and before merger and restructuring is presented here to provide additional information about the company’s operations and is in keeping with the manner in which the company manages its segments. This item should be considered in addition to, but not as a substitute for or superior to, net earnings, cash flows or other measures of financial performance prepared in accordance with U.S. generally accepted accounting principles. Determination of EBIT may vary from company to company.

Prescription pharmaceutical net sales constituted 87 percent and 86 percent of total consolidated sales for the second quarter and year-to-date June 30, 2002, respectively. Sales increased 5 percent for the second quarter and 1 percent year-to-date as compared with prior year periods. Excluding the impact from the transfer of Ambien, sales increased 9 percent in the second quarter of 2002 and 7 percent year-to-date. CELEBREX, BEXTRA, XALATAN, DETROL LA/DETROL, CAMPTOSAR and ZYVOX drove sales growth in the prescription pharmaceutical business. Sales of these products for the quarter totaled $1.5 billion, a 23 percent increase from the prior year period, and represented

21

50 percent of the quarter’s prescription pharmaceutical sales compared to 43 percent for the same period in 2001. Year-to-date sales of these products totaled $2.7 billion, a 15 percent increase from the prior year period, and represented 48 percent of the first six months of prescription pharmaceutical sales compared to 42 percent for the same period in 2001.

CELEBREX, the company’s leading product and the number-one selling prescription arthritis medication worldwide, recorded sales of $807 million in the second quarter, a 14 percent increase over the prior year period. CELEBREX growth for the quarter includes a particularly high rate of growth in the U.S. of 18 percent. This reflects low sales levels experienced in the second quarter of 2001 due to a reduction of trade inventory levels during that period. CELEBREX is a member of a class of drugs known as selective COX-2 inhibitors. First half 2002 sales of CELEBREX increased 4 percent to $1.4 billion. Unfavorable comparisons in France and Australia had a negative impact on sales results in the first half of 2002.

BEXTRA, the company’s new selective COX-2 inhibitor, was approved by the U.S. Food and Drug Administration (FDA) in November 2001 for the treatment of osteoarthritis, rheumatoid arthritis and dysmenorrhea (menstrual pain). The full launch of BEXTRA in the U.S. occurred on April 9, 2002. BEXTRA achieved sales of $89 million in the second quarter and $147 million in the first half of 2002 based on rapid acceptance by physicians. Combined with the CELEBREX sales results, Pharmacia’s overall COX-2 franchise grew 26 percent in the second quarter and 15 percent year-to-date June 30, 2002.

XALATAN, the number-one prescribed glaucoma medication in the U.S., Europe and Japan, increased 22 percent to $209 million in the second quarter and 16 percent to $429 million in the first half of 2002. European sales contributed significantly to the growth of the franchise in the second quarter with sales up 28 percent to $76 million. European growth is benefiting from the introduction of XALACOM, a fixed combination of XALATAN and timolol, and the recent European approval for XALATAN to be used as first-line therapy for patients with glaucoma.

Sales of DETROL LA/DETROL, the world’s leading treatment for overactive bladder, increased 21 percent in the second quarter and 24 percent in the first half of 2002, reflecting strong demand for the once-daily DETROL LA. DETROL LA has been launched in 12 countries, including the U.S. and Europe, since January 2001. Outside the U.S. the once-daily formulation is sold under various trade names including DETRUSITOL SR.

CAMPTOSAR, the leading treatment for metastatic colorectal cancer in the U.S., recorded second-quarter sales of $193 million, a 7 percent increase. CAMPTOSAR sales decreased 11 percent in the first half of 2002, reflecting increases in trade inventory in the fourth quarter of 2001 and subsequent reductions in the first quarter of 2002.

GENOTROPIN, the world’s leading growth hormone, recorded sales of $133 million during the second quarter, a 1 percent increase over the prior year. Sales in the U.S. increased 41 percent to $37 million in the second quarter, as the company continues to increase market share. In the first half of 2002, worldwide sales increased 1 percent to $250 million and U.S. sales increased 32 percent to $67 million. Sales outside the U.S. were negatively impacted by foreign exchange rates and a government mandated reduction in the reimbursement price in Japan, which took effect in April 2002.

Sales of ZYVOX, the company’s novel antibiotic for Gram-positive infections, increased more than 50 percent to $48 million in the second quarter and nearly doubled to $105 million in the first half of 2002, reflecting increased demand and trade purchasing in advance of a price increase. Growth rates are expected to moderate in the second half of the year. ZYVOX is the first antibiotic from a completely new class of antibiotics in over 30 years.

DEPO-PROVERA, the company’s long-lasting agent for contraception, increased 19 percent in the second quarter driven by the U.S. where sales increased 24 percent. Trade purchasing in advance of a price increase positively impacted U.S. sales of DEPO-PROVERA in the second quarter. Sales in the first half of 2002 increased 20 percent to $174 million.

PHARMORUBICIN, a widely used chemotherapeutic agent for breast cancer, increased 44 percent and 32 percent in the second quarter and year-to-date June 30, 2002, respectively. Sales of ELLENCE, the trade name for PHARMORUBICIN in the U.S., more than doubled in the quarter and first half of 2002, driving the overall increase in sales of the PHARMORUBICIN brand. A regimen containing ELLENCE is being rapidly adopted by physicians for the treatment of early breast cancer following surgery or radiation therapy.

22

The company’s Parkinson’s disease drugs, MIRAPEX and CABASER/DOSTINEX continued to grow at a rapid pace. MIRAPEX increased 13 percent in the second quarter and 22 percent in the first half of 2002. Meanwhile, sales of CABASER/DOSTINEX for Parkinson’s disease and hyperprolactinemia grew 43 percent and 41 percent in the second quarter and first half of 2002, respectively.

Among the company’s older products, sales of XANAX, for anxiety, the antibiotic CLEOCIN and the anti-inflammatory steroid MEDROL, decreased in the second quarter due to continued non-branded competition. ARTHROTEC, for arthritis, sales were negatively impacted by the growth in the coxib market. On a year-to-date June 30, 2002 basis, XANAX increased slightly, while the other products decreased modestly.

Sales of FRAGMIN, for the prevention of blood clots after surgery, increased 16 percent in the second quarter and first half of 2002. U.S. sales of FRAGMIN grew 49 percent in the second quarter and 46 percent in the first half of 2002, in part due to trade purchasing during the second quarter in advance of a price increase.

Key prescription pharmaceutical segment operating expenses, stated as a percentage of net prescription pharmaceutical sales, are provided in the table below.

	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2002			2001			2002			2001
Cost of products sold		17.9	%		18.2	%		18.7	%		19.1	%
Research and development		19.0			17.3			19.3			19.5
Selling, general and administrative		42.0			40.4			42.4			41.1
EBIT, before merger and restructuring *		22.7			23.2			22.0			19.1

______________

* Earnings before interest and taxes (EBIT) and before merger and restructuring is presented here to provide additional information about the company’s operations and is in keeping with the manner in which the company manages its segments. This item should be considered in addition to, but not as a substitute for or superior to, net earnings, cash flows or other measures of financial performance prepared in accordance with U.S. generally accepted accounting principles. Determination of EBIT may vary from company to company.

Cost of products sold for the quarter and year-to-date periods ended June 30, 2002 and 2001 was $551 million and $535 million and $1.1 billion and $1.1 billion, respectively. Favorable shifts in the product mix and lower royalty costs resulted in cost of products sold as a percentage of sales improving slightly versus the prior periods.

R&D expense increased $75 million or 15 percent for the quarter ended June 30, 2002 versus the same period in the prior year. As a percent to sales, R&D expense increased 2 percentage points to 19 percent. Increases in development costs for CDP 870 and CELEBREX (Japan) were partially offset by reduced Phase IV spending for CELEBREX, DETROL and ELLENCE. Also affecting the quarter-to-quarter comparison was a $30 million current year upfront payment to Altana AG in connection with the acquisition of rights for the development of roflumilast. Roflumilast is a new compound being developed for the treatment of respiratory diseases. Similar payments were not present in the prior year quarter. Included in the second quarter of 2001 were amounts relating to the former plasma business of $13 million. The plasma business was spun-off in the third quarter of 2001 under the name Biovitrum AB (Biovitrum). Spending for the year-to-date periods ending June 30, 2002 and 2001 were unchanged at $1.1 billion. For the period ended June 30, 2002, increases were realized versus the prior period for development costs mainly related to CDP 870 and CELEBREX (Japan). Additionally, administrative and Phase IV costs rose for the year-to-date period. Phase IV costs were mainly related to ongoing studies for AROMASIN and BEXTRA. Expenses in the 2001 year-to-date period included $25 million related to Biovitrum and first quarter costs of $67 million relating to the acquisition of Sensus Drug Development Corporation. Also, during the first quarter of 2001, the company entered into an agreement with Celltech plc for the development and promotion of CDP 870. In connection with the agreement, the company recorded an R&D expense of $50 million.

SG&A expense increased $103 million or 9 percent during the second quarter ended June 30, 2002 versus the same prior year quarter. SG&A expense stated as a percentage of sales increased over the prior year quarter by 2 percentage points to 42 percent. The primary reason for the increase in SG&A for the period was due to co-marketing agreement payments for the North American market partially offset by reduced payments in Europe. Additionally, increased promotional and sales force expenditures for CELEBREX, BEXTRA and DETROL were

23

realized during the quarter. BEXTRA, valdecoxib tablets, was launched in April of 2002. On a year-to-date basis, SG&A increased $94 million to $2.4 billion. This represents an increase of 4 percent over the prior year period. Similar to the quarterly change, co-marketing payments relating to CELEBREX and BEXTRA were the main contributors to the increase. Also, promotional expenditures for these products and other products rose versus the prior year period.

Other Pharmaceuticals

	For the Three Months Ended June 30,							For the Six Months Ended June 30 ,
			%							%
(Dollars in millions)	2002		Change			2001		2002		Change			2001
Sales	$	477		2	%	$	470	$	951		—	%	$	951
Cost of products sold		181		(13	)		209		371		(10	)		410
Research and development		34		(24	)		43		62		(29	)		86
Selling, general and administrative		148		8			137		290		3			282

Sales in the company’s other pharmaceuticals businesses are comprised of consumer health care (over the counter products), animal health, contract manufacturing, bulk pharmaceutical chemicals and diagnostics. Sales for the second quarter increased by 2 percent while sales year-to-date remained constant with the prior year period.

Sales in the consumer health care business increased for both the second quarter and year-to-date periods by 17 percent and 9 percent, respectively. The business’ leading products are for the treatment of tobacco dependency and hereditary hair loss. Sales growth for the quarter and year-to-date periods was driven primarily from the September 2001 launch of NICORETTE in Japan, market share growth of NICORETTE in Canada, increased demand of tobacco dependence products in the U.S. and the acquisition of LUDEN’S during September of 2001. These events more than offset the decrease in U.S. sales of ROGAINE, which has been impacted by non-branded competitors.

Sales in the animal health business increased for both the second quarter and year-to-date by 10 percent and 7 percent, respectively. Sales growth was driven by the antibiotic NAXCEL/EXCENEL, which is used to treat a variety of infections in animals. Second quarter and year-to-date sales of NAXCEL/EXCENEL increased by 17 percent to $39 million and 21 percent to $78 million, respectively.

Partially offsetting the increase in both the consumer health care business and animal health care business was the partial divestiture of the plasma business during the second half of 2001, and a planned cutback in the contract manufacturing business.

Corporate and Other

In addition to normal corporate administration costs, items that are not assigned to a specific business or are of a non-recurring nature are designated as corporate. Corporate items resulted in a net income amount of $453 million for the second quarter of 2002, as compared with a net expense amount of $262 million for the second quarter 2001. The second quarter amount was mainly comprised of a $661 million gain for the transfer of Ambien to Sanofi, $28 million of gain relating to the sale of clinical study data to Boehringer Ingelheim, a $75 million charitable contribution to the Pharmacia Foundation and $11 million of merger and restructuring charges. In addition, the company periodically makes certain equity investments in companies with which it has a collaborative agreement. During the second quarter of 2002, certain of these investments were impaired on an other-than-temporary basis. The company reduced the capitalized value of these investments and recognized a loss of $24 m illion to bring them to current market value. The expense during the same period of 2001 includes $138 million of merger costs and $37 million of restructuring charges.

Year-to-date 2002 net corporate income of $331 million is primarily attributable to the one-time gain relating to Ambien, as discussed above, and the decrease in merger and restructuring charges from 2001. Year-to-date 2001 net expense of $486 million is mainly attributable to $194 million of merger expense and $105 million of restructuring expense.

Net interest expense decreased $11 million to $22 million compared to $33 million in the second quarter of the prior year. The quarter-to-quarter change is mainly attributable to lower principal balances of long-term debt and

24

increases in cash balances. On a year-to-date basis, net interest expense for 2002 remained relatively unchanged at $58 million as compared with 2001 net interest expense of $57 million.

The estimated annual effective tax rate for 2002 is 24.5 percent excluding merger and restructuring and certain other items of income and expense that are non-recurring in nature. This compares with a tax rate of 25 percent for the full year 2001.

Merger and Restructuring Charges

The company recorded $11 million of merger and restructuring charges during the second quarter of 2002 in connection with the merger and integration of former Monsanto and Pharmacia & Upjohn companies into Pharmacia Corporation. These charges are part of the comprehensive integration plan approved by the board of directors during 2000. The $11 million in the second quarter recorded on the merger and restructuring line of the consolidated statements of earnings is comprised of $4 million in merger costs and $7 million of restructuring costs. During the second quarter of 2001, the company recorded $175 million in merger and restructuring charges. The $175 million recorded on the merger and restructuring line of the consolidated statements of earnings is made up of $138 million in merger costs and $37 million in restructuring charges.

For the six months ended June 30, 2002, the company recorded a total of $31 million in merger and restructuring costs. This total is comprised of $14 million in merger costs and $17 million of restructuring costs, all of which were recorded on the merger and restructuring line of the consolidated statements of earnings. For the six-months ended June 30, 2001, the company reported a total of $299 million in merger and restructuring expense. This total is comprised of $194 million in merger costs and $105 million in restructuring charges, all of which were recorded on the merger and restructuring line of the consolidated statements of earnings.

Merger Costs

The $4 million of merger costs for the second quarter and the $14 million of merger costs year-to-date 2002 include costs necessary to integrate the former companies into a single organization, such as consultant and information technology integration costs. The $138 million in second quarter merger costs and the $194 million in year-to-date 2001 merger costs relate to costs incurred to integrate the former companies into a single organization such as consultant fees for system and process integration, information technology integration costs, contract termination fees, employee relocation costs and other costs necessary to complete the merger.

Restructuring Costs

The $7 million of restructuring charges for the second quarter of 2002 relate entirely to prescription pharmaceuticals. The $37 million of restructuring charges for the second quarter of 2001 is comprised of $28 million associated with prescription pharmaceuticals and $9 million in connection with corporate and administrative functions.

The year-to-date 2002 restructuring amount of $17 million is comprised of $14 million relating to prescription pharmaceuticals and $3 million relating to other pharmaceuticals. The $105 million of aggregate 2001 restructuring charges is comprised of $88 million associated with prescription pharmaceuticals, $15 million associated with corporate and administrative functions and $2 million in connection with other pharmaceuticals.

The $7 million of second quarter of 2002 charges is comprised of $5 million relating to contract and lease termination fees and $2 million relating to other exit costs within prescription pharmaceuticals. The $28 million of second quarter of 2001 charges relating to prescription pharmaceuticals consists of $17 million in connection with the involuntary separation of approximately 70 employees and $11 million relating to asset impairments. The $14 million of year-to-date 2002 expense relating to prescription pharmaceuticals consists of $5 million relating to the involuntary separation of approximately 45 employees, $6 million relating to contract terminations and $3 million relating to other exit costs. For the six months ended June 30, 2001, the $88 million of restructuring charges relating to prescription pharmaceuticals is comprised of $63 million in connection with the separation of approximately 360 employees, $17 million resulting from asset impairments and $8 million associat ed with other exit costs.

The $9 million associated with corporate and administrative functions for the second quarter of 2001 includes $4 million relating to the involuntary separation of approximately 30 employees. The June 30, 2001 year-to-date total

25

of $15 million for corporate and administrative functions includes $10 million relating to the separation of approximately 90 employees and $5 million of asset impairments.

The $3 million associated with other pharmaceutical operations for year-to-date June 30, 2002 is in connection with the involuntary separation of approximately 35 employees. Although there were no charges associated with the other pharmaceutical operations during the second quarter of 2001, the year-to date 2001 restructuring balance includes $2 million associated with the separation of approximately 10 employees.

A roll-forward from year-end 2001 of restructuring charges and spending associated with the current restructuring plans relating to the integration of the former Monsanto and Pharmacia & Upjohn companies is included in the table below. As of June 30, 2002, the company has paid a total of $412 million relating to the separation of approximately 2,740 employees associated with these restructuring plans.

(Dollars in millions)	Workforce Reductions			Other Exit Costs			Total
December 31, 2001	$	115		$	10		$	125
Year-to-date charges		8			9			17
Year-to-date spending		(72	)		(4	)		(76	)
June 30, 2002	$	51		$	15		$	66

Due to the comprehensive nature of the restructuring and integration, the company anticipates the restructuring activities to continue into 2003 as Pharmacia continues to streamline operations. The company’s aggregate merger and restructuring charges relating to the Pharmacia merger have been approximately $1.7 billion and the restructuring plan is expected to yield annual savings of approximately $600 million that will be reinvested into the company’s operations.

Comprehensive Income

Comprehensive income equals net earnings plus other comprehensive income (OCI). For Pharmacia Corporation, OCI includes currency translation adjustments (CTA), deferred amounts for hedging purposes, unrealized holding gains and losses on available-for-sale securities (AFS), and minimum pension liability adjustments. Comprehensive income for the three months ended June 30, 2002 and 2001, was $1 billion and $608 million, respectively. For the six months ended June 30, 2002 and 2001, comprehensive income was $524 million and $663 million, respectively. Favorable changes in CTA were the result of certain foreign currencies strengthening against the dollar, mainly the yen, krona, and euro, and were the main contributors for the difference between net income and comprehensive income for the quarter and year-to-date periods ended June 30, 2002. The favorable change in CTA was partially offset by increases in unrealized holding losses on AFS securities realized during the same periods. Inc reases in CTA as a result of certain currencies weakening against the dollar coupled with increases in unrealized holding losses on AFS securities principally account for the difference between net earnings and comprehensive income for both the three and six months ended June 30, 2001.

Financial Condition, Liquidity, and Capital Resources

On July 13, 2002, the company entered into a definitive merger agreement with Pfizer. The transaction is expected to close in the fourth quarter of 2002. Until that time, Pharmacia continues to operate independently and does not expect there to be a negative impact on financial condition, liquidity or sales resulting from the intention to merge.

(Dollars in millions)	June 30, 2002			December 31, 2001
Working capital	$	3,983		$	2,663
Current ratio		1.78:1			1.53:1
Debt to total capitalization		20.9	%		20.1	%

Working capital for the quarter ended June 30, 2002 increased $1.3 billion or 50 percent versus the prior year end. Similarly, the current ratio improved during the first half of fiscal 2002 increasing 16 percent over prior year-end levels. Increases in cash and short-term investments coupled with declines in accounts payable and other accrued expenses are the main factors contributing to the improvement. An increase in income taxes payable partially offset

26

the overall improvement in these measures. Cash received from the transfer of Ambien and the closing of the Amersham transaction contributed to the increased cash and short-term investments at June 30, 2002. Cash outflows to reduce accounts payable and other accrued liabilities during the period tempered overall cash inflows. Accounts payable and accrued liabilities decreased mainly due to timing differences of actual payments. Net gains resulting from the Amersham and Ambien transactions also contributed to the increase in income taxes payable. During the period, there was a net decrease in total outstanding debt. An increase in short-term debt due to periodic funding requirements was more than offset by recurring principal payments and retirements. The debt-to-total-capitalization ratio was slightly unfavorable during the period due to the acquisition of treasury shares under the stock buy-back program, which reduced shareholder’s equity.

During the second quarter, the company completed the transfer of Ambien to Sanofi. In connection with the transfer, the company received a one-time payment of $671 million. The company will use these funds for general corporate purposes.

For the quarter ended June 30, 2002, $366 million of Pharmacia shares were repurchased under the $3.0 billion stock buy-back program. Since inception of the program in the fourth quarter of 2001, $1.5 billion of company shares have been acquired. Shares repurchased through the buy-back program are used principally to fund employee benefit programs.

During the first quarter of 2002, the company completed the sale of its minority interest in Amersham Biosciences. Proceeds received from the sale of these shares were $1.0 billion. The company will use the funds for general corporate purposes.

On April 25, 2002, the company entered into an agreement to acquire land and buildings located in New Jersey from AT&T Corp. The acquisition was completed on July 1, 2002. The price of the facilities was approximately $200 million and was funded out of existing current assets during the third quarter of 2002.

Qualified U.S. pension plan funding requirements for the 2002 plan year are estimated to be approximately $65 million. This amount may be contributed any time prior to September 2003. It is expected that additional funding may be required in future periods, but the amounts have not yet been calculated. Also, the company may choose to make contributions in excess of the required amounts.

In addition to the above, the company’s financial condition and liquidity may be impacted by Monsanto Company, which is treated as a discontinued operation. For additional information, refer to Monsanto Company’s Forms 10-Q and 10-K filed with the Securities and Exchange Commission for the periods ended June 30, 2002 and December 31, 2001, respectively.

The company’s future cash provided by operations and borrowing capacity is expected to cover normal operating cash flow needs, planned capital acquisitions, dividend payments and stock repurchases as approved by the board of directors for the foreseeable future.

Contingent Liabilities and Litigation

The consolidated balance sheets include accruals for estimated product, intellectual property and other litigation and environmental liabilities. The latter includes exposures related to discontinued operations, including the industrial chemical facility referred to below and several sites that, under the Comprehensive Environmental Response, Compensation and Liability Act, are commonly known as Superfund sites. The company’s ultimate liability in connection with Superfund sites depends on many factors, including the number of other responsible parties and their financial viability and the remediation methods and technology to be used. Actual costs to be incurred may vary from the estimates, given the inherent uncertainties in evaluating environmental exposures.

Environmental Matters

With regard to the company’s discontinued industrial chemical facility in North Haven, Connecticut, the company will be required to submit a corrective measures study report to the U.S. Environmental Protection Agency (EPA). It is reasonably possible that a material increase in accrued liabilities will be required. It is not possible, however, to estimate a range of potential losses. Accordingly, it is not possible to determine what, if any, additional exposure exists at this time.

27

Litigation Matters

The company has been a defendant, along with a number of other manufacturers and wholesalers, in several civil antitrust lawsuits, including a federal class action, brought by retail pharmacies alleging that the defendants violated the law by providing discounts to hospitals, nursing homes, mail-order pharmacies and health maintenance organizations that were not offered on equal terms to retail pharmacies. Pharmacia & Upjohn, a subsidiary of the company, settled the federal class action for $103 million, and G.D. Searle & Co. (Searle), another subsidiary of the company, received a favorable verdict in the federal class action in 1999. State class action lawsuits seeking damages based on the same alleged conduct were filed in 14 states and the District of Columbia, all but one of which have been settled or dismissed. A number of the federal cases brought by plaintiffs who opted out of the federal class action are still pending.

The company and Pfizer are defendants in a lawsuit brought by the University of Rochester in Federal Court in New York alleging infringement of the University’s U.S. patent by the sale and use of CELEBREX. The University’s patent has claims directed to a method of treating human patients by administering a selective COX-2 inhibitor. The case, which seeks injunctive relief and monetary damages, is expected to be tried in the first half of 2003.

The company is a defendant in a lawsuit brought by CP Kelco in Federal Court in Delaware seeking compensatory and punitive damages for alleged breach of contract, fraud and securities law violations arising out of the purchase of the company’s Kelco biogums business in 2000 by Lehman Brothers Merchant Bank Partners II, L.P. (Lehman), which combined the company’s Kelco biogums business with a business purchased from Hercules, Inc. to form CP Kelco. The company has asserted counterclaims against the plaintiff for the return of certain payments and specific performance of plaintiff’s contractual obligation to provide severance benefits to certain employees of the company who were transferred to CP Kelco. The company has also asserted indemnification claims against Lehman and Hercules in a third-party complaint. Discovery has been completed in the lawsuit. A trial date has not been set.

The company, Searle and Pfizer are defendants in a purported class action complaint filed in Federal Court in New Jersey seeking damages based on the claim that the defendants misrepresented and over-promoted CELEBREX in violation of state law and misled and defrauded the FDA during the CELEBREX approval process. The complaint seeks economic damages and claims no specific medical injury. The company, Searle and Pfizer were also sued in State Court in New Jersey by a purported class alleging the same set of facts and seeking the same relief as the federal case.

The company, Pfizer and Merck & Co., Inc. are defendants in a purported class action complaint filed in Federal Court in New York alleging medical concerns related to Vioxx and CELEBREX and seeking reimbursement of the purchase price, for the Vioxx and CELEBREX used by the plaintiffs, medical expenses and attorneys’ fees. The complaint also seeks revised labeling for the products, emergency notice to the class and a medical monitoring program funded by defendants.

Pursuant to the amended Separation Agreement between Monsanto and Pharmacia, Monsanto assumed and agreed to indemnify Pharmacia for liabilities primarily related to the agriculture business. Therefore, Pharmacia may remain the named party in certain legal proceedings, but Monsanto will manage the litigation, including indemnifying Pharmacia for costs, expenses and any judgments or settlements. In addition, Monsanto has assumed, and agreed to indemnify Pharmacia for, any liabilities primarily related to old Monsanto’s former chemical businesses, including any liabilities that Solutia Inc. (Solutia) has assumed from Pharmacia in connection with the spin-off of Solutia on September 1, 1997, to the extent Solutia fails to pay, perform or discharge these liabilities. This includes litigation and environmental liabilities assumed by Solutia, which are not discussed herein. Pursuant to a Protocol agreement dated as of July 1, 2002, Pharmacia, Monsanto and Solutia have agreed that, if Solutia does not post a bond sufficient to stay the execution of any judgment in the litigation pending an appeal, Pharmacia will post such a bond if it is able to do so on commercially reasonable terms. Solutia shall pay the expenses incurred in connection with obtaining any such bond.

With respect to the matters described above, the company cannot estimate a range of potential losses or what, if any, additional exposure exists at this time. The company believes it has valid defenses to these matters and intends to vigorously contest them.

The company is involved in other legal proceedings arising in the ordinary course of its business. While the results of litigation cannot be predicted with certainty, management’s belief is that any potential remaining liability from

28

such proceedings that might exceed amounts already accrued will not have a material adverse effect on the company’s consolidated financial position, profitability or liquidity.

Extraordinary Items

During the first quarter of 2002, the company sold its 45 percent minority interest in Amersham Biosciences to Amersham plc for $1.0 billion. The investment basis as of March 2002 was $227 million. The sale resulted in a gain of $649 million (net of taxes of $124 million). The gain has been classified as an extraordinary item in the accompanying consolidated statements of earnings in accordance with Accounting Principles Board Opinion No. 16 “Business Combinations” because the sale of this investment took place within the two-year period following the merger of Pharmacia & Upjohn and former Monsanto which was accounted for under the pooling of interests accounting method. The sale of this investment was not contemplated at the time of the pooling.

On June 28, 2001, the company retired certain debt obligations relating to one of the employee stock ownership plans. The principal amount of the debt was $65 million. Certain costs related to the transaction, including a premium to retire the debt and other direct costs, were $4 million (net of taxes of $2 million) and have been classified as an extraordinary item on the company’s consolidated statements of earnings.

Through a private transaction occurring on June 29, 2001, the company retired debt related to adjustable conversion-rate equity securities, in the principal amount of $700 million. Premium on the debt and other direct costs of $8 million (net of taxes of $5 million) were accrued as an extraordinary item. The physical settlement, including the exchange of cash, occurred in July 2001.

Discontinued Operations

Monsanto

On November 28, 2001, the Pharmacia board of directors approved a formal plan to distribute to Pharmacia shareholders the remaining outstanding shares held of Monsanto in a tax-free spin-off transaction.

On July 18, 2002, the Pharmacia board of directors approved the completion of the spin-off of Monsanto through the distribution of shares of Monsanto common stock to Pharmacia common shareholders of record on July 29, 2002. In order to effect the distribution, the Pharmacia board of directors declared a special dividend on the company’s common stock comprised of 220 million shares of Monsanto common stock currently held which, as of July 29, 2002, represented approximately 84% of Monsanto’s outstanding common stock. Each Pharmacia shareholder will be entitled to receive .170593 shares of Monsanto common stock for each share of Pharmacia stock owned on the record date. The shares will be distributed at the close of business on August 13, 2002.

On August 9, 2002, Monsanto entered into third-party agreements to issue $600 million of debt due August 15, 2012. The transaction is scheduled to close on August 14, 2002, and proceeds will be used to reduce Monsanto’s commercial paper borrowings. Pharmacia has not underwritten or guaranteed this debt, however, as of August 13, 2002 Monsanto has $150 million of short-term debt outstanding with Pharmacia which may remain outstanding as such until November 15, 2002.

Pharmacia has guaranteed approximately $360 million of bank debt and $60 million of environmental guarantees to state governments on behalf of Monsanto and will continue to guarantee these obligations after the spin-off, but not later than December 2004. The company is working to have these guarantees assigned to Monsanto or replaced by letters of credit at which time Pharmacia would be released. Pharmacia will not extend further bank guarantees or loans to Monsanto or to third parties on behalf of Monsanto.

On August 13, 2002, the distribution date, Pharmacia must compare the recorded amount of Monsanto shares on its books to the value based on Monsanto’s closing stock price on the New York Stock Exchange that day. The difference between the recorded amount and the market value, if lower, would be considered an impairment loss to Pharmacia. This amount would be included in the company’s consolidated statements of earnings as a loss from discontinued operations in the third quarter of 2002. Based on the August 9, 2002 closing price of Monsanto common shares, an impairment loss would approximate $1.1 billion.

The results of operations, financial position and cash flows of Monsanto have been reclassified in the consolidated financial statements as discontinued operations. Income from discontinued operations has been reduced for amounts allocable to the minority interest. The company estimates that net income will be realized from Monsanto operations during the disposal period, net of seasonal net operating losses in the third quarter of 2002 and transaction costs. Seasonal losses provided for at June 30, 2002 increased by approximately $100 million due to a change in Monsanto’s forecasted operating results and the acceleration in the timing of the spin-off. During the second quarter and first half of 2002, the accumulated income of Monsanto exceeded anticipated seasonal net losses and transaction costs and therefore, amounts above this estimate have been recognized in discontinued operations as realized. The

29

net gain realized for the second quarter and year-to-date period ended June 30, 2002 was $25 million and $89 million net of taxes of $12 million and $41 million, respectively.

On September 1, 2000, the company entered into a Transition Services Agreement with Monsanto. Under the agreement, Pharmacia primarily provides information technology support for Monsanto while Monsanto provides certain administrative support services for Pharmacia. Pharmacia and Monsanto also rent research and office space from each other. Since the initiation of the agreement, each party has charged the other entity rent based on a percentage of occupancy multiplied by the cost to operate the facilities. These services will continue to be provided beyond August 13, 2002. In addition, the two companies pay various payroll charges, taxes and travel costs that are associated with the business activities of the other. At June 30, 2002 and December 31, 2001 the company had receivable balances of $19 million and $87 million reported on the consolidated balance sheets, respectively. Similarly, payables of $13 million and $44 million were recorded at June 30, 2002 and December 31, 2001 r espectively.

Since October 23, 2000, Pharmacia Treasury Services AB, a wholly-owned subsidiary of Pharmacia, has managed the loans and deposits of Monsanto. Interest rates and fees are comparable to the Commercial Paper (CP) rate and fees that Monsanto would have incurred with an independent CP dealer. Net interest income recorded by the company was $5 million and $11 million and $9 million and $18 million for the quarters and year-to-date periods ended June 30, 2002 and 2001, respectively.

As of June 30, 2002 and December 31, 2001, related-party notes receivable of $194 million and $254 million were separately stated on the company’s consolidated balance sheets, respectively. Additionally, the company had recorded balances of $16 million and $30 million in related-party short-term debt at June 30, 2002 and December 31, 2001, respectively. Pharmacia will not invest in or lend any additional funds to Monsanto or to third parties on behalf of Monsanto.

Other

The majority of the $3 million loss from other discontinued operations recorded in the second quarter of 2001 consisted of legal and related costs in connection with the sale of the artificial sweetener ingredient business that occurred in 2000. There were no net sales included in the company’s consolidated financial statements during the quarters ended June 30, 2002 and 2001 related to other discontinued businesses.

Agreements with Sanofi~Synthelabo

Pursuant to existing agreements, the company had rights from Sanofi to manufacture, sell and market two products in North America: Ambien and Kerlone. Ambien is a prescription medicine used in the treatment of sleep disorders including insomnia. Kerlone, also a prescription medicine, is used in the treatment of hypertension and cardiovascular disease.

On December 31, 2001, the company relinquished control over the products to Sanofi and ceased recording sales and expenses of Ambien and Kerlone. In the first quarter of 2002, the company received a payment for its share of Ambien and Kerlone earnings of $73 million that was recorded in all other, net on the consolidated statements of earnings.

On April 16, 2002, Sanofi exercised its right to acquire all rights to the products in North America in accordance with the agreements. In connection with such acquisition, the company received a pretax payment of $671 million ($661 million net pretax gain) for its interest. For additional information on the effects of this transaction, see Pharmacia Corporation Form 8-K filed with the Securities and Exchange Commission on April 30, 2002.

New Accounting Standards

In July 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. The new rules amend existing accounting for these costs by requiring that a liability be recorded at fair value when incurred. The liability would be reviewed regularly for changes in fair value with adjustments recorded in the consolidated financial statements. Previous rules permitted certain types of costs to be recognized when future settlement was probable. SFAS No. 146 also provides specific guidance for lease termination costs and one-time employee termination benefits when incurred as part of

30

an exit or disposal activity. The company is currently evaluating the effects the new rules may have on its consolidated financial statements and expects to adopt SFAS No. 146 on January 1, 2003.

On May 1, 2002, the FASB issued SFAS No. 145, “Rescission of FAS Nos. 4, 44, and 64, Amendment of SFAS 13, and Technical Corrections’’. Under the current rules, SFAS No. 4 “Reporting Gains and Losses from Extinguishment of Debt’’ requires that all gains and losses from the extinguishment of debt be classified as extraordinary on the company’s consolidated statements of earnings net of applicable taxes. SFAS No. 145 rescinds the automatic classification as extraordinary and requires that the company evaluate whether the gains or losses qualify as extraordinary under Accounting Principles Board Opinion No. 30 “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions’’. The company is evaluating the effects the new rules may have on its consolidated financial statements and expects to adopt SFAS No. 145 on January 1, 2003.

On January 1, 2002, SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” became effective. It provides guidance on the accounting for the impairment or disposal of long-lived assets. For long-lived assets to be held and used, the new rules are similar to previous guidance which required the recognition of an impairment when the undiscounted cash flows would not recover its carrying amount. The impairment to be recognized will continue to be measured as the difference between the carrying amount and fair value of the asset. The computation of fair value now removes goodwill from consideration and incorporates a probability-weighted cash flow estimation approach as an alternative to the traditional present value method. The previous guidance provided in SFAS No. 121 is to be applied to assets that are to be disposed of by sale. Additionally, assets qualifying for discontinued operations treatment have been expanded beyond the former major line of business or class of customer approach. Long-lived assets to be disposed of by other than sale are now considered assets to be held and used until the disposal date, at which time an impairment will be recognized. There was no material impact on the company’s consolidated financial statements due to the adoption of these rules.

In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.’’ SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. The company is currently evaluating the effects the new rules may have on its consolidated financial statements and expects to adopt SFAS No. 143 on January 1, 2003 in accordance with the rules.

In June 2001, the FASB issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” The provisions of SFAS No. 141 require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and set out specific criteria for the initial recognition and measurement of intangible assets apart from goodwill. SFAS No. 141 also requires that, upon adoption of SFAS No. 142, unamortized negative goodwill be written off immediately as a change in accounting principle instead of being deferred and amortized, and that certain intangible assets be reclassified into or out of goodwill. The provisions of SFAS No. 142 prohibit the amortization of goodwill and indefinite-lived intangible assets and require that they be tested annually for impairment or on an interim basis if indications of a possible impairment arise. If the book value of goodwill or an indefinite-lived intangible is greater th an its fair value, an impairment loss is recognized for the difference. In addition, SFAS No. 142 requires that reporting units be identified for purposes of assessing potential future impairments of goodwill, and removes the 40-year limitation on the amortization period of intangible assets that have finite lives.

The company adopted the provisions of SFAS No. 141 on January 1, 2002 (requirement to use the purchase method of accounting for all business combinations initiated after June 30, 2001 became effective with the issuance of the standard). The provisions of SFAS No. 142 were adopted effective as of January 1, 2002 with no impairment losses recognized related to its continuing operations.

Monsanto also adopted SFAS No. 142 as of January 1, 2002, and an impairment analysis resulted in the recognition of a $1.8 billion net-of-tax loss related to the corn and wheat reporting units. As required by the accounting pronouncement, the loss was recorded as a change in accounting principle effective as of January 1, 2002. Earnings results for Pharmacia have been restated for the first quarter of 2002 to reflect its $1.5 billion portion of the loss. The impairment charge had no effect on Pharmacia’s or Monsanto’s liquidity or cash flow.

The Emerging Issues Task Force Issue No. 01-09 “Accounting for Consideration Given by a Vendor to a Customer” codified several individual issues regarding the recognition and classification of payments between a vendor and a customer. Of the codified issues, only two topics were applicable to the company: sales incentives and payments to

31

resellers. The company adopted the guidance for sales incentives (coupons) prospectively as allowed under the rules on January 1, 2001 and for payments to resellers on January 1, 2002. In both cases, the impact of adoption to the company was insignificant and accordingly prior period financial statements were not reclassified.

Intention to Merge with Pfizer

On July 13, 2002, the company entered into a definitive merger agreement with Pfizer. In accordance with the agreement, each Pharmacia shareholder of record on the closing date will receive 1.4 shares of Pfizer stock for each share of Pharmacia stock owned. It is estimated that the shares of Pfizer common stock to be issued to Pharmacia shareholders in the merger will represent approximately 23 percent of the outstanding Pfizer common stock after the merger on a fully diluted basis, which is expected to occur in the fourth quarter of 2002. The closing of the transaction is contingent upon an affirmative vote by Pharmacia and Pfizer shareholders and approval by certain regulatory authorities including the U.S. Federal Trade Commission. Until the closing date, Pharmacia will continue to operate independently of Pfizer.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There are no material changes related to market risk from the disclosures in Pharmacia Corporation’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2001.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

References to Pharmacia throughout Part II, Item I will include “former Monsanto” when referring to the pre-merger activities of the former Monsanto Company. References to “Monsanto” or “new Monsanto” refers to the company’s agricultural subsidiary.

Pursuant to the Separation Agreement between Pharmacia and Monsanto (“Separation Agreement”), as amended, Monsanto assumed and agreed to indemnify Pharmacia for liabilities related to the agricultural business. In addition, in the proceedings where the company is the defendant, Monsanto will indemnify the company for costs, expenses and any judgments or settlements; and in the proceedings where the company is the plaintiff, Monsanto will pay the fees and costs of, and receive any benefits from, the litigation. Therefore, Pharmacia may remain the named party in certain legal proceedings, but Monsanto will manage the litigation including indemnifying Pharmacia for costs, expenses and any judgments or settlements.

In connection with the spin-off of Solutia Inc. (Solutia) on September 1, 1997, Solutia assumed from Pharmacia liabilities related to the chemical businesses. As a result, Pharmacia remains the named defendant in certain legal proceedings but Solutia manages the litigation and pays all costs, expenses and any judgments or settlements.

Monsanto has assumed, and agreed to indemnify Pharmacia for, any liabilities primarily related to former Monsanto’s former chemical businesses, including any liabilities that Solutia has assumed from Pharmacia in connection with the spin-off of Solutia, to the extent Solutia fails to pay, perform or discharge these liabilities. This indemnification obligation applies to litigation, environmental and other liabilities assumed by Solutia, which are not discussed herein.

Pursuant to the Distribution Agreement entered into in connection with the Solutia spin-off (the “Distribution Agreement”), as amended, Solutia assumed responsibility for litigation currently pending in state and federal court in Alabama brought by several thousand plaintiffs, alleging property damage, anxiety and emotional distress and personal injury arising from exposure to polychlorinated biphenyls (PCBs), which were discharged from an Anniston, Alabama plant site that was formerly owned by Pharmacia and that was transferred to Solutia as part of the spin-off. This litigation includes, but is not limited to, the Abernathy litigation referred to below.

Pursuant to the terms of the Distribution Agreement, Solutia is required to indemnify Pharmacia for liabilities that Pharmacia incurs in connection with this litigation. Pursuant to the terms of the amended Separation Agreement, Monsanto would be required to indemnify Pharmacia in the event that Solutia failed to pay, perform or discharge such liabilities or to indemnify Pharmacia therefore.

Solutia is defending itself and Pharmacia in connection with Sabrina Abernathy, et al. v. Monsanto Company, et al., currently pending in state court in Alabama. The jury has found Solutia and Pharmacia (former Monsanto) liable with respect to certain claims in this litigation, and proceedings have commenced to determine damages. Solutia has requested that Pharmacia commit to posting any appeal bond that may be required to stay execution of any judgment in this litigation pending an appeal. Pursuant to a Protocol agreement dated as of July 1, 2002, Pharmacia, Monsanto and Solutia have agreed that, if Solutia does not post a bond sufficient to stay the execution of any judgment in the litigation pending an appeal, Pharmacia will post such a bond if it is able to do so on commercially reasonable terms. Solutia shall pay the expenses incurred in connection with obtaining any such bond. The agreement also specifies which party or parties would control any decisions regarding settlement of the Abernathy litigation, depending upon whether or not collateral must be provided to secure the bond and, if so, which party provides it. Under the agreement, the continued defense of the Abernathy litigation and the prosecution of any appeal will continue to be managed by Solutia, at Solutia’s expense.

On April 19, 2002, NeoPharm filed a Demand for Arbitration with the company pursuant to the terms of the February 19, 1999 License Agreement. A contractual dispute has arisen between NeoPharm and Pharmacia involving our partnership to develop LEP (Liposomal Encapsulated Paclitaxel) and LED (Liposomal Encapsulated Doxorubicin). NeoPharm claims that Pharmacia failed to use “reasonable efforts” to develop, market and sell LEP/LED. NeoPharm is seeking specific performance and monetary damages. In May 2002, the company filed its response and counter-claim.

32

The States of Nevada, Montana and Minnesota have sued the company, in their respective state courts, alleging that the company manipulated the “average wholesale price” (“AWP”) of Medicare Part B “Covered Drugs,” causing the states’ respective Medicaid agencies, and their respective Medicare and Medicaid beneficiaries, among others, to pay artificially inflated prices for “Covered Drugs.” In addition, the Nevada and Montana suits allege that the company did not report to the states its “best price” under the Medicaid Program. Each of the suits alleges various causes of action, including, but not limited to, deceptive trade practices and Medicaid fraud, purportedly sounding in state law. The suits seek monetary and other relief, including civil penalties and treble damages. The company believes that the claims stated in these lawsuits are not actionable and are without merit. The company will vigorously contest them.

In addition, the company has been named in the following seven self-styled class action lawsuits, brought by private individuals, public interest groups and employee welfare benefit plans in which similar allegations of AWP manipulation have been made: Board of Trustees of Carpenters and Millwrights of Houston and Vicinity Welfare Trust Fund v. Abbott Laboratories, Inc., et, al., 5:01 CV 339 (E.D.Tex.); Citizens for Consumer Justice, et. seq. v. Abbott Laboratories, et. al., C.A. No. 01-12257 (D. Mass.); Geller v. Abbott Laboratories, et. al., CV 02-00553 (C.D. Cal.); Robinson and Hudson v. Abbott Laboratories, et. al, CV02-0493-S (W.D.La.); Swanston v. TAP Pharmaceutical Products Inc., et. al., CV2002-004988 (Az. Sup. Ct., Maricopa Co.); Teamsters Health & Welfare Fund of Philadelphia and Vicinity v. Abbott Laboratories, Inc., et. al., 02 CV 2002 (E.D.Pa.); and United Food and Commercial Workers Unions, et. seq. v. Pharmacia Corporation, et. al., 3:01 CV 5427 (D.N.J.) .

Typical claims asserted in these suits include fraud, unfair competition and unfair trade practices. Some of the suits assert claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Some suits assert antitrust claims. The suits seek various measures of injunctive, monetary and other relief, including civil penalties and treble damages. The company believes that the claims stated in these lawsuits are not actionable and are without merit. The company will vigorously contest them.

All of the private plaintiff lawsuits, with the exception of the Swanston suit in Arizona state court, have been consolidated for pretrial purposes and transferred to the federal district court for Massachusetts, in the multidistrict litigation captioned, In re Pharmaceutical Industry Average Wholesale Price Litigation, MDL 1456, Master File No. 01-CV-12257-PBS (D. Mass.) . The Montana and Nevada suits have been removed to those states’ respective federal courts and conditionally transferred to MDL 1456. The company also has removed the Minnesota suit to federal court and sought transfer of the suit to MDL 1456.

On March 7, 2000, the U.S. Department of Justice filed suit on behalf of the EPA in U.S. District Court for the District of Wyoming against former Monsanto, Solutia (the former Monsanto’s chemical business spun-off in 1997) and P4 Production, seeking civil penalties for alleged violations of Wyoming’s environmental laws and regulations, and of an air permit issued in 1994 by the Wyoming Department of Environmental Quality. The permit had been issued for a coal coking facility in Rock Springs, Wyoming that is currently owned by P4 Production. The United States sought civil penalties of up to $25,000 per day (or $27,500 per day for violations occurring after January 30, 1997) for the air violations, and immediate compliance with the air permit. The companies have already paid a $200,000 fine covering the same Clean Air Act violations pursuant to a consent decree entered in the First Judicial District Court in Laramie County, Wyoming on June 25, 1999. On April 12, 2000, the Department of Justice revised its settlement demand, from $2.5 million to $1.9 million plus injunctive relief to ensure P4 Production’s compliance with the Clean Air Act. On April 21, 2000, the companies filed a motion for dismissal or summary judgment on the grounds of claim preclusion, including the doctrines of res judicata and release. In an opinion dated March 29, 2002, the court denied the companies’ motion for summary judgment. On July 22, 2002, the district court denied Monsanto’s April 19th, 2002 motion for certification of an appeal of the order denying the motion for summary judgment. Any liability would be shared by Monsanto and Solutia, based upon the purchases from P4 Production.

In June 1996, Mycogen Corporation (“Mycogen”), MPS and Agrigenetics, Inc. filed suit against the former Monsanto Company in California State Superior Court in San Diego alleging that the former Monsanto Company had failed to license, under an option agreement, technology relating to Bt corn and glyphosate-tolerant corn, cotton and canola. On October 20, 1997, the court construed the agreement as a license to receive genes rather than a license to receive germplasm. Jury trial of the damage claim for lost future profits from the alleged delay in performance ended March 20, 1998, with a verdict against the former Monsanto Company awarding damages totaling $174.9 million. On June 28, 2000, the California Court of Appeals for the Fourth Appellate District issued its opinion reversing the jury verdict and related judgment of the trial court, and directed that judgment should be entered in

33

favor of the former Monsanto Company. On August 8, 2002, the California Supreme Court upheld the California Court of Appeals decision reversing the jury’s verdict.

Since the 1984 termination of the class action litigation against various manufacturers, including the former Monsanto Company, of the herbicide Agent Orange used in the Vietnam War, Monsanto and the former Monsanto Company have successfully defended against various lawsuits associated with injuries allegedly caused by the herbicide’s use. A few matters remain pending, including three separate actions (now consolidated) brought by approximately 13,000 Korean veterans, initially filed against the former Monsanto Company and The Dow Chemical Company in Seoul, Korea, in October 1999. The plaintiffs seek damages of 300 million won (approximately $250,000) each. On May 23, 2002, the Seoul District Court ruled in favor of the defendants and dismissed all claims by plaintiffs due to lack of causation and failure to meet the applicable statute of limitations. On June 14, 2002, plaintiffs lodged their notice of de novo appeal.

On December 2, 1999, a class action lawsuit was filed against the former Monsanto Company and five other herbicide manufacturers in the United States District Court for the Eastern District of Pennsylvania. The plaintiffs purport to represent a class of over 9,000 Korean and 1,000 United States service persons allegedly exposed to the herbicide Agent Orange and other herbicides sprayed from 1967 to 1970 in or near the demilitarized zone separating North Korea from South Korea. The complaint did not assert any specific causes of action or demand a specified amount in damages. This suit was dismissed by the District Court in November 2001. In addition, two suits filed by individual U.S. veterans contesting their denial of claims subsequent to the class action settlement have been consolidated in the multidistrict litigation proceeding that was established in 1977 in the United States District Court for the Eastern District of New York, to coordinate Agent Orange-related litigation in the United States. These suits were dismissed by the District Court. In an opinion dated November 30, 2001 the United States Court of Appeals for the Second Circuit vacated the District Court’s dismissal claims and remanded the cases to the District Court for further proceedings. On June 20, 2002, the District Court announced that it would stay further proceedings pending a ruling by the United States Supreme Court on defendants’ petition for certiorari.

Pharmacia will be required to submit a corrective measures study report to the EPA with regard to the company’s discontinued industrial chemical facility in North Haven, Connecticut. While the company has existing reserves designated for remediation, in the light of changing circumstances, it is reasonably possible that a material increase in accrued liabilities will be required. However, it is not possible to determine what, if any, additional exposure exists at this time. Please see the discussion in Item 1, Environmental Matters, above.

The company is involved in other legal proceedings arising in the ordinary course of its business. While the results of litigation cannot be predicted with certainty, the company does not believe that the resolution of these proceedings, either individually or taken as a whole, will have a material adverse effect on its financial position, profitability or liquidity. The company believes it has valid defenses to these matters and intends to vigorously contest them.

Item 5. Other Information Cautionary Statements Regarding Forward-Looking Information

Forward-Looking Statements

Certain statements contained in this Report, as well as in other documents incorporating by reference all or part of this Report, are “forward-looking statements” provided under the “safe harbor” protection of the Private Securities Litigation Reform Act of 1995. These statements are made to enable a better understanding of the company’s business, but because these forward-looking statements are subject to many risks, uncertainties, future developments and changes over time, actual results may differ materially from those expressed or implied by such forward-looking statements. Examples of forward-looking statements are statements about anticipated financial or operating results, financial projections, business prospects, future product performance, future research and development results, anticipated regulatory filings and approvals and other matters that are not historical facts. Such statements often include words such as: believes, expects, anticipates, intends, plans, estimates or similar expressions.

These forward-looking statements are based on the information that was currently available to the company, and the expectations and assumptions that were deemed reasonable by the company, at the time when the statements were made. The company does not undertake any obligation to update any forward-looking statements in this Report or in any other communications of the company, whether as a result of new information, future events, changed assumptions or otherwise, and all such forward-looking statements should be read as of the time when the

34

statements were made, and with the recognition that these forward-looking statements may not be complete or accurate at a later date.

Many factors may cause or contribute to actual results or events being materially different from those expressed or implied by such forward-looking statements. Although it is not possible to predict or identify all such factors, they may include the following factors discussed below:

Competition for our products: Competitive effects from current and new products, including generic products, sold by other companies; competition and loss of patent protection could lead to significant loss of sales.

Pharmaceutical pricing: Price constraints and other restrictions on the marketing of products imposed by governmental agencies or by managed care groups, institutions and other purchasing agencies could result in lower prices for the company’s products.

Product discovery and approval: The company’s ability to discover and license new compounds, develop product candidates, obtain regulatory approvals and market new products is risky and uncertain.

Product recalls or withdrawals: Efficacy or safety concerns raised in the scientific literature, increase in trends of adverse events in the marketplace, and/or manufacturing quality issues with respect to our products, could lead to product recalls, withdrawals or declining sales.

Manufacturing facilities: Failure to comply with Current Good Manufacturing Practices and other applicable regulations and quality assurance guidelines could lead to temporary manufacturing shutdowns, product shortages and delays in product manufacturing.

Restrictions on marketing: Restrictions on promotion in patient populations as a result of FDA warning letters on promotional materials could effect sales of the company’s products and could lead to holds on current and future New Drug Applications and supplements filed with the FDA.

Legal claims: The company’s ability to secure and defend its intellectual property rights; the company’s involvement in numerous lawsuits including product liability claims, antitrust litigation, environmental concerns, commercial disputes, any of which could affect the company’s profits or ability to sell and market its products. In addition, in connection with the separation of the agricultural business from the pharmaceutical business on September 1, 2000, Monsanto assumed, and agreed to indemnify Pharmacia Corporation for, any liabilities primarily related to Pharmacia’s former agricultural or chemical businesses, including any liabilities that Solutia had assumed from Pharmacia in connection with the spin-off of Solutia on September 1, 1997, to the extent that Solutia fails to pay, perform or discharge those liabilities. This includes among other things, litigation and environmental liabilities that were assumed by Solutia.

Employees: The company’s ability to attract and retain management and other key employees.

External pressures: Social, legal, political and governmental developments, especially those relating to health care reform, pharmaceutical pricing and reimbursement, patient privacy, tax laws and agricultural biotechnology; seasonal and weather conditions affecting agricultural markets.

Economic conditions: Changes in foreign currency exchange rates or in general economic or business conditions including inflation and interest rates.

Business combinations: Acquisitions, divestitures, mergers, restructurings or strategic initiatives that change the company’s structure; business combinations among the company’s competitors and major customers could affect our competitive position.

Accounting policies and estimates: Changes to accounting standards or generally accepted accounting principles, which may require adjustments to financial statements and may affect future results.

Such other factors that may be described elsewhere in this Report or in other company filings with the U.S. Securities and Exchange Commission.

Item 6. Exhibits And Reports On Form 8-K

(a) Exhibits - See the Exhibit Index

(b) Reports on Form 8-K during the quarter ended on June 30, 2002 were filed on April 30, 2002 pursuant to Item 2 (Acquisition or Disposition of Assets); and filed subsequent to the effective date of this Report on July 15, 2002 pursuant to Item 5 (Other Events) and Item 7 (Exhibits); and on July 30, 2002 pursuant to Item 7 (Exhibits); and on August 2, 2002 pursuant to Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits).

35

SIGNATURE :

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PHARMACIA CORPORATION    (Registrant)
DATE: August 13, 2002	/S/ R. G. Thompson
	R. G. Thompson Senior Vice President and Corporate Controller

36

EXHIBIT INDEX

These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.

Exhibit Number	Description
2.	First Amended Separation Agreement, dated as of July 1, 2002, between Pharmacia Corporation and Monsanto Company.
4.	Omitted - Inapplicable
10.	(1)         Amendment to Distribution Agreement, dated as of July 1, 2002, among Pharmacia Corporation, Solutia Inc. and Monsanto Company.
	(2)         Amendment to Employee Benefits and Compensation Allocation Agreement, dated as of July 1, 2002, between Pharmacia Corporation and Monsanto               Company.
	(3)         Protocol Agreement, dated as of July 1, 2002, among Pharmacia Corporation, Solutia Inc. and Monsanto Company.
	(4)         Tax Sharing Agreement, dated July 19, 2002 among Pharmacia Corporation, Solutia Inc. and Monsanto Company.
11.	Omitted - Inapplicable; see Note G of Notes to Financial Statements on page 13.
15.	Omitted - Inapplicable
18.	Omitted - Inapplicable
19.	Omitted - Inapplicable
22.	Omitted - Inapplicable
23.	Omitted - Inapplicable
24.	Omitted - Inapplicable

37

EX-2

                                                                  EXECUTION COPY

                                                                    EXHIBIT 2


                               FIRST AMENDMENT TO
                              SEPARATION AGREEMENT


         This FIRST AMENDMENT TO SEPARATION AGREEMENT, dated as of July 1, 2002
(this "First Amendment"), by and between Pharmacia Corporation, a Delaware
corporation ("Pharmacia"), and Monsanto Company, a Delaware corporation
("Monsanto").

                              W I T N E S S E T H:

         WHEREAS, Pharmacia (formerly known as Monsanto Company ("Former
Monsanto")) and Solutia, Inc., a Delaware corporation ("Solutia"), are parties
to that certain Distribution Agreement, dated as of September 1, 1997 (the
"Distribution Agreement"), which was entered into in connection with the
distribution of the common stock of Solutia to the stockholders of Former
Monsanto (the "Solutia Distribution");

         WHEREAS, pursuant to the Distribution Agreement, among other things,
Former Monsanto assigned and transferred certain assets related to its chemicals
businesses to Solutia and Solutia assumed all of the liabilities related to the
chemicals businesses of Former Monsanto;

         WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
as of December 19, 1999, by and among Former Monsanto, MP Sub, Incorporated
("Merger Sub") and Pharmacia & Upjohn, Inc. ("PNU"), the parties agreed that
Merger Sub would be merged with and into PNU with PNU surviving as a wholly
owned subsidiary of Former Monsanto in the merger (the "Merger");

         WHEREAS, on February 9, 2000, the new Monsanto was incorporated as a
wholly owned subsidiary of Former Monsanto under the name "Monsanto Ag Company;"

         WHEREAS, on March 31, 2000, (i) the Merger was effective, (ii) Former
Monsanto changed its name from "Monsanto Company" to "Pharmacia Corporation,"
and (iii) Monsanto changed its name from "Monsanto Ag Company" to "Monsanto
Company;"

         WHEREAS, on September 1, 2000, Pharmacia and Monsanto entered into
certain agreements, including that certain Separation Agreement, dated as of
September 1, 2000 (the "Separation Agreement"), pursuant to which, among other
things, Pharmacia assigned and transferred the Monsanto Assets (as defined in
the Separation Agreement) to Monsanto and Monsanto assumed the Monsanto
Liabilities (as defined in the Separation Agreement), including all liabilities
that were assumed by Solutia or any of its subsidiaries in connection with the
Solutia Distribution to the extent that Solutia fails to pay, perform or
discharge such liabilities;

         WHEREAS, on or about October 23, 2000, Monsanto completed an initial
public offering of its common stock in which Monsanto sold approximately 15% of
its issued and outstanding shares of common stock to the public;








         WHEREAS, Pharmacia currently owns approximately 84% of the issued and
outstanding shares of common stock of Monsanto;

         WHEREAS, Pharmacia has announced its intention to distribute its entire
ownership interest in Monsanto to the stockholders of Pharmacia or could take
some other action that will result in Pharmacia no longer controlling Monsanto
(a "Possible Disposition");

         WHEREAS, Pharmacia, Solutia and Monsanto have entered into an Amendment
to Distribution Agreement, dated as of July 1, 2002, pursuant to which, among
other things, the parties thereto have amended the Distribution Agreement in
light of the Possible Disposition in order to preserve the relationship among
the parties as nearly as possible with the original intent and purpose of the
Distribution Agreement; and

         WHEREAS, Pharmacia and Monsanto each desires to amend the Separation
Agreement in light of the Amendment to Distribution Agreement and to further
clarify in certain respects the relationship between the parties, all in
accordance with the provisions of this First Amendment.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:

         Section 1. Each capitalized term used in this First Amendment and not
otherwise defined herein shall have the meaning ascribed thereto in the
Separation Agreement, as amended hereby.

         Section 2. The parties hereto hereby agree that effective as of the
date of this First Amendment the Separation Agreement is hereby amended as
follows:

         (a) Section 1.01 of the Separation Agreement is hereby amended by
adding the following definitions.

         "Distribution Agreement: that certain Distribution Agreement,
         dated as of September 1, 1997, between Pharmacia (formerly
         known as Monsanto Company) and Solutia, as amended by that
         certain Distribution Agreement, Amendment."

         "Distribution Agreement Amendment: that certain Amendment to
         Distribution Agreement, dated as of July 1, 2002, among
         Pharmacia, Solutia and Monsanto."

         (b) The definition of "Former Agricultural Business" in Section 1.01 of
the Separation Agreement is hereby amended by inserting the following language
at the end of Schedule F-1 under the heading "Other Former Businesses":

         "34. discontinued herbicides, including, without limitation,
         2, 4-D (2,4 dichlorophenoxyacetic acid) and 2, 4, 5-T (2, 4, 5
         trichlorophenoxyacetic acid)."


                                       2








         (c) The definition of "Insured Monsanto Claim" in Section 1.01 of the
Separation Agreement is hereby amended by inserting the word "injury,"
immediately before each use of the word "Loss", and inserting the words "or
asserted to have been incurred" after the word "incurred" on the second line.

         (d) The definition of "Monsanto Liabilities" in Section 1.01 of the
Separation Agreement is hereby amended by inserting the following language at
the end of clause (5) thereof immediately after the words "Schedule M-6" and
immediately before the words "and, subject to the terms of Article IX" as
follows:

         "provided that Monsanto Liabilities shall not include and
         Monsanto shall not assume any Liabilities for environmental
         remediation or other environmental responsibilities which are
         not primarily related to the Monsanto Business or any Former
         Agriculture Business arising directly or indirectly at or
         from the sites listed on Schedule M-6 (e.g. without
         limitation, the Marzone site)."

         (e) The definition of "Monsanto Liabilities" in Section 1.01 of the
Separation Agreement is hereby amended by inserting the following language at
the end of clause (9) thereof immediately after the words "such Liabilities" and
immediately before the semi-colon:

         ", including Solutia's commitments and obligations under the
         Distribution Agreement (including Solutia's obligation to
         indemnify, defend and hold harmless each member of the
         Monsanto Group (as defined in the Distribution Agreement)),
         in each case when any such Liability is due or required to be
         paid, performed or discharged by any member of the Pharmacia
         Group without requirement that any demand, right, action or
         remedy be made, initiated, pursued or obtained against
         Solutia or any judgment be obtained or enforced against
         Solutia (such Liabilities described in this clause (9) being
         referred to collectively as the "Solutia Liabilities")."

         (f) Clause (2)(i) of Section 3.03(b) of the Separation Agreement is
hereby amended to read in its entirety as follows:

         "(i) relating to or arising out of or due to the failure to
         pay, perform or discharge in due course the Monsanto
         Liabilities by any member of the Monsanto Group who has an
         obligation with respect thereto; provided, however, that in
         the case of any Solutia Liability, the phrase "in due course"
         shall mean when due or required to be paid, performed or
         discharged by any member of the Monsanto Group (as defined in
         the Distribution Agreement) without requirement that any
         demand, right, action or remedy be made, initiated, pursued
         or obtained against Solutia or any judgment be obtained or
         enforced against Solutia."


                                       3







         (g) The first Sentence of Section 3.03(d) of the Separation Agreement
is hereby amended to read in its entirety as follows:

         "(d) On and following the Separation Date Monsanto shall
         assume (or shall cause one of its wholly-owned Subsidiaries
         to assume) (i) the prosecution of all claims which are
         Monsanto Assets and are pending on the Separation Date; (ii)
         the defense against all Third Party Claims which are Monsanto
         Liabilities and are pending on the Separation Date or which
         are made or asserted at any time between the Separation Date
         and the first date that Pharmacia beneficially owns less than
         50.1% of the issued and outstanding voting stock of Monsanto;
         and (iii) the defense of all claims, including Third Party
         Claims, whenever arising, that are Solutia Liabilities in the
         event that Solutia elects not to defend any such claim under
         the Distribution Agreement or Solutia, after electing to so
         defend, for any reason fails to defend any Solutia Liability
         (or breaches its commitment or obligation under the
         Distribution Agreement to defend), subject to the rights and
         obligations of the respective parties under the Distribution
         Agreement, but provided that Monsanto shall promptly take all
         commercially reasonable actions, (including invoking the
         dispute resolution provision of the Distribution Agreement,
         as appropriate) to take control of the defense of such claims
         from Solutia or to otherwise enforce Monsanto's rights under
         the Distribution Agreement."

         (h) Section 3.04 of the Separation Agreement is hereby amended by
adding the following Section 3.04(g) immediately following Section 3.04(f) of
the Separation Agreement:

         "(g) The parties hereto acknowledge and agree that due to the
         fact that (i) each of Pharmacia and Monsanto are parties to
         the Distribution Agreement and therefore each have indemnity
         and certain other rights against Solutia and certain
         obligations to Solutia with respect to the Solutia
         Liabilities, (ii) Pharmacia has appointed Monsanto as
         Pharmacia's agent and attorney for all purposes with respect
         to Pharmacia's rights and obligations under the Distribution
         Agreement, including any rights and obligations Pharmacia has
         under the indemnity provisions thereof (and Monsanto has
         accepted such appointment), and (iii) Monsanto has assumed or
         undertaken certain obligations with respect to the Solutia
         Liabilities pursuant to the terms of this Agreement, the
         parties hereto agree that notwithstanding anything to the
         contrary contained in this Agreement, including this Section
         3.04, the procedure for assumption or indemnification with
         respect to any Solutia Liability shall be as follows:


                                       4







         (A) Any claim with respect to the Solutia Liabilities shall
         be treated for all purposes of Section 3.04 as a Third Party
         Claim and the provisions of Section 3.04, as modified hereby
         shall apply;

         (B) Notwithstanding Section 3.04(a), Monsanto shall be deemed
         to have actual notice of (i) any Third Party Claim pending on
         the date hereof which is or becomes a Solutia Liability for
         which Monsanto has actual or constructive notice and (ii) any
         claim (including any Third Party Claim) with respect to any
         matter or Loss or Indemnifiable Loss relating to a Solutia
         Liability under Article III (each, a "Solutia Liability
         Claim") for which any indemnitee under the Distribution
         Agreement has given Monsanto written notice (as Pharmacia's
         attorney and agent with respect to the Distribution Agreement
         or otherwise) and no Indemnitee shall be required to provide
         any other notice to Monsanto pursuant to Section 3.04(a) or
         Section 3.04(f);

         (C) Sections 3.04(c), (d) and (e) shall apply, except that,
         subject to the respective rights and obligations of the
         parties under the Distribution Agreement, Monsanto shall, at
         Monsanto's own expense and through counsel chosen by Monsanto
         (which counsel shall be reasonably satisfactory to the
         Indemnitee), be obligated to defend any Solutia Liability
         Claim; and

         (D) Section 3.04(f) shall not apply; however, if any member
         of the Indemnifying Party's Group fails to pay, perform or
         discharge its respective obligations arising out of Section
         3.03 with respect to any Solutia Liability when due or
         required to be paid, performed or discharged, any Indemnitee
         shall be free to pursue such remedies as may be available to
         such party under Article VI of this Agreement.

         (i) Schedule M-3 to the Separation Agreement is hereby deleted in its
entirety and replaced with the Amended and Restated Schedule M-3 attached
hereto.

         (j) Schedule M-8 to the Separation Agreement is hereby deleted in its
entirety and replaced with the Amended and Restated Schedule M-8 attached
hereto.

         Section 3. Monsanto shall, upon reasonable request from Pharmacia, (i)
provide to Pharmacia such information as Pharmacia shall reasonably request
regarding any Monsanto Liabilities (including Solutia Liabilities) and any
actions, claims, proceedings, litigation or investigations ("Proceedings")
relating thereto and (ii) consult and confer with Pharmacia regarding (A) all
aspects of the Distribution Agreement and their respective rights and
obligations thereunder (B) the status of any Proceedings relating to any
Monsanto Liabilities (including Solutia Liabilities) and the strategies,
possible outcomes and any settlement proposals or negotiations relating thereto,
and (C) any indemnity obligations with respect to any Proceeding (including any
defense thereof) whether such obligation is a Solutia obligation


                                       5








pursuant to the Distribution Agreement or a Monsanto obligation pursuant to the
Separation Agreement. Notwithstanding the foregoing, neither Monsanto nor any
legal counsel to Monsanto shall be required to disclose any information that, if
disclosed to Pharmacia, would waive Monsanto's right to claim attorney-client
privilege with respect to such information; provided, however, each party shall
cooperate and take such actions (including entering into such agreements) as are
reasonable in the circumstances in order to permit such information to be
provided to Pharmacia without waiving such privilege.

         Section 4. Except as expressly modified and amended hereby, the
Separation Agreement shall continue to be and shall remain in full force and
effect in accordance with its terms. If there is any conflict between the terms
of the Separation Agreement, as amended, and the terms of the Protocol
Agreement, dated as of July 1, 2002 by and among Pharmacia, Monsanto and Solutia
(the "Protocol Agreement"), the terms of the Protocol Agreement shall govern.

         Section 5. Except as may otherwise be agreed by the parties, each party
hereto will pay all costs and expenses incident to its negotiation and
preparation of this First Amendment, including the fees, expenses and
disbursement of its counsel.

         Section 6. This First Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware (other than the laws regarding
choice of laws and conflicts of laws) as to all matters, including matters of
validity, construction, effect, performance and remedies.

         Section 7. This First Amendment may be amended, modified or
supplemented only by a written agreement signed by all of the parties hereto.

         Section 8. This First Amendment and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
successors and permitted assigns, but neither this First Amendment nor any of
the rights, interests and obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other party (which consent shall
not be unreasonably withheld or delayed).

         Section 9. This First Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         Section 10. Any provision of this First Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Each party acknowledges
that money damages would be an inadequate remedy for any breach of the
provisions of this First Amendment and agrees that the obligations of the
parties hereunder shall be specifically enforceable.


                          [SIGNATURE PAGE IS NEXT PAGE]


                                       6








         IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed as of the date first above written.



                                            PHARMACIA CORPORATION,
                                            a Delaware corporation



                                            By:  // Richard T. Collier
                                               ---------------------------------
                                               Name:  Richard T. Collier
                                               Title: Senior Vice President and
                                                      General Counsel


                                            MONSANTO COMPANY,
                                            a Delaware corporation



                                            By:  // Hendrik A. Verfaillie
                                               ---------------------------------
                                                 Name:  Hendrik A. Verfaillie
                                                 Title: Chairman and CEO



                                       7








                               FIRST AMENDMENT TO
                              SEPARATION AGREEMENT
                                 BY AND BETWEEN
                              PHARMACIA CORPORATION
                              AND MONSANTO COMPANY

                            DATED AS OF JULY 1, 2002

                              AMENDED AND RESTATED
                                  SCHEDULE M-3

                                 MONSANTO ASSETS

             Partnerships, Joint Ventures and Other Equity Interests


Anhui an Dai Cotton Seed Technology Company Ltd.
Biotage UK Limited
CDM Mandiyu SRL
D&M Brasil Algodao Ltda.
D&M International LLC
D&M Partners
D&PL China Pte Ltd.
Dnepr
Ecogen, Inc.
Feed Additive Joint Venture with Cultur
GeneTrace Systems, Inc.
Limagrain Canada Seeds
Maharashtra Hybrid Seed Co.
Mendel Biotechnology
Moviagro Technologia Agricola SA
Renessen LLC
Seed Company of Zinjiang AIC Corp.
Shaanxi Province Seed Group Corporation
Zooagro de Venezuela C.A.
Civic Ventures Investment Fund L.P.
Rice-X








                               FIRST AMENDMENT TO
                              SEPARATION AGREEMENT
                                 BY AND BETWEEN
                              PHARMACIA CORPORATION
                              AND MONSANTO COMPANY

                            DATED AS OF JULY 1, 2002

                              AMENDED AND RESTATED
                                  SCHEDULE M-8
                              MONSANTO SUBSIDIARIES


ENTITY


Agroseed Corp.
Asgrow Seed Company LLC
Bejing New Millennium Fengrui Crop Science
Bretco Holdings (Mauritius) Ltd.
Calgene LLC
Centrogen Holdings Pty. Ltd.
Cereon Genomics LLC
Charoen Seeds Company Ltd.
Chemstrand Overseas S.A.
Commercializadora Sehisa SA
Corn States Hybrid Service LLC
Corporacion Agraria S.L.
Coseven LLC
Danagri APS
Dekalb Genetics Corporation
Holden's Foundation Seeds LLC
Hope Properties LLC
Hybritech SNC
Lan Invest
Lexphc Inc.
Mallard Rice, LLC
MonGard Ltd.
Monsanto Holdings Ltd.
Monsanto (Shanghai) Company Ltd.
Monsanto Ag Products LLC
Monsanto Ag Technologies, LLC
Monsanto Agrar Deutschland GmbH
Monsanto Agricola Honduras SA
Monsanto Agricoltura Italia S.p.A.
Monsanto Agricultura Espana, SA
Monsanto Argentina S.A.I.C.











Monsanto Bangladesh Ltd.
Monsanto Bolivia S.A.
Monsanto C.R. sro
Monsanto Canada, Inc.
Monsanto Canada Seeds, Inc.
Monsanto Caribe LLC
Monsanto Central Africa Inc.
Monsanto Centroamerica (El Salvador) SA
Monsanto India Ltd.
Monsanto Chile Com. E Indus. Ltda.
Monsanto Colombiana Inc.
Monsanto Comercial SA de CV
Monsanto Crop Sciences Denmark SA
Monsanto Ireland Ltd.
Monsanto Crop Sciences Netherland B.V.
Monsanto Crop Sciences NorwayA/S
Monsanto Crop Sciences SwedenAB
Monsanto de Costa Rica SA
Monsanto Dominicana Inc.
Monsanto Ecutoriana SA
Monsanto Enviro-Chem Systems, Inc.
Monsanto Europe SA
Monsanto Far East Ltd.
Monsanto Finance AG
Monsanto Gida ve Tarim Ticaret Limited Sirketi
Monsanto Guatemala Inc.
Monsanto Hellas EPE
Monsanto Holdings Ltd.
Monsanto II-Productos Quimicos e Agricolas, Sociedad Unipessoal Lda.
Monsanto Imperial Chem. Indus. Am. Inc.
Monsanto India Private Limited
Monsanto Interamerica Inc.
Monsanto International Sales Co. Inc.
Monsanto Invest NV.
Monsanto Japan Ltd.
Monsanto Kenya Ltd.
Monsanto Kereskedelmi (Trading) KFT
Monsanto Korea, Inc.
Monsanto Ltd.
Monsanto Mauritius Ltd.
Monsanto New Zealand Ltd.
Monsanto Overseas SA
Monsanto Oy
Monsanto Pakistan AgriTech (Pvt) Ltd.
Monsanto Paraguay S.A.
Monsanto Participacoes Ltda


                                       2







Monsanto Philippines, Inc.
Monsanto Polska SP Z.OO
Monsanto Produccion y Servios SA de CV
Monsanto Research Corp
Monsanto Romania S.I.
Monsanto Russia ZAO
Monsanto Vietnam Ltd.
Monsanto Services International S.A./N.V.
Monsanto Slovakia s.r.o.
Monsanto South Africa (Pty) Ltd.
Monsanto Tanzania Ltd.
Monsanto Technologies LLC
Monsanto Thailand Ltd.
Monsanto U.K. Ltd.
Monsanto Ukraine Ltd.
Monsanto Venezuela CA
Monsanto West Africa, Inc.
MonSoy S.A.
MonSure Ltd.
Nidus Center for Scientific Enterprise
Olympia Industries Inc.
P.T. Branita Sandhini
P.T. Monagro Kimia
P4 Production LLC
Renfield S.A.
Semillas Hibridas S.A. de C.V.
Semillas Monsanto SA de CV
Sensako Ltd.
Vigortech Inc.



                                       3

EX-10

                                                                   EXHIBIT 10(1)

                                 EXECUTION COPY



                                    AMENDMENT

                                       TO

                             DISTRIBUTION AGREEMENT


         THIS AMENDMENT TO DISTRIBUTION AGREEMENT, dated as of July 1, 2002
(this "Amendment"), is made and entered into by and among Pharmacia Corporation,
a Delaware corporation, Solutia Inc., a Delaware corporation ("Solutia"), and
Monsanto Company, a Delaware corporation.

                              W I T N E S S E T H:

         WHEREAS, Former Monsanto (as defined below) and Solutia are parties to
that certain Distribution Agreement, dated as of September 1, 1997 (the
"Distribution Agreement"), which was entered into in connection with the
distribution of the common stock of Solutia to the stockholders of Former
Monsanto (the "Solutia Distribution");

         WHEREAS, pursuant to the Distribution Agreement, among other things,
Former Monsanto assigned and transferred the Chemical Assets (as defined in the
Distribution Agreement) to Solutia and Solutia assumed all of the Chemical
Liabilities (as defined in the Distribution Agreement) of Former Monsanto;

         WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
as of December 19, 1999 (the "Merger Agreement"), by and among the former
Monsanto Company (which is the Delaware corporation identified in the
introductory paragraph of this Amendment as "Pharmacia Corporation" and which is
referred to herein as either "Former Monsanto" or "Pharmacia," as the context
requires), MP Sub, Incorporated ("Merger Sub") and Pharmacia & Upjohn, Inc.
("PNU"), the parties agreed that Merger Sub would be merged with and into PNU
with PNU surviving as a wholly owned subsidiary of Former Monsanto in the merger
(the "Merger");

         WHEREAS, on February 9, 2000, the new Monsanto Company (which is the
Delaware corporation identified in the introductory paragraph of this Amendment
as "Monsanto Company" and which is referred to herein as "New Monsanto") was
incorporated as a wholly owned subsidiary of Former Monsanto under the name
"Monsanto Ag Company;"

         WHEREAS, on March 31, 2000, (i) the Merger was effective, (ii) Former
Monsanto changed its name from "Monsanto Company" to "Pharmacia Corporation,"
and (iii) New Monsanto changed its name from "Monsanto Ag Company" to "Monsanto
Company;"








         WHEREAS, on September 1, 2000, New Monsanto and Pharmacia entered into
certain agreements, including that certain Separation Agreement, dated as of
September 1, 2000 (the "Separation Agreement"), pursuant to which, among other
things, Pharmacia assigned and transferred certain assets related to its
chemicals and agricultural businesses and certain other assets to New Monsanto
and New Monsanto assumed certain liabilities relating thereto and all
liabilities that were assumed by Solutia or any of its subsidiaries in
connection with the Solutia Distribution to the extent that Solutia fails to
pay, perform or discharge such liabilities;

         WHEREAS, on or about October 23, 2000, New Monsanto completed an
initial public offering of its common stock in which New Monsanto sold
approximately 15% of its issued and outstanding shares of common stock to the
public;

         WHEREAS, Pharmacia currently owns approximately 84% of the issued and
outstanding shares of common stock of New Monsanto;

         WHEREAS, Pharmacia has announced its intention to distribute its entire
ownership interest in New Monsanto to the stockholders of Pharmacia or could
take some other action that will result in Pharmacia no longer controlling New
Monsanto (a "Possible Disposition"); and

         WHEREAS, in light of the Possible Disposition, the parties hereto
desire to enter into this Amendment in order to effectuate the assignment to New
Monsanto of certain assets and liabilities contemplated pursuant to the
Separation Agreement (including the Distribution Agreement) and preserve the
relationship among the parties as nearly as possible with the original intent
and purpose of the Distribution Agreement.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:

         Section 1. Each capitalized term used in this Amendment and not
otherwise defined herein shall have the meaning ascribed thereto in the
Distribution Agreement.

         Section 2. The parties hereto hereby agree that effective as of the
date of this Amendment the Distribution Agreement is hereby amended in
accordance with the requirements of Section 10.06 thereof as follows:

         (a) New Monsanto shall be deemed to be and shall be for all purposes a
party to the Distribution Agreement as amended hereby.

         (b) All references to "party" or "parties" in the Distribution
Agreement shall include New Monsanto and all such references to "party" or
"parties" in the Distribution Agreement shall be read and construed in the
context that New Monsanto is a party to the Distribution Agreement (e.g. "both
parties" shall be deemed to mean and shall be read as "all parties").

         (c) Subsection 63 of Section 1.01 of the Distribution Agreement is
hereby amended to read in its entirety as follows:


                                       2








         "63. MONSANTO GROUP: Collectively, (i) Pharmacia Corporation,
         a Delaware corporation ("Pharmacia"), and its Subsidiaries of
         which Pharmacia directly owns 100% of the stock or other
         equity interests entitled to vote on the election of members
         to the board of directors or similar governing body, other
         than members of the Chemical Group, and (ii) Monsanto
         Company, a Delaware corporation incorporated February 9, 2000
         ("New Monsanto"), and its Subsidiaries of which New Monsanto
         directly owns 100% of the stock or other equity interest
         entitled to vote on the election of members to the board of
         directors or similar governing body."

         (d) (i) The term "Monsanto" solely as used in Sections 4.03(a)(i),
4.03(b), 4.03(e), 5.01(c), 5.09, 6.01, 6.06, 6.07 and 7.02(a) shall mean:
"Pharmacia and New Monsanto" or "Pharmacia or New Monsanto," as the context
shall require. Without limiting the generality of the foregoing, but for
purposes of example, with respect to those Sections specified in the preceding
sentence "Monsanto" shall mean "Pharmacia and New Monsanto" in those contexts
where "Monsanto" has a commitment, duty, liability or obligation and shall mean
"Pharmacia or New Monsanto" in those contexts where "Monsanto" has a right or
interest or where Chemicals, Chemicals Group or any of their respective
Affiliates, Representatives or agents has a commitment, duty, liability or
obligation.

         (ii) For purposes of clarity, the term "Monsanto" solely as used in
Articles I, II, III, VIII and IX and Sections 4.03(a)(ii), 4.03(a)(iii),
5.01(b), 5.01(d), 5.01(e), 5.03, 5.04, 5.05, 5.10, 10.01, 10.03 and 10.12 shall
not be affected by this Section 2(d) (i.e. shall continue to refer exclusively
to Former Monsanto (now Pharmacia)).

         (iii) Nothing in this Section 2(d) is intended to limit or otherwise
affect the provisions of Sections 2(a) or (b) of this Amendment.

         (e) Section 10.05 of the Distribution Agreement is hereby amended to
read in its entirety as follows:

         "10.05 Notices. All notices, requests, claims, demands and
         other communications hereunder (collectively, "Notices")
         shall be in writing and shall be given (and shall be deemed
         to have been duly given upon receipt) by delivery in person,
         by cable, telegram, facsimile, electronic mail or other
         standard form of telecommunications (provided confirmation is
         delivered to the recipient the next Business day in the case
         of facsimile, electronic mail or other standard form of
         telecommunications) or by registered or certified mail,
         postage prepaid, return receipt requested, addressed as
         follows:

         If to Pharmacia:   Christopher Coughlin
                            Executive Vice President and CFO
                            Pharmacia Corporation


                                       3







                                100 Route 206 North
                                Peapack, New Jersey   07977
                                Telephone: 908-901-8826
                                Facsimile: 908-901-0000

                                     4






         with a copy to:        General Counsel
                                Pharmacia Corporation
                                100 Route 206 North
                                Peapack, New Jersey 07977
                                Telephone:  908-901-8810
                                Facsimile:  908-901-1810

         If to Chemicals:       President
                                Solutia Inc.
                                P.O. Box 66760
                                St. Louis, MO 63166-6760
                                Telephone:  314-674-2210
                                Facsimile:  314-674-8425

         with a copy to:        General Counsel
                                Solutia Inc.
                                P.O. Box 66760
                                St. Louis, MO 63166-6760
                                Telephone:  314-674-3586
                                Facsimile:  314-674-2721

         If to New Monsanto:    Terrell K. Crews
                                Executive Vice President and CFO
                                800 North Lindbergh Blvd.
                                St. Louis, Missouri 63167
                                Telephone:  314-694-3770
                                Facsimile:  314-694-4772

         with a copy to:        Charles W. Burson
                                Executive Vice President, Secretary and General
                                Counsel
                                800 North Lindbergh Blvd.
                                St. Louis, Missouri 63167
                                Telephone:  314-694-8418
                                Facsimile:  314-694-6399

         or to such other address as any party hereto may have
         furnished to the other parties by a notice in writing in
         accordance with this Section 10.05."

                  (f) Section 10.07 of the Distribution Agreement is hereby
amended by inserting the following sentence immediately after the first sentence
of Section 10.07:

                  "Notwithstanding the immediately preceding sentence,
                  (i) Pharmacia may assign this Agreement and any of
                  its rights, interests and obligations hereunder
                  without the consent of any other party hereto,
                  provided that Pharmacia shall continue to be


                                  5








         and remain primarily liable for all of its obligations under
         this Agreement, and (ii) New Monsanto may assign this
         Agreement and any of its rights, interests and obligations
         hereunder without the consent of any other party hereto to
         any Person who is a successor to New Monsanto (by way of
         merger, consolidation or otherwise) or who assumes all of New
         Monsanto's obligations under that certain Separation
         Agreement, dated September 1, 2000, by and between Pharmacia
         and New Monsanto in accordance with the terms thereof,
         provided that New Monsanto shall continue to be and remain
         primarily liable for all of its obligations under this
         Agreement."

         Section 3. Pharmacia agrees to execute and deliver to New Monsanto
contemporaneously herewith, the Power of Attorney attached hereto as Exhibit A
(the "Monsanto Power of Attorney").

         Section 4. New Monsanto hereby acknowledges and accepts the appointment
as Pharmacia's agent and attorney as provided in the Monsanto Power of Attorney
and agrees to undertake and perform in a commercially reasonable manner on
behalf of Pharmacia and in Pharmacia's name, place and stead, all of Pharmacia's
commitments, duties, liabilities and obligations under the Distribution
Agreement and to use its commercially reasonable efforts to fully enforce all of
Pharmacia's rights, interests and remedies under the Distribution Agreement, in
each case with the same duty of care and prudence that its applies to the
management of New Monsanto's own affairs, in accordance with the terms of this
Amendment and the Monsanto Power of Attorney.

         Section 5. Solutia hereby acknowledges and consents to Pharmacia's
appointment of New Monsanto as Pharmacia's agent and attorney as provided in the
Monsanto Power of Attorney for all purposes under the Distribution Agreement.
Notwithstanding the foregoing, Pharmacia shall continue to be and remain
primarily liable for all of its commitments, duties, liabilities and obligations
under the Distribution Agreement.

         Section 6. New Monsanto agrees to execute and deliver to Solutia
contemporaneously herewith, the Power of Attorney attached hereto as Exhibit B
(the "Solutia Power of Attorney").

         Section 7. Solutia hereby acknowledges and accepts the appointment as
New Monsanto's agent and attorney as provided in the Solutia Power of Attorney.

         Section 8. Provided that Pharmacia shall continue to be and remain
primarily liable for all of its obligations under the Assigned Agreements,
Solutia hereby consents and agrees to the assignment by any Person in the
Monsanto Group or any of their respective Subsidiaries (each, an "Assignor") to
New Monsanto of any and all contracts, leases, licenses, agreements or other
instruments by, between or among any Assignor and any Person in the Chemicals
Groups or any of their respective Subsidiaries (the "Assigned Agreements"),
excluding only those contracts, leases, licenses, agreements and other
instruments set forth in Exhibit C attached hereto. In addition, Solutia hereby
consents and agrees to the further



                                      6








assignment (and any subsequent assignment) of any Assigned Agreement to each and
every subsequent New Monsanto Successor (as defined below), provided that New
Monsanto and Pharmacia shall continue to be and remain primarily liable for all
of its obligations under the Assigned Agreements. Furthermore, to the extent
that any Assigned Agreement contains any provision requiring the consent or
approval of Solutia to any change of control or ownership of the other party to
the Assigned Agreement (or such party's successor or assign), Solutia hereby
irrevocably grants such consent or approval for any such change of control or
ownership, including in connection with the Possible Disposition or otherwise.
For purposes of this Amendment, "New Monsanto Successor" means any Person who is
a successor to New Monsanto (by way of merger, consolidation or otherwise) or
who assumes all of New Monsanto's obligations under the Separation Agreement.
Pharmacia and New Monsanto each hereby consents and agrees to the assignment
(and any subsequent assignment) of any Assigned Agreement by Solutia to any
Person who is a successor to Solutia (by way of merger, consolidation or
otherwise) or who assumes all of Solutia's obligations under the Distribution
Agreement, as amended by this Amendment to Distribution Agreement, provided that
Solutia shall continue to be and remain primarily liable for all of its
obligations under the Assigned Agreements.

         Section 9. Nothing in the Distribution Agreement, as amended by this
Amendment, and no action taken by the parties pursuant to the Distribution
Agreement, as amended by this Amendment, shall constitute, or be deemed to
constitute, any of the parties to be a partnership, association, joint venture
or other co-operative entity.

         Section 10. Except as expressly modified and amended hereby, the
Distribution Agreement shall continue to be and shall remain in full force and
effect in accordance with its terms.

         Section 11. Except as otherwise agreed to by any parties hereto, each
party hereto will pay all costs and expenses incident to its negotiation and
preparation of this Amendment, including the fees, expenses and disbursement of
its counsel.

         Section 12. This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware (other than the laws regarding
choice of laws and conflicts of laws) as to all matters, including matters of
validity, construction, effect, performance and remedies.

         Section 13. This Amendment may be amended, modified or supplemented
only by a written agreement signed by all of the parties hereto.

         Section 14. This Amendment and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their successors
and permitted assigns. Pharmacia may assign this Amendment and any of its
rights, interests and obligations hereunder without the consent of any other
party hereto, provided that Pharmacia shall continue to be and remain primarily
liable for all of its obligations under this Amendment. New Monsanto may assign
this Amendment and any of its rights, interests and obligations hereunder
without the consent of any other party hereto to any New Monsanto Successor;
provided, however, that any such successor or assignee shall be required to
execute and deliver a power of attorney


                                       7








substantially identical to the Monsanto Power of Attorney or Solutia Power of
Attorney, as the case may be, and; provided further, that New Monsanto and
Pharmacia shall continue to be and remain primarily liable for all of its
obligations under this Amendment. Solutia may assign this Amendment and any of
its rights, interests and obligations hereunder without the consent of any other
party hereto, provided that Solutia shall continue to be and remain primarily
liable for all of its obligations under this Amendment.

         Section 15. Each of the parties hereto agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by and the intent and purposes of
this Amendment, including, without limitation, the provisions of Section 7 and
Section 13.

         Section 16. This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

         Section 17. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. Each party acknowledges that money damages would be an
inadequate remedy for any breach of the provisions of this Amendment and agrees
that the obligations of the parties hereunder shall be specifically enforceable.

                          [SIGNATURE PAGE IS NEXT PAGE]


                                       8







         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.



                                                PHARMACIA CORPORATION,
                                                a Delaware corporation


                                                By:    //  Richard T. Collier
                                                    ----------------------------
                                                    Name:  Richard T. Collier
                                                    Title: Senior Vice President
                                                           and General counsel



                                      SOLUTIA INC.,
                                      a Delaware corporation


                                      By:     // Robert Clausen
                                           ----------------------------
                                           Name:  Robert Clausen
                                           Title: CFO, SVP & Advisory Director



                                           MONSANTO COMPANY,
                                           a Delaware corporation


                                           By:    // Hendrik A. Verfaillie
                                               ----------------------------
                                               Name:  Hendrik A. Verfaillie
                                               Title: Chairman and CEO


                                       9








                                    EXHIBIT A

                              PHARMACIA CORPORATION


                    POWER OF ATTORNEY: DISTRIBUTION AGREEMENT



KNOW ALL MEN BY THESE PRESENTS:

         1. Subject to paragraph 7 below:

         a. That Pharmacia Corporation, a corporation organized and existing
under the laws of the State of Delaware ("Pharmacia"), has made, constituted and
appointed and by these presents does make, constitute and appoint, Monsanto
Company, a corporation organized and existing under the laws of the State of
Delaware ("New Monsanto"), its true and lawful agent and attorney, for Pharmacia
and in Pharmacia's name, place and stead, for all purposes with respect to
Pharmacia's rights, duties and obligations under the Distribution Agreement,
dated as of September 1, 1997, between Pharmacia and Solutia Inc., as amended by
that Amendment to Distribution Agreement of even date herewith among Pharmacia,
Solutia and New Monsanto (collectively, the "Distribution Agreement"); and its
attorney shall have full power and authorization to take all action with respect
to the Distribution Agreement as Pharmacia can take and which said attorney,
acting through its officers or their delegates, who in each case, acting alone,
in his or her sole discretion, think best; hereby giving and granting to
Pharmacia's said attorney full power and authority to do and perform all and
every act and thing whatsoever necessary to be done in the premises as fully to
all intents and purposes as Pharmacia might or could do, hereby ratifying and
confirming all that its said attorney may do pursuant to this power.

         b. Pharmacia hereby gives and grants to its said attorney from and
after the date hereof, full power and authority to do and perform all and every
act and thing whatsoever necessary to be done in the premises, in order fully to
carry out and effectuate the authority herein granted, as fully to all intents
and purposes as Pharmacia might or could do if acting through its own officers
or delegates, and Pharmacia hereby ratifies and confirms all that its said
attorney may do pursuant to this power.

         c. Pharmacia hereby acknowledges that this power is coupled with an
interest and hereby directs that, to the extent authorized or permitted by
applicable law, this power of attorney shall not be affected by any merger,
reverse merger, consolidation or Possible Disposition or other change in
ownership of Pharmacia or New Monsanto. It is Pharmacia's intent that the
authority conferred hereby shall be exercisable notwithstanding such corporate
changes and that this power of attorney shall, if permitted by applicable law or
applicable contract, be irrevocable. In the event applicable law in effect at or
any time after the execution of this instrument does not authorize or permit the
foregoing direction to be effective, and if at







any later date, applicable law changes (whether by amendment, court decision, or
otherwise), then Pharmacia directs that the foregoing provisions shall
thereafter become applicable.

         2. Notwithstanding paragraph 6 below, all persons dealing with
Pharmacia's said attorney shall be protected in relying upon a copy of this
instrument and shall be protected in relying upon the written certificate of New
Monsanto as to the identity and authority of its officers and their delegates,
and/or as to whether any of the persons authorized to act hereunder is
unavailable so to act, so as to authorize some other person to act hereunder,
and Pharmacia hereby declares that as against it and all persons claiming under
it everything which its attorney shall do or cause to be done pursuant hereto
shall be valid and effectual in favor of any person claiming the benefit hereof
who at the time of the doing thereof shall have relied upon any such
certification made by New Monsanto. If required by applicable law or if New
Monsanto desires for any reason to do so, an executed copy of this Power of
Attorney shall be filed for record with any Governmental Authority or such other
place as required by law or where New Monsanto thinks best. Pharmacia authorizes
New Monsanto to make all such filings.

         3. Pharmacia hereby further authorizes and empowers its said attorney
to substitute and appoint in the place and stead of its said attorney, or to
employ agents or sub-agents as New Monsanto thinks best, one or more attorney or
attorneys to exercise for Pharmacia as its attorney or attorneys any and all of
the powers and authorities hereby conferred; and to revoke such appointment or
appointments from time to time, and to substitute or appoint any other or others
in the place of such attorney or attorneys as New Monsanto shall from time to
time think fit.

         4. All references in this document to "its attorney" or "its said
attorney" or "its true and lawful attorney," or similar designations shall refer
to New Monsanto and each and every person to whom New Monsanto delegates such
power and also to each and every substitute or successor attorney-in-fact
appointed under the terms of this instrument as herein provided.

         5. All references in this document to "its attorney" or "its said
attorney" or "its true and lawful attorney," or similar designations shall refer
not only to New Monsanto or its delegates but also to each and every substitute
or successor attorney-in-fact appointed under the terms of this instrument as
herein provided.

         6. All references in this document to "Governmental Authority" shall
mean any federal, state, local, foreign or international court, government
department, commission, board, bureau, agency, the New York Stock Exchange, or
other regulatory, administrative or governmental authority.

         7. Notwithstanding the appointment by Pharmacia of New Monsanto as
Pharmacia's agent and attorney as provided in paragraph 1 above, Pharmacia and
its said attorney agree as follows:

         a. Said attorney shall not take any action, or omit to take any action,
pursuant to this instrument with respect to Pharmacia's rights, duties or
obligations under Sections


                                       2







4.03(a), 5.01(d), 5.01(e), 5.04, 5.05 or 5.10 or Article IX of the Distribution
Agreement (the "Reserved Provisions"), except pursuant to the prior written
instructions of Pharmacia.

         b. In the event that said attorney believes that it is necessary,
desirable or advisable that Pharmacia take any action under any of the Reserved
Provisions, said attorney will notify Pharmacia thereof; provided, however, that
said attorney shall have no responsibility or liability for any failure to give
any such notice to Pharmacia.

         c. Pharmacia shall provide said attorney with such written instructions
as soon as reasonably practicable and said attorney shall have no responsibility
or liability (i) for not acting on behalf of Pharmacia unless and until so
instructed by Pharmacia and (ii) for acting on behalf of Pharmacia in accordance
with such written instructions.

         d. Pharmacia shall have the right, in its sole discretion, to revoke
this Power of Attorney, by delivering written notice to New Monsanto upon any
breach by New Monsanto of its commitments, duties or obligations under any of
(i) this Power of Attorney, (ii) the Distribution Agreement, as amended by the
Amendment to the Distribution Agreement, or (iii) the Separation Agreement, as
amended from time to time.

         8. This instrument may be executed in any number of counterparts, and
all of said counterparts shall constitute but one and the same instrument.

         IN WITNESS WHEREOF, I have hereunto set my hand and seal this 11th day
of July, 2002.

                                                PHARMACIA CORPORATION


                                                // Richard T. Collier
                                                --------------------------------
                                                By:    Richard T. Collier
                                                Title: Senior Vice President and
                                                       General Counsel



ATTEST:


 // Judith A. Reinsdorf
 --------------------------


                                       3







STATE OF NEW JERSEY  )
                     )
COUNTY OF SOMERSET   )


         On this 1st day of July, 2002, before me the undersigned, a Notary
Public, in and for the County and State aforesaid, personally appeared Richard
T. Collier, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he/she executed the same as his/her
free act and deed.

         IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal in Peapack, NJ, the day and year last above written.


                                     // Carol M. Murphy
                                  ----------------------------------------------
                                  Notary Public in and for said County and State


My Commission expires:


March 4, 2003
- ----------------------

                                       4






                                    EXHIBIT B

                                MONSANTO COMPANY
                      POWER OF ATTORNEY: LITIGATION/CLAIMS




KNOW ALL MEN BY THESE PRESENTS:

         That from and after the date hereof ("Effective Date"), Monsanto
Company, a corporation organized and existing under the laws of the State of
Delaware ("New Monsanto") has made, constituted and appointed, and by these
presents does make, constitute and appoint, Solutia Inc., a corporation
organized and existing under the laws of the State of Delaware ("Solutia"), its
true and lawful agent and attorney, for New Monsanto and in New Monsanto's name,
place and stead, for all purposes with respect to Third Party Claims as to which
Solutia has agreed to indemnify New Monsanto, and such claims against Third
Parties which continue to be held by New Monsanto in trust for Solutia, such
Third Party Claims and claims against Third Parties being collectively referred
to herein as "Claims"; and its attorney shall have full power and authorization
to take all action with respect to such Claims as New Monsanto can take and
which said attorney, acting through its officers or their delegates, who in each
case, acting alone, in his or her sole discretion, think best, including without
limitation, (i) to represent New Monsanto with respect to such Claims for so
long as such Claims are unresolved; (ii) to appear in New Monsanto's name and to
execute, deliver and file all pleadings, motions and other filings, at trial, on
appeal, or in a proceeding, through counsel retained by Solutia or by officers
of Solutia or their delegates, acting alone, or otherwise; (iii) to assert or
waive any or all rights with respect to such Claims; (iv) to engage in all
phases of discovery with respect to such Claims, including without limitation,
to take depositions, defend depositions and propound or respond to other
discover requests, such as interrogatories or requests for production of
documents; (v) to direct and accept service of process with respect to such
claims; (vi) to execute and deliver affidavits as may be necessary or desirable
with respect to such Claims; (vii) to agree to and to represent New Monsanto in
alternative resolution proceedings, including arbitration or mediation of
Claims; (viii) to discuss or negotiate settlement agreements and releases with
Third Parties with respect to such Claims on such terms and conditions as
Solutia thinks best; (ix) to execute, deliver and if needed, file any and all
settlement agreements, releases and other agreements, documents and instruments
as may be required and any and all modifications thereto; and (x) to obtain and
post bonds pending appeal; hereby giving and granting to New Monsanto's said
attorney full power and authority to do and perform all and every act and thing
whatsoever necessary to be done in the premises as fully to all intents and
purposes as New Monsanto might or could do, hereby ratifying and confirming all
that its said attorney may do pursuant to this power.

         New Monsanto hereby gives and grants to its said attorney from and
after the Effective Date, full power and authority to do and perform all and
every act and thing whatsoever necessary to be done in the premises, in order
fully to carry out and effectuate the authority herein granted, as fully to all
intents and purposes as New Monsanto might or could do if acting through its own
officers or delegates, and New Monsanto hereby ratifies and confirms all that
its said attorney may be pursuant to this power.









         New Monsanto hereby further authorizes and empowers its said attorney
from and after Effective Date to substitute and appoint in the place and stead
of its said attorney, or to employ agents or sub-agents as Solutia thinks best,
one or more attorney or attorneys to exercise for New Monsanto as its attorney
or attorneys any or all of the powers and authorities hereby conferred; and to
revoke such appointment or appointments from time to time, and to substitute or
appoint any other or others in the place of such attorney or attorneys as
Solutia shall from time to time think fit.

         The term "Governmental Authority" when used herein means any federal,
state, local, foreign or international court, government department, commission,
board, bureau, agency, the New York Stock Exchange, or other regulatory,
administrative or governmental authority.

         The term "Third Party" when used hereby means any individual,
partnership, joint venture, corporation, trust, limited liability company,
unincorporated organization or a Governmental Authority or any department or
agency thereof other than New Monsanto or Solutia and their respective
wholly-owned direct or indirect subsidiaries.

         The term "Third Party Claims" when used herein means any claim, suit,
arbitration, inquiry, proceeding or investigation by or before any court, any
governmental or other regulatory or administrative agency or commission or any
arbitration tribunal asserted by a Third Party.

         All references in this document to "its attorney" or "its said
attorney" or "its true and lawful attorney," or similar designations shall refer
to Solutia Inc. and each and every person to whom Solutia delegates such power
and also to each and every substitute or successor attorney-in-fact appointed
under the terms of this instrument as herein provided.

         All references in this documents to "its attorney" or "its said
attorney" or "its true and lawful attorney," or similar designations shall refer
not only to Solutia or its delegates but also to each and every substitute or
successor attorney-in-fact appointed under the terms of this instrument as
herein provided.

         New Monsanto hereby acknowledges that this power is coupled with an
interest and hereby directs that, to the extent authorized or permitted by
applicable law, this power or attorney shall not be affected by any merger,
reverse merger, split off, spin or consolidation of New Monsanto or Solutia. It
is New Monsanto's intent that the authority conferred hereby shall be
exercisable notwithstanding such corporate changes and that this power of
attorney shall, if permitted by applicable law or applicable contract, be
irrevocable. New Monsanto shall have the right, in its sole discretion, to
revoke this Power of Attorney, by delivering written notice to Solutia upon any
breach by Solutia of its commitments, duties or obligations under either (i)
this Power of Attorney or (ii) the Distribution Agreement, as amended by the
Amendment to the Distribution Agreement. In the event applicable law in effect
at or any time after the execution of this instrument does not authorize or
permit the foregoing direction to be effective, and if at any later date,
applicable law changes (whether by amendment, court decision, or otherwise),
then New Monsanto directs that the foregoing provisions shall thereafter become
applicable.


                                       2







         All persons dealing with New Monsanto's said attorney shall be
protected in relying upon a copy of this instrument and shall be protected in
relying upon the written certificate of Solutia as to the Claims which are the
subject of this power of attorney, the identity and authority of its officers,
their delegates and any substitute or successor appointed pursuant to the terms
hereof, and/or as to whether any of the persons authorized to act hereunder is
unavailable so to act, so as to authorize some other person to act hereunder,
and New Monsanto hereby declares that as against it and all persons claiming
under it everything which its attorney shall do or cause to be done pursuant
hereto shall be valid and effectual in favor of any person claiming the benefit
hereof who at the time of the doing thereof shall have relied upon any such
certification made by Solutia. If required by applicable law or if Solutia
desires for any reason to do so, an executed copy of this Power of Attorney
shall be filed for record with the Governmental Authority wherein the Claim is
pending or such other place as required by law or whether Solutia thinks best.
New Monsanto authorizes Solutia to make all such filings.

         This instrument may be executed in any number of counterparts, and all
of said counterparts shall constitute but one and the same instrument.

         IN WITNESS WHEREOF, I have hereunto set my hand and seal as of this
11th day of July, 2002.


                                                MONSANTO COMPANY


                                                // Hendrik A. Verfaillie
                                                -------------------------


                                                Hendrik A. Verfaillie
                                                Title: Chairman and CEO


ATTEST:


//
- -------------


                                       3








STATE OF MISSOURI      )
                       )
COUNTY OF ST. LOUIS    )

         On this 11th day of July, 2002, before me the undersigned, a Notary
Public, in and for the County and State aforesaid, personally appeared Hendrik
A. Verfaillie, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he/she executed the same as his/her
free act and deed.


         IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal in St. Louis, the day and year last above written.


                                  Mary Clare Bick
                                  ----------------------------------------------
                                  Notary Public in and for said County and State

My Commission Expires:

September 15, 2005


                                       4








                                    EXHIBIT C

                               EXCLUDED AGREEMENTS


1.  Tax Sharing and Indemnification Agreement by and between Monsanto Company
    and Solutia dated as of September 1, 1997.

EX-10

                                                                  Exhibit 10(2)


                                AMENDMENT TO THE
                       EMPLOYEE BENEFITS AND COMPENSATION
                              ALLOCATION AGREEMENT



         AMENDMENT TO THE EMPLOYEE BENEFITS AND COMPENSATION ALLOCATION
AGREEMENT, dated as of September 1, 2000, by and between Pharmacia Corporation,
a Delaware corporation ("Pharmacia"), and Monsanto Company, a newly formed
Delaware corporation ("AgCo"). All capitalized words not otherwise defined
herein shall have the meaning attached to each such term pursuant to the
Employee Benefits and Compensation Allocation Agreement.

                              W I T N E S S E T H:

         WHEREAS, AgCo and Pharmacia have entered into an Employee Benefits and
Compensation Allocation Agreement, dated as of September 1, 2000 (the
"Allocation Agreement"); and

         WHEREAS, AgCo and Pharmacia desire to amend the Allocation Agreement as
provided in Section 5.8 thereof;

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:

         1. Section 2.1(b) of the Allocation Agreement is amended to read as
follows:

            "(b) "Pharmacia Cash Balance Pension Plan.

         (i) As of January 1, 2002 (the "Pension Transfer Date") Pharmacia shall
establish a cash balance defined benefit pension plan designed to be a qualified
plan under Section 401(a) of the Code (the "Pharmacia Cash Balance Pension
Plan") to provide benefits to Pharmacia Employees, and to accept the transfer of
assets and assumption of Liabilities provided for in Section 2.1(b)(ii).
Initially, the Pharmacia Cash Balance Pension Plan shall be identical in all
material respects to the Monsanto Pension Plan (excluding the DEKALB frozen
benefits structure), subject to such changes as Pharmacia may determine to be
necessary or appropriate to comply with the requirements of qualification under
Section 401(a) of the Code. Pharmacia shall seek an opinion of counsel to
Pharmacia that the Pharmacia Cash Balance Pension Plan and Trust comply, in
form, with the requirements of Section 401(a) and 501(a) of the Code, subject to
receipt of an Internal Revenue Service determination letter stating that it so
qualifies ("IRS Determination Letter"), and a representation from Pharmacia that
(A) the Pharmacia Cash Balance Pension Plan will be submitted for an IRS
Determination Letter and (B) Pharmacia will make all necessary amendments to
such Plan and Trust Agreement in order to obtain such letter and will make all
required filings and submissions to appropriate Governmental Authorities as









soon as practicable (but in no event later than twelve months) after the
Pension Transfer Date. The Pharmacia Employees shall cease to accrue benefits
under the Monsanto Pension Plan and shall begin to accrue benefits under the
Pharmacia Cash Balance Pension Plan on the Pension Transfer Date.

         (ii) Except as specifically set forth in Section 2.1(b)(iii) and
Article IV, subject to the completion of the asset transfer described in the
next sentence, and effective as of the Pension Transfer Date: (A) the Monsanto
Pension Plan shall transfer to the Pharmacia Cash Balance Pension Plan, and the
Pharmacia Cash Balance Pension Plan and the members of the Pharmacia Group shall
assume and be responsible for, all Liabilities of the Monsanto Pension Plan with
respect to benefits accrued by Pharmacia Participants through the Pension
Transfer Date; (B) Pharmacia shall transfer the sponsorship of the Monsanto
Pension Plan to the members of the AgCo Group and the members of the AgCo Group
shall assume and be responsible for all Liabilities of the Monsanto Pension Plan
other than Liabilities transferred to the Pharmacia Cash Balance Pension Plan in
accordance with Paragraph (A); (C) the members of the Pharmacia Group shall have
no further responsibility for the Liabilities described in Paragraph (B); and
(D) the members of the AgCo Group shall have no further responsibility for the
Liabilities described in Paragraph (A). As soon as administratively feasible
after the Pension Transfer Date, there shall be transferred from the trust
funding the Monsanto Pension Plan to the trust designated to fund the Pharmacia
Cash Balance Pension Plan (which may have the same trustee as the former trust
and which may be part of a master trust with the former trust) assets thereof,
having a value, as of the Pension Transfer Date, equal to the Transfer Value,
but in no event less than the amount required to be transferred under Section
414(l) of the Code. The Investment Committee, or one or more "Independent
Fiduciaries" appointed by the Investment Committee, shall reasonably and
equitably determine the specific assets, or portions thereof, that will be
transferred pursuant to the preceding sentence. All other determinations
required to implement the foregoing transfer of assets shall be reasonably and
equitably made by the Enrolled Actuary in accordance with Schedule III hereto.
The Enrolled Actuary shall make an initial estimate of the Transfer Value in
advance of the Pension Transfer Date, and an initial transfer of assets equal to
such estimated Transfer Value shall be made on the Pension Transfer Date or as
soon as practicable thereafter. The final calculation of the Transfer Value
shall be completed as soon as practicable, and true-up transfer will be made
promptly following the expiration of the 30-day period provided for in Section
2.1(c) and, if applicable, the resolution of any disagreement pursuant to
Section 2.1(c). The true-up amount will include the pension fund's investment
gains or losses - from the Pension Transfer Date to the date of the transfer of
the true-up amount - on such true-up amount, as defined on Schedule III.

         (iii) Notwithstanding the foregoing, if Pharmacia determines that the
transfer of liabilities and assets in the manner provided in Section 2.1(b)(ii)
would violate any applicable requirements of the Code or ERISA, or could
reasonably be expected to result in the PBGC's taking action to terminate the
Monsanto Pension Plan, then Pharmacia and AgCo shall cooperate to implement such
transfer in a manner that reaches as close as possible to the same results
without any such violation."

         2. Section 6.1 of the Allocation Agreement is amended by adding thereto
the following definition:



                                       2






            "Pharmacia Cash Balance Pension Plan: defined in Section 2.1(b)(i)."

         3. Section 6.1 of the Allocation Agreement is amended by deleting the
following definition:

            "AgCo Pension Plan."

         4. Schedule III of the Allocation Agreement is amended in its entirety:

                                  SCHEDULE III

                          Computation of Transfer Value

The "Transfer Value" means the sum of the assets allocated to Categories 3,4,5
and 6 for Active Employees, Vested Terminated Employees and Retired Employees
and Beneficiaries who are Pharmacia Participants in the Monsanto Pension Plan on
the Pension Transfer Date, together with a pro rata portion of any excess
assets, based on the following assumptions and procedures:

                                   Assumptions

     Interest Rate - is the rate or rates, in effect for the month including the
     Pension Transfer Date, used by the PBGC - PBGC Regulation 4044 Appendix B -
     to determine the present values of annuities in the event of a plan
     termination

     Mortality Table - The mortality table described in PBGC Regulation 4044
     Appendix A, currently the 1983 GAM male table with a six year setback used
     for females

     Expected Retirement Age (XRA) for those not in payment status as of
     1/1/2002

          For those eligible for a lump sum, the XRA is determined by using
          the High Category table under PBGC Regulation 4044 Appendix D,
          assuming the earliest retirement age is the age on the Pension
          Transfer Date and the unreduced retirement age is age 65.

          For those not eligible for a lump sum, the XRA is determined by
          using the Medium Category table assuming the earliest retirement
          age is the greater of age 55 or the age on the Pension Transfer Date,
          and the unreduced retirement age is age 65

     Valuation Date is 1/1/2002 and is the date as of which the Category
     Liabilities defined below are determined


                  Benefit at XRA

To determine the benefit payable at the XRA for those with account balances, the
account balances as of 1/1/2002 will be projected to the XRA assuming no further
contributions and interest credits of

              8.5% annually to age 55 and 0.0% thereafter for the Prior Plan
              Account

              5.32% (the rate in effect for 2002) annually for the Cash Balance
              Account

                                       3







The projected balance at XRA is then converted to a life annuity using the
plan's conversion factors



         Category 3 Liabilities

     For those in pay status who had commenced on 1/1/1999 or earlier - the
     present value (using the above assumptions) of the actual benefit in
     payment status

     For those in pay status who commenced between 1/1/1999 and 1/1/2002 - the
     present value of the benefit that would have been in payment status had the
     employee commenced on 1/1/1999

     For those vested on 1/1/1999 who were eligible to begin payments on
     1/1/1999 - the present value of the benefit that would have been in payment
     status had the employee commenced on 1/1/1999, but assuming such benefit
     begins at the employee's XRA


         Category 4 Liabilities

     For those in pay status who commenced between 1/1/1999 and 1/1/2002 - the
     present value of the lesser of the actual benefit in payment status or the
     PBGC guaranteed benefit on 1/1/2002, less the Category 3 Liabilities

     For those vested as of 1/1/2002 but not in pay status - the present value
     of the lesser of (a) the benefit earned through 1/1/2002 and payable at XRA
     and (b) the PBGC guaranteed benefit at XRA, assuming such benefit is
     payable at the employee's XRA, less the Category 3 Liabilities


         Category 5 Liabilities

     For those in pay status who commenced between 1/1/1999 and 1/1/2002 - the
     present value of the actual benefit in payment status less the Category 3
     and Category 4 Liabilities

     For those vested as of 1/1/2002 but not in pay status - the present value
     of the actual benefit earned through 1/1/2002 assuming such benefit is
     payable at the employee's XRA, less the Category 3 and Category 4
     Liabilities


         Category 6 Liabilities

     For those not vested as of 1/1/2002 - the present value of the actual
     benefit earned through 1/1/2002 assuming such benefit is payable at the
     employee's XRA


                  Asset Allocation



                                       4






The assets of the Monsanto Pension Plan will be determined as of the Pension
Transfer Date and allocated between the Pharmacia Cash Balance Pension Plan and
the Monsanto Pension Plan as follows

     First to Category 3 Liabilities. If assets are not sufficient to cover all
     Category 3 Liabilities, such assets will be allocated in proportion to
     these liabilities.

     Second to Category 4 Liabilities. If such remaining assets are not
     sufficient to cover all Category 4 Liabilities, such remaining assets will
     be allocated in proportion to these liabilities.

     Third to Category 5 Liabilities. If such remaining assets are not
     sufficient to cover all Category 5 Liabilities, such remaining assets will
     be allocated in proportion to these liabilities.

     Fourth to Category 6 Liabilities. If such remaining assets are not
     sufficient to cover all Category 6 Liabilities, such remaining assets will
     be allocated in proportion to these liabilities.

If assets are sufficient to cover all liabilities in Categories 3 through 6, any
remaining assets will be allocated in proportion to the total of such
liabilities.

An initial allocation of assets and Transfer Value will be estimated in advance
of the Pension Transfer Date and the initial amount will be transferred on the
Pension Transfer Date or as soon as practicable thereafter. After receiving and
reviewing final data as of the Pension Transfer Date, a true-up amount will be
calculated. This true-up amount will be transferred as soon as practicable and
will include the pension fund's investment gains or losses-from the Pension
Transfer Date to the date of the transfer of the true-up amount-on such
true-up amount.

The intent of this process is to allocate assets in accordance with PBGC Section
4044 using PBGC assumptions at the Pension Transfer Date.


                                       5







         IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective duly authorized officers.





                                PHARMACIA CORPORATION



                                By:  //Richard T. Collier
                                    ---------------------
                                Name:  Richard T. Collier
                                Title: Senior Vice President and General
                                       Counsel



                                Date:  July 1, 2002



                                MONSANTO COMPANY



                                By: // Hendrik A. Verfaillie
                                    ------------------------
                                Name:  Hendrik A. Verfaillie
                                Title: Chairman and CEO
                                Date:  January 1, 2002

EX-10

                                                                   EXHIBIT 10(3)

                                 EXECUTION COPY



                               PROTOCOL AGREEMENT

         THIS PROTOCOL AGREEMENT, dated as of July 1, 2002 (this "Protocol
Agreement"), by and among Pharmacia Corporation, a Delaware corporation, Solutia
Inc., a Delaware corporation ("Solutia"), and Monsanto Company, a Delaware
corporation.

                              W I T N E S S E T H:

         WHEREAS, Former Monsanto (as defined below) and Solutia are parties to
that certain Distribution Agreement, dated as of September 1, 1997 (the
"Distribution Agreement"), which was entered into in connection with the
distribution of the common stock of Solutia to the stockholders of Former
Monsanto (the "Solutia Distribution");

         WHEREAS, pursuant to the Distribution Agreement, among other things,
Former Monsanto assigned and transferred the Chemical Assets (as defined in the
Distribution Agreement) to Solutia and Solutia assumed all of the Chemical
Liabilities (as defined in the Distribution Agreement) of Former Monsanto;

         WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
as of December 19, 1999 (the "Merger Agreement"), by and among the former
Monsanto Company (which is the Delaware corporation identified in the
introductory paragraph of this Protocol Agreement as "Pharmacia Corporation" and
which is referred to herein as either "Former Monsanto" or "Pharmacia," as the
context requires), MP Sub, Incorporated ("Merger Sub") and Pharmacia & Upjohn,
Inc. ("PNU"), the parties agreed that Merger Sub would be merged with and into
PNU with PNU surviving as a wholly owned subsidiary of Former Monsanto in the
merger (the "Merger");

         WHEREAS, on February 9, 2000, the new Monsanto Company (which is the
Delaware corporation identified in the introductory paragraph of this Protocol
Agreement as "Monsanto Company" and which is referred to herein as either "New
Monsanto" or "Monsanto") was incorporated as a wholly owned subsidiary of Former
Monsanto under the name "Monsanto Ag Company;"

         WHEREAS, on March 31, 2000, (i) the Merger was effective, (ii) Former
Monsanto changed its name from "Monsanto Company" to "Pharmacia Corporation,"
and (iii) New Monsanto changed its name from "Monsanto Ag Company" to "Monsanto
Company;"

         WHEREAS, on September 1, 2000, New Monsanto and Pharmacia entered into
certain agreements, including that certain Separation Agreement, dated as of
September 1, 2000 (the "Separation Agreement"), pursuant to which, among other
things, Pharmacia assigned and transferred certain assets related to its
chemicals and agricultural businesses and certain other assets to New Monsanto
and New Monsanto assumed certain liabilities relating thereto and all









liabilities that were assumed by Solutia or any of its subsidiaries in
connection with the Solutia Distribution to the extent that Solutia fails to
pay, perform or discharge such liabilities;

         WHEREAS, on or about October 23, 2000, New Monsanto completed an
initial public offering of its common stock in which New Monsanto sold
approximately 15% of its issued and outstanding shares of common stock to the
public;

         WHEREAS, Pharmacia currently owns approximately 84% of the issued and
outstanding shares of common stock of New Monsanto;

         WHEREAS, Pharmacia has announced its intention to distribute its entire
ownership interest in New Monsanto to the stockholders of Pharmacia or could
take some other action that will result in Pharmacia no longer controlling New
Monsanto (a "Possible Disposition"); and

         WHEREAS, simultaneously with the execution of this Protocol Agreement,
(i) the parties hereto entered into a certain Amendment to the Distribution
Agreement (the "Distribution Agreement Amendment") pursuant to which the
assignment from Pharmacia to New Monsanto of certain assets and liabilities
contemplated pursuant to the Separation Agreement (including the Distribution
Agreement) was effectuated and the relationship among the parties was preserved
as nearly as possible with the original intent and terms of the Distribution
Agreement and (ii) Pharmacia and New Monsanto entered into that certain First
Amendment to the Separation Agreement (the "Separation Agreement Amendment")
subject to New Monsanto obtaining approval thereof from the Special Committee of
its Board of Directors ("New Monsanto Special Committee");

         WHEREAS, pursuant to the Distribution Agreement, as amended by the
Distribution Agreement Amendment (the "Amended Distribution Agreement"), Solutia
agreed, among other things, to indemnify, defend and hold harmless the Monsanto
Group (as defined in the Amended Distribution Agreement) from and against all
Chemical Liabilities;

         WHEREAS, pursuant to its obligations under the Amended Distribution
Agreement, Solutia has agreed to and has been defending Pharmacia in connection
with Sabrina Abernathy, et al. v. Monsanto Company, et al., Case No. CV01832
(the "Litigation");

         WHEREAS, a jury verdict has been returned in the Litigation with
respect to the liability of Solutia and Pharmacia with respect to certain claims
at issue in the Litigation and proceedings have commenced to determine the
jury's verdict of damages on account of such liability;

         WHEREAS, pursuant to the Amended Distribution Agreement, Solutia is
obligated, among other things, to post a bond in the Litigation in order to stay
execution of any judgment against Solutia and/or Pharmacia pending appeal of any
judgment (each, an "Appeal");

         WHEREAS, Solutia has requested that Pharmacia commit to posting a bond
required to stay execution of any judgment in the Litigation pending an Appeal;


                                       2







         WHEREAS, Pharmacia is willing to use commercially reasonable efforts to
post a bond sufficient to stay the execution of any judgment against Pharmacia
and/or Solutia in the Litigation pending any Appeal, upon the terms and
conditions set forth herein.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:

         Section 1. Each capitalized term used in this Protocol Agreement and
not otherwise defined herein shall have the meaning ascribed thereto in the
Amended Distribution Agreement.

         Section 2. This Protocol Agreement is a written, signed amendment and
modification of (i) the Amended Distribution Agreement, in satisfaction of the
requirements of Section 10.06 of the Amended Distribution Agreement and (ii)
only in the event that it is approved by the Monsanto Special Committee as
contemplated in Section 7 below, the Amended Separation Agreement (as defined
below), in satisfaction of the requirements of Section 11.07 of the Amended
Separation Agreement.

         Section 3. In the event that Solutia does not, within 5 days of any
judgment, post a bond sufficient to stay the execution of any judgment rendered
in the Litigation pending any Appeal, Pharmacia shall post such bond, provided
that Pharmacia is able to obtain a bond upon commercially reasonable terms for a
company of Pharmacia's financial conditions and resources and provided further
that, as conditions precedent: (i) Solutia and New Monsanto each promptly and
fully perform all duties, fulfill all obligations and meet all requirements set
forth herein; and (ii) Solutia successfully completes the issuance and sale of
Senior Secured Notes (the "Senior Notes") contemplated in Solutia's Preliminary
Offering Memorandum dated June 18, 2002 ("POM"); and (iii) Solutia completes its
refinancing plan and the proceeds from the sale of the Senior Notes that will be
held in escrow by SOI Funding Corp. shall have been released to Solutia (other
than in connection with any redemption of the Senior Notes) as part of Solutia's
refinancing plan all upon such terms and conditions substantially as described
in the POM and in all material respects as described in the Final Offering
Memorandum relating to the Senior Notes.

         Section 4. Solutia shall provide immediate notice of (and in no event
more than three business days after) any judgment in the Litigation that may be
appealed or that may give rise to a right by a party to the Litigation to
enforce such judgment against Solutia, Pharmacia or any other person or to
execute such judgment against any asset of Solutia, Pharmacia or any other
person.

         Section 5. In the event Pharmacia posts a bond pursuant to Section 3
above, and subject to Section 7 below, the following shall apply:

                 (a) Solutia shall reimburse or pay directly, and in no event
later than thirty (30) days after receipt of an invoice or bill, Pharmacia's
and/or New Monsanto's Expenses (as defined hereinafter). "Expenses" means all of
Pharmacia's and/or new Monsanto's out-of-pocket expenses in connection with
obtaining any bond that are incurred no earlier than forty-five (45) days before
the bond is posted, including, without limitation: (i) the premium due on


                                       3







the bond and /or the fees charged by the provider of any bond; (ii) the fees and
expenses relating to any third-party credit enhancement related to the bond;
(iii) all costs and expenses of securing Pharmacia's and/or New Monsanto's
obligations with respect to the bond; and (iv) fees and expenses of financial
advisors and attorneys retained by Pharmacia or New Monsanto in connection with
the foregoing. To the extent Solutia does not reimburse or pay directly
Pharmacia's Expenses in accordance with this Section 5(a), New Monsanto shall
reimburse or pay directly Pharmacia's Expenses within thirty (30) days after the
written notice of Solutia's failure to reimburse or pay such expenses.

                 (b) (i) If, pursuant to Section 3 above, Pharmacia is able to
obtain a bond sufficient to stay the execution of any judgment rendered in the
Litigation pending an Appeal without providing or posting any collateral or
third-party credit enhancement ("Collateral"), then Solutia, New Monsanto and
Pharmacia shall have shared control over decisions to compromise or settle any
and all claims at issue, or arguably at issue, in any Appeal and/or the
Litigation. If under this provision Solutia, New Monsanto and Pharmacia are
unable to unanimously agree with respect to any decision concerning the
compromise or settlement of any claim at issue, or arguably at issue, in any
Appeal and/or the Litigation, then the agreement of any two of the three parties
hereto shall be binding upon all parties hereto. If, pursuant to Section 3
above, Pharmacia is unable to obtain a bond sufficient to stay the execution of
any judgment rendered in the Litigation pending an Appeal without providing
Collateral, then control over decisions to compromise or settle any and all
claims at issue, or arguably at issue, in any Appeal and/or the Litigation shall
be determined pursuant to Sections 5(b)(ii)-(iv) below.

                     (ii) If, pursuant to Section 3 above, Pharmacia is unable
to obtain a bond sufficient to stay the execution of any judgment rendered in
the Litigation pending an Appeal without providing Collateral, then Solutia
shall have the first option to provide all Collateral necessary to obtain the
bond as contemplated by Section 3 above. If Solutia exercises this option and
provides all Collateral necessary for Pharmacia to post the bond, then Solutia
shall have sole and exclusive right to compromise or settle on a commercially
reasonable basis all claims at issue, or arguably at issue, in any Appeal and/or
the Litigation and Solutia need not receive the consent or approval of Pharmacia
or New Monsanto to settle all of the claims at issue, or arguably at issue, in
any Appeal and/or the Litigation, provided that the settlement includes as a
term thereof the delivery by the claimant(s) or plaintiff(s) to Pharmacia of a
written release of Pharmacia, New Monsanto and Solutia from all liability in
respect to the Litigation once payment of the settlement and fulfillment of any
other obligations of the settlement have been effectuated. Solutia shall
nevertheless have a duty of prior consultation with New Monsanto and Pharmacia
concerning any settlement decision as set forth in Section 6 below.

                     (iii) If, pursuant to Section 3 above, Pharmacia is unable
to obtain a bond sufficient to stay the execution of any judgment rendered in
the Litigation pending an Appeal without providing Collateral and Solutia does
not exercise (or fails to exercise within five (5) business days after receiving
a written request from Pharmacia) its first option as set forth in Section
5(b)(ii) above, then New Monsanto shall have the second option to provide all
Collateral necessary to obtain the bond as contemplated by Section 3 above. If
New Monsanto exercises this option and provides all Collateral necessary for
Pharmacia to post the bond, then New Monsanto shall have sole and exclusive
right to compromise or settle on a commercially reasonable basis all claims at
issue, or arguably at issue, in any Appeal and/or the Litigation and


                                       4







New Monsanto need not receive the consent or approval of Pharmacia or Solutia to
settle all of the claims at issue, or arguably at issue, in any Appeal and/or
the Litigation, provided that the settlement includes as a term thereof the
delivery by the claimant(s) or plaintiff(s) to Pharmacia and Solutia of a
written release of Pharmacia, New Monsanto and Solutia from all liability in
respect to the Litigation once payment of the settlement and fulfillment of any
other obligations of the settlement have been effectuated. New Monsanto shall
nevertheless have a duty of prior consultation with Solutia and Pharmacia
concerning any settlement strategies or decision as set forth in Section 6
below.

                     (iv) If, pursuant to Section 3 above, Pharmacia is unable
to obtain a bond sufficient to stay the execution of any judgment rendered in
the Litigation pending an Appeal without providing Collateral and neither
Solutia nor Monsanto exercises (or if both fail to exercise their respective
options within five (5) business days after receiving a written request from
Pharmacia) its option as set forth in Section 5(b)(ii) and (iii) above, then
Pharmacia shall provide the Collateral necessary to obtain the bond as
contemplated by Section 3 above. In such case, Pharmacia shall have sole and
exclusive right to compromise or settle on a commercially reasonable basis any
and all claims at issue, or arguably at issue, in any Appeal and/or the
Litigation and need not receive the consent or approval of Solutia or New
Monsanto to settle all or some of the claims at issue, or arguably at issue, in
any Appeal and/or the Litigation, provided that the settlement includes as a
term thereof delivery by the claimant(s) or plaintiff(s) to Solutia and New
Monsanto of a written release of Pharmacia, New Monsanto and Solutia from all
liability in respect to the Litigation once payment of the settlement and
fulfillment of any other obligations of the settlement have been effectuated.
Pharmacia shall nevertheless have a duty or prior consultation with New Monsanto
and Solutia concerning any settlement strategies or decision.

                 (c) In the event that any claims at issue, or arguably at
issue, in any Appeal and/or the Litigation are settled, Solutia shall pay the
full settlement amount and perform any obligations of Solutia and/or Pharmacia
set forth in the settlement agreement. In the event that any claims at issue are
not settled and a final, non-appealable judgment is entered against Solutia
and/or Pharmacia, Solutia shall pay directly and otherwise fulfill all of
Solutia's and Pharmacia's obligations pursuant to such judgment. To the extent
that Solutia fails to promptly and fully meet its obligations with respect to
the payment of any judgment or settlement or with respect to other obligations
arising out of any settlement or judgment in any Appeal and/or the Litigation,
Solutia shall enter into a consent judgment in favor of Pharmacia and New
Monsanto against Solutia in the amount equal to the amount specified in the
judgment or settlement minus any amount paid by Solutia in satisfaction of the
judgment or settlement. To the extent that Solutia fails to promptly and fully
meet its obligations with respect to the payment of any judgment or settlement
or with respect to other obligations arising out of any settlement or judgment
in any Appeal and/or the Litigation, New Monsanto agrees to pay, perform or
discharge such liabilities and obligations when due and owing pursuant to the
terms of the Separation Agreement, as amended by the Separation Agreement
Amendment (the "Amended Separation Agreement"). To the extent that New Monsanto
fails to promptly and fully meet its obligations with respect to the payment of
any judgment or settlement when due and owing or with respect to other
obligations arising out of any settlement or judgment in any Appeal and/or the
Litigation, New Monsanto shall enter into a consent judgment in favor of
Pharmacia and against New Monsanto in the amount equal to the amount specified
in the judgment or settlement


                                       5








minus any aggregate amount paid by Solutia and new Monsanto in satisfaction of
the judgment or settlement.

                 (d) For purposes of any Appeal and settlement of any Appeal
only, to the extent the rights, duties, commitments and obligations set forth in
this Section 5 of the Protocol Agreement and the Power of Attorney attached
hereto as Exhibit A differ from or conflict with the rights, duties, commitments
and obligations of the parties as set forth in the Amended Distribution
Agreement or in the Amended Separation Agreement, or any power of attorney
granted in connection therewith, the rights, duties, commitments and obligations
in this Section 5 shall supercede and take precedent over the rights, duties,
commitments and obligations set forth in the Amended Distribution Agreement or
the Amended Separation Agreement, or any power of attorney granted in connection
therewith, as the case may be.

                 (e) In the event that Solutia files or is subject to any
voluntary or involuntary bankruptcy proceeding, Solutia's rights hereunder and
Solutia's right to defend Pharmacia with respect to any Appeal and/or the
Litigation and the power of attorney with respect thereto attached hereto as
Exhibit A are automatically and immediately revoked. The parties further agree
that consent from relief from any automatic stay under section 362 of the Untied
States Bankruptcy Code is not necessary, but that should a court rule otherwise,
Solutia hereby consents to the entry of an order granting relief from the stay
in order to effectuate this paragraph and agrees to provide all necessary
cooperation. The parties further agree that the Power of Attorney with respect
to any Appeal and/or the Litigation shall be immediately revoked.

         Section 6. The power of attorney attached as Exhibit 4.03(e) to the
Amended Distribution Agreement is hereby revoked and is of no further force or
effect and is replaced by the power of attorney attached hereto as Exhibit A,
which shall be executed by Pharmacia. Pursuant to the power of attorney attached
hereto as Exhibit A, the prosecution of any Appeal and continued defense of the
Litigation shall be managed by Solutia at Solutia's expense. Solutia shall
report to New Monsanto and Pharmacia all material developments concerning the
Litigation and any Appeal and shall provide all information and documents
reasonably requested by either New Monsanto or Pharmacia. At their expense, New
Monsanto and Pharmacia may associate with and advise Solutia in the prosecution
of any Appeal and continued defense of the Litigation and Solutia shall allow
Pharmacia and New Monsanto to consult with and advise Solutia in connection with
any decision or strategy in any Appeal and the Litigation. Solutia shall also
fully inform Pharmacia and New Monsanto on an immediate basis and in writing of
any settlement discussions regarding the Litigation and/or any Appeal and shall,
subject to Section 5(b) above, consult fully with Pharmacia and New Monsanto
concerning any settlement strategies or decision.

         Section 7. Solutia, Pharmacia and New Monsanto acknowledge and agree
that this Protocol Agreement shall not be enforceable as to New Monsanto until
the earlier of July 11, 2002 or the date upon which the New Monsanto Special
Committee approves of the provisions of this Protocol Agreement and authorizes
New Monsanto's execution of this Protocol Agreement. In the event that the New
Monsanto Special Committee does not approve the provisions of, and does not
authorize New Monsanto's execution of, this Protocol Agreement on or before July
11, 2002, then Solutia, Pharmacia and New Monsanto agree that New Monsanto


                                       6







will no longer be deemed to be a party under this Protocol Agreement and will
have no rights or obligations hereunder, except that New Monsanto shall
nevertheless retain the rights and obligations set forth in Section 5(b)(i)
above. Furthermore, in said event, Solutia and Pharmacia agree that, except with
respect to Section 5(b)(i) above: (i) all references to New Monsanto in this
Protocol Agreement (as well as any related text) shall be deemed deleted; (ii)
Sections 5(b)(iii), 9 and 12 of this Protocol Agreement shall be deemed to be
deleted in its entirety; (iv) Section 10 of this Protocol Agreement shall be
deemed amended by deleting everything after the text that reads "including,
without limitation, Article IV thereof".

         Section 8. Other than as provided herein, neither Pharmacia, New
Monsanto nor Solutia has waived or compromised any of their respective rights
under the Amended Distribution Agreement. In addition, the running of any
limitations on the time for either Pharmacia, New Monsanto or Solutia to assert
any claims related to the Litigation under the Amended Distribution Agreement is
tolled until 120 days after final resolution of any Appeal.

         Section 9. Other than as provided herein, neither Pharmacia nor New
Monsanto has waived or compromised any of their respective rights under the
Amended Separation Agreement. In addition, the running of any limitations on the
time for either Pharmacia or New Monsanto to assert any claims related to the
Litigation under the Amended Separation Agreement is tolled until 120 days after
final resolution of any Appeal.

         Section 10. Nothing herein is intended to nor shall be construed to
waive or limit any of the commitments and obligations of Solutia to Pharmacia,
New Monsanto or the Monsanto Group (and each of their Representatives and
Affiliates) set forth in the Amended Distribution Agreement including, without
limitation, Article IV thereof, or to waive or limit any commitments and
obligations of New Monsanto to Pharmacia or the Pharmacia Group (and each of
their Representatives and Affiliates) set forth in the Amended Separation
Agreement including, without limitation, Article III thereof.

         Section 11. Provided that Solutia promptly and fully complies with, as
conditions precedent, the commitments, obligations and duties set forth above,
Pharmacia and New Monsanto each agree that Solutia's failure to post a bond
pending an Appeal does not constitute a breach of Solutia's commitments and
obligations to Pharmacia or New Monsanto under the Amended Distribution
Agreement.

         Section 12. Provided that New Monsanto promptly and fully complies
with, as conditions precedent, the commitments, obligations and duties set forth
above, Pharmacia agrees that New Monsanto's failure to post a bond pending an
Appeal does not constitute a breach of New Monsanto's commitments and
obligations to Pharmacia under the Amended Separation Agreement.

         Section 13. Except as otherwise agreed between New Monsanto and
Pharmacia, each party hereto will pay its own costs and expenses incident to its
negotiation and preparation of this Protocol Agreement, including the fees,
expenses and disbursement of its counsel.


                                       7








         Section 14. This Protocol Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware (other than the laws
regarding choice of laws and conflicts of laws) as to all matters, including
matters of validity, construction, effect, performance and remedies.

         Section 15. This Protocol Agreement may be amended, modified or
supplemented only by a written agreement signed by all of the parties hereto.

         Section 16. This Protocol Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
successors, but neither this Protocol Agreement nor any of the rights, interests
and obligations hereunder shall be assigned by any party hereto.

         Section 17. This Protocol Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         Section 18. Any provision of this Protocol Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Each party acknowledges
that money damages would be an inadequate remedy for any breach of the
provisions of this Protocol Agreement and agrees that the obligations of the
parties hereunder shall be specifically enforceable.



                          [SIGNATURE PAGE IS NEXT PAGE]


                                       8









         IN WITNESS WHEREOF, the parties hereto have caused this Protocol
Agreement to be duly executed as of the date first above written.



                                             PHARMACIA CORPORATION,
                                             a Delaware corporation


                                             By: // Richard T. Collier
                                                 -------------------------------
                                                 Name:  Richard T. Collier
                                                 Title: Senior Vice President
                                                        and General Counsel



                                             MONSANTO COMPANY,
                                             a Delaware corporation


                                             By: // Hendrik A. Verfaillie
                                                 -------------------------------
                                                 Name:  Hendrik A. Verfaillie
                                                 Title: Chairman and CEO



                                             SOLUTIA INC.,
                                             a Delaware corporation


                                             By: // Robert Clausen
                                                --------------------------------
                                                Name:  Robert Clausen
                                                Title: CFO, SVP and Advisory
                                                       Director



                                       9








                                 EXECUTION COPY

                                    EXHIBIT A


                                     FORM OF
                          POWER OF ATTORNEY: LITIGATION



KNOW ALL MEN BY THESE PRESENTS:

                  That Pharmacia Corporation, a corporation organized and
existing under the laws of the State of Delaware or the applicable member of the
Monsanto Group ("Pharmacia") has made, constituted and appointed and by these
presents does make, constitute and appoint, Solutia Inc., a corporation
organized and existing under the laws of the State of Delaware or the applicable
member of the Chemicals Group ("Solutia") its true and lawful agent and
attorney, for Pharmacia and in Pharmacia's name, place and stead, for all
purposed with respect to Third Party Claims as to which Solutia has agreed to
indemnify Pharmacia, and such claims against Third parties which continue to be
held by Pharmacia in trust for Solutia, such Third Party Claims and claims
against Third Parties being collectively referred to herein as "Claims"; and its
attorney shall have, subject to the provisions of the Protocol Agreement, dated
July 1, 2002 (the "Protocol Agreement"), to which this power of attorney is
entered, full power and authorization to take all action with respect to such
Claims as Pharmacia can take and which said attorney, acting through its
officers or their delegates, who in each case, acting alone, in his or her sole
discretion, think best, including without limitation, (i) to represent Pharmacia
with respect to such Claims for so long as such Claims are unresolved; (ii) to
appear in Pharmacia's name and to execute, deliver and file all pleadings,
motions and other filings, at trial, on appeal, or in a proceeding, through
counsel retained by Solutia or by officers of Solutia or their delegates, acting
alone, or otherwise; (iii) to assert or waive any or all rights with respect to
such Claims; (iv) to engage in all phases of discovery with respect to such
Claims, including without limitation, to take depositions, defend depositions
and propound or respond to other discovery requests, such as interrogatories or
requests for production of documents; (iv) to direct and accept service of
process with respect to such Claims; (v) to execute and deliver affidavits as
may be necessary or desirable with respect to such Claims; (vi) to agree to and
to represent Pharmacia in alternative resolution proceedings, including
arbitration or mediation of Claims; (viii) to discuss or negotiate settlement
agreements and releases with Third Parties with respect to such Claims on such
terms and conditions as Solutia thinks best; (ix) to execute, deliver and, if
needed, file any and all settlement agreements, releases and other agreements,
documents and instruments as may be required and any and all modifications
thereof; and (x) to obtain and post bonds pending appeal; hereby giving and
granting to Pharmacia's said attorney full power and authority to do and perform
all and every act and thing whatsoever necessary to be done in the premises as
fully to all intents and purposes as Pharmacia might or could do, hereby
ratifying and confirming all that its said attorney may do pursuant to this
power.

                  Pharmacia hereby gives and grants to its said attorney full
power and authority to do and perform all and every act and thing whatsoever
necessary to be done in the premises, in








order fully to carry out and effectuate the authority herein granted, as fully
to all intents and purposes as Pharmacia might or could do if acting through its
own officers or delegates, and Pharmacia hereby ratifies and confirms all that
its said attorney may do pursuant to this power.

         Pharmacia hereby further authorizes and empowers its said attorney to
substitute and appoint in the place and stead of its said attorney, or to employ
agents or sub-agents as Solutia thinks best, one or more attorney or attorneys
to exercise for Pharmacia as its attorney or attorneys any and all of the powers
and authorities hereby conferred; and to revoke such appointment or appointments
from time to time, and to substitute or appoint any other or others in the place
of such attorney or attorneys as Solutia shall from time to time think fit.

         Unless specifically defined herein, capitalized terms shall have the
meaning defined in the Distribution Agreement, as amended.

         The term "Distribution Date" when used herein means September 1, 1997.

         The term "Governmental Authority" when used herein means any federal,
state, local, foreign or international court, government, department,
commission, board, bureau, agency, the NYSE, or other regulatory, administrative
or governmental authority.

         The term "Third Party" when used herein means any individual,
partnership, joint venture, corporation, trust, limited liability company,
unincorporated organization or a government or any department or agency thereof
other than Pharmacia or Solutia or their wholly owned direct or indirect
subsidiaries or affiliates.

         The term "Third Party Claims" when used herein means any claim, suit,
arbitration, inquiry, proceeding or investigation by or before any court, any
governmental or other regulatory or administrative agency or commission or any
arbitration tribunal asserted by a Third Party.

         All references in this document to "its attorney" or "its said
attorney" or "its true and lawful attorney," or similar designations shall refer
to Solutia Inc. [or the appropriate member of the Chemicals Group] and each and
every person to whom Solutia delegates such power and also to each and every
substitute or successor attorney-in-fact appointed under the terms of this
instrument as herein provided.

         All references in this document to "its attorney" or "its said
attorney" or "its true and lawful attorney," or similar designations shall refer
not only to Solutia or its delegates but also to each and every substitute or
successor attorney-in-fact appointed under the terms of this instrument as
herein provided.

         In the event that Pharmacia posts a bond as contemplated in the
Protocol Agreement, this power of attorney shall automatically terminate without
notice, provided, however, this power of attorney may be renewed for additional
thirty (30) day periods at the written request of Pharmacia.

         All persons dealing with Pharmacia's said attorney shall be protected
in relying upon a copy of this instrument and shall be protected in relying upon
the written certificate of


                                       11








Solutia as to the Claims which are the subject of this power of attorney, the
identity and authority or its officers, their delegates and any substitute or
successor appointed pursuant to the terms hereof, and/or as to whether any of
the persons authorized to act hereunder is unavailable so to act, so as to
authorize some other person to act hereunder, and Pharmacia hereby declares that
as against it and all persons claiming under it everything which its attorney
shall do or cause to be done pursuant hereto shall be valid and effectual in
favor of any person claiming the benefit hereof who at the time of the doing
thereof shall have relied upon any such certification made by Solutia. If
required by applicable law or if Solutia desires for any reason to do so, an
executed copy of this Power of Attorney shall be filed for record with the
Governmental Authority wherein the Claim is pending or such other place as
required by law or whether Solutia thinks best. Pharmacia authorizes Solutia to
make all such filings.

         This instrument may be executed in any number of counterparts, and all
of said counterparts shall constitute but one and the same instrument.

         IN WITNESS WHEREOF, I have hereunto set my hand and seal this 1st day
of July, 2002.



                                         PHARMACIA CORPORATION



                                         // Richard T. Collier
                                         ---------------------------------------
                                         By:    Richard T. Collier
                                         Title: Senior Vice President and
                                                General Counsel


ATTEST:



//Judith A. Reinsdorf


                                       12







STATE OF NEW JERSEY     )
                        )
COUNTY OF SOMERSET      )


         On this 1st day of July, 2002, before me the undersigned, a Notary
Public, in and for the County and State aforesaid, personally appeared Richard
T. Collier, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he/she executed the same as his/her
free act and deed.

         IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal in Peapack, NJ, the day and year last above written.



                                  Carol M. Murphy
                                  ----------------------------------------------
                                  Notary Public in and for said County and State


My Commission expires:

March 4, 2003



                                       13

EX-10

                                                                  EXHIBIT 10(4)




                    TAX SHARING AND INDEMNIFICATION AGREEMENT


This Tax Sharing and Indemnification Agreement (the "Agreement"), dated as of
July 1, 2002 is entered into by and between Pharmacia Corporation, a Delaware
corporation ("Distributing") and Monsanto Company, a Delaware corporation
("Controlled"). Each of Distributing and Controlled is referred to herein as a
"Party" and, collectively, as "Parties".

WHEREAS, Distributing owns more than 80 percent of the issued and outstanding
shares of common stock of Controlled and Controlled is a member of an affiliated
group within the meaning of Section 1504(a) of the Code of which Distributing is
the common parent corporation;

WHEREAS, the Parties have entered into a Tax Sharing Agreement dated as of
September 1, 2000 (the "September 1, 2000 Agreement");

WHEREAS, the board of directors of Distributing has (or, in the near future,
will have) authorized and declared the distribution by Distributing of all of
its shares of Controlled common stock, on a pro rata basis, to the holders of
the common stock of Distributing in a transaction intended to qualify as a
tax-free distribution under Section 355 of the Code (the "Distribution");

WHEREAS, in contemplation of the Distribution pursuant to which Controlled and
its subsidiaries will cease to be members of the Distributing Group (as
hereinafter defined), the Parties hereto have determined to enter into this
Agreement, setting forth their agreement with respect to certain tax matters;

WHEREAS, this Agreement is intended to supercede the September 1, 2000 Agreement
and, effective on the Distribution Date, the September 1, 2000 Agreement shall
have no further force and effect; and

WHEREAS, this Agreement also creates certain indemnification obligations if the
actions of a member of the Controlled Group (as hereinafter defined) has an
adverse effect on the tax-free nature of the Distribution;

NOW THEREFORE, in consideration of the premises set forth above and the mutual
promises, undertakings, agreements and obligations set forth herein, the
Parties, intending to be legally bound, hereby agree as follows:








Section 1. Definitions.

           For Purposes of this Agreement, the following definitions shall
apply:

         1.1 "Adjustment" shall mean any final change in the Tax liability of
any member of the Controlled Group or the Distributing Group.

         1.2 "Affiliated Group" shall mean an affiliated group of corporations
within the meaning of Code Section 1504(a).

         1.3 "Agreement" shall have the meaning ascribed to such term in the
introductory paragraph hereof.

         1.4 "Applicable States" shall have the meaning ascribed to that term in
Section 1.7 hereof.

         1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended and
in effect during the term of this Agreement.

         1.6 "COFL" shall have the meaning ascribed to that form in Section 5.4
hereof.

         1.7 "Consolidated Tax Amount" shall mean, for each Tax Period during
which Controlled is included in a (i) consolidated Federal Income Tax Return of
the Distributing Group pursuant to Section 4.1 hereof or (ii) a consolidated,
combined, unitary or similar State Income Tax Return pursuant to Section 4.2
hereof ("Applicable States"), the amount of (i) Federal Income Tax, plus (ii)
State Income Taxes for Applicable States, in each case that would be due and
payable by Controlled for each such Tax Period if the Controlled Affiliated
Group had filed a Federal Income Tax Return and a State Income Tax Return in
each Applicable State for such Tax Period on a consolidated or combined basis
without the Distributing Affiliated Group (except for the members of the
Controlled Affiliated Group). The Consolidated Tax Amount shall be calculated:
(i) giving effect to any net operating loss carryovers (as defined by Section
172 of the Code or any corresponding Applicable State law) and applicable credit
carryovers, calculated on a separate return basis, incurred by Controlled for
any Tax Period, and (ii) treating gains or losses on intercompany transactions
in the manner required by Treas. Reg. 'SS' 1.1502-13. For purposes of this
definition, the determination of Tax Items attributable to any period that is
less than a 12-month fiscal period shall be made, at the election of
Distributing, either (i) on the basis of a closing of the books of the relevant
entity or (ii) by determining the aggregate Tax Items for a full 12-month period
and allocating those Tax Items to the Tax Period, pro rata on the basis of the
number of days that Controlled was a member of the Distributing Group during
such Tax Period divided by 365.

         1.8 "Controlled" shall have the meaning ascribed to such term in the
introductory paragraph hereof.

         1.9 "Controlled Affiliated Group" shall mean, for each taxable period,
the Affiliated Group of which Controlled or its successor is the common parent
corporation.

         1.10 "Controlled Carryback" shall have the meaning ascribed to such
term in Section 5.5 hereof.


                                       2









         1.11 "Controlled Group" shall mean, for each taxable period, (i) the
corporations that are members of the Controlled Affiliated Group, and (ii) the
corporations that would be members of the Controlled Affiliated Group, but for
the fact that they are not includible corporations under Code Section 1504(b),
and other entities owned, in whole or in part, by any Controlled Group member.

         1.12 "CSLL" shall have the meaning ascribed to that term in Section 5.4
hereof

         1.13 "DeKalb Tax Liabilities" shall mean the amount of (i) United
States Federal Income Taxes, plus (ii) Income Taxes of any State, accruing in
respect of periods ending on or prior to December 31, 1999 and that are
attributable solely to the operations of DeKalb Genetics Corporation, a Delaware
Corporation, and its subsidiaries.

         1.14 "Dispute" shall have the meaning ascribed to such term in Section
12 hereof.

         1.15 "Distributing" shall have the meaning ascribed to such term in the
introductory paragraph hereof.

         1.16 "Distributing Affiliated Group" shall mean, for each taxable
period, the Affiliated Group of which Distributing or its successor is the
common parent corporation.

         1.17 "Distributing Carryback" shall have the meaning ascribed to such
term in Section 5.5 hereof.

         1.18 "Distributing Group" shall mean, for each taxable period, (i) the
corporations that comprise the Distributing Affiliated Group, and (ii) the
corporations that would be members of the Distributing Affiliated Group, but for
the fact that they are not includible corporations under Code Section 1504(b),
and other entities owned in whole or in part by any Distributing Group member.

         1.19 "Distributing Tax Reduction" shall mean the amount of the
aggregate Tax refund attributable to the Controlled Carryback and actually
received (or to be received) by Distributing.

         1.20 "Distribution" shall have the meaning ascribed to that term in the
third WHEREAS clause hereof.

         1.21 "Distribution Date" shall mean the date of the Distribution.

         1.22 "Estimated Tax Amount" shall mean the amount of: (i) Federal
Income Taxes, plus (ii) Income Taxes of all Applicable States, that would become
due and payable by Controlled on the applicable Estimated Tax Payment Date if
the Controlled Affiliated Group had filed consolidated or combined, as the case
may be, Tax Returns for Federal Income Tax and State Income Tax purposes for all
Tax Periods in which Controlled is a member of the Distributing Group, in each
case (i) giving effect to any net operating loss carryovers (as defined by
Section 172 of the Code) and applicable credit carryovers incurred by the
Controlled Affiliated Group; and (ii) treating gains or losses on intercompany
transactions in the manner required by Treas. Reg. 'SS' 1.1502-13, in a manner
consistent with the determination of the Consolidated Tax Amount as defined in
Section 1.7. The calculation of the Estimated Tax Amount for the year ending
December 31, 2002 shall be made using the


                                       3








assumption that Controlled will be a member of the Distributing Group for
the full year ending December 31, 2002.

         1.23 "Federal Income Tax" shall mean any tax imposed under Subtitle A
of the Code.

         1.24 "Federal Income Tax Return" shall mean Tax Returns relating to
United States Federal Income Tax.

         1.25 "Final Determination" shall mean the final resolution of any tax
matter relating to Distributing, Controlled or any member of the Distributing
Group or the Controlled Group occurring after the Distribution Date. A Final
Determination shall result from the first to occur of:

               (i)    the expiration of 30 days after the IRS' acceptance of a
                      waiver of restrictions on assessment and collection of
                      deficiency in tax and acceptance of overassessment on
                      United States Federal revenue (Form 870 or 870-AD (the
                      "Waiver")) or any successor comparable form, except as to
                      reserved matters specified therein, or the expiration of
                      30 days after acceptance by any other taxing authority of
                      a comparable agreement or form under the laws of any other
                      jurisdiction, including State, local, and foreign; unless,
                      within such period, the taxpayer gives notice to the other
                      Party to this Agreement of the taxpayer's intention to
                      attempt to recover all or part of any amount paid pursuant
                      to the Waiver by the filing of a timely claim for refund;

               (ii)   a decision, judgment, decree, or other order by a court of
                      competent jurisdiction that is not subject to further
                      judicial review (by appeal or otherwise) and has become
                      final;

               (iii)  the execution of a closing agreement under Code Section
                      7121, or the acceptance by the IRS of an offer in
                      compromise under Code Section 7122, or comparable
                      agreements under the laws of any other jurisdiction,
                      including State, local, and foreign, except as to reserved
                      matters specified therein;

               (iv)   the expiration of the time for filing a claim for refund
                      or for instituting suit in respect of a claim for refund
                      that was disallowed in whole or part by the IRS or any
                      other taxing authority;

               (v)    the expiration of the applicable statute of limitations;
                      or

               (vi)   an agreement by the Parties hereto that a Final
                      Determination has been made.

         1.26 "First Party" shall have the meaning ascribed to such term in
Section 6.5 hereof.



                                       4







         1.27 "Income Taxes" shall mean all Federal, State, local and foreign
taxes imposed upon, or measured, in whole or in part, by net income or a taxable
base in the nature of net income, including without limitations, environmental
and alternative or add-on minimum taxes (including the alternative minimum tax
imposed under Code Section 55), and such related franchise, excise, and similar
taxes as have been customarily included in the provision for income taxes or
charged to the income tax liability account on Distributing's financial
statements, together with all related interest, penalties, and additions to tax.

         1.28 "Income Tax Liability" shall mean the net amount of Income Taxes
due and paid or payable for any taxable period, determined after applying all
tax credits and all applicable Carrybacks or carryovers for net operating
losses, net capital losses, unused general business tax credits, or any other
relevant adjustments.

         1.29 "Income Tax Return" shall mean Tax Returns relating to Income Tax.

         1.30 "Indemnified Party" shall mean any Party who is entitled to
receive payments from an Indemnifying Party pursuant to the terms and conditions
of this agreement.

         1.31 "Indemnifying Party" shall mean any Party that is required to pay
any other Party pursuant to the terms and conditions of this Agreement.

         1.32 "IPO Restructuring" shall mean the transfer or assignment of a
Retained Business or a Transferred Ag Business by any entity owned by any member
of the Distributing Group other than members of the Controlled Group in
anticipation of the transfer by Distributing of the Transferred Ag Businesses to
Controlled pursuant to the Separation Agreement.

         1.33 "IPO Restructuring Tax" shall mean any Tax proximately resulting
from the IPO Restructuring imposed upon Distributing or any affiliate of
Distributing other than Controlled and its subsidiaries reduced by an amount
equal to the present value (calculated using a discount rate equal to the
prevailing five-year United States Treasury rate plus 105 basis points) of any
Tax Asset created in the related IPO Restructuring transaction and retained by
the Distributing Group.

         1.34 "IRS" shall mean the United States Internal Revenue Service or any
successor thereto, including but not limited to its agents, representatives, and
attorneys.

         1.35 "OFL" shall have the meaning ascribed to that term in Section 5.4
hereof.

         1.36 "Other Tax Liabilities" shall mean the net amount of Other Taxes
due and paid or payable for any taxable period or transaction, after applying
all tax offsets and credits.

         1.37 "Other Taxes" shall mean any and all taxes other than Income
Taxes, including, without limitation, gross income, gross receipts, sales, use,
transfer, franchise, license, withholding, payroll, value added, employment,
excise, severance, stamp, occupations, premium, windfall profits, custom, duty,
real and personal property or other charge of any kind whatsoever, together with
all related interest, penalties, and additions to tax, or additional amount
imposed by any taxing authority.

         1.38 "Party" shall have the meaning ascribed to that term in the
introductory paragraph hereof.


                                       5







         1.39 "Retained Business" shall mean the assets, liabilities and
businesses of a member of the Distributing Group other than Transferred Ag
Businesses.

         1.40 "Separation Agreement" shall mean the Separation Agreement dated
as of September 1, 2000, between Distributing and Controlled.

         1.41 "September 1, 2000 Agreement" shall have the meaning ascribed to
that term in the second WHEREAS clause hereof.

         1.42 "State" shall mean any of the fifty (50) United States of America.

         1.43 "State Income Tax" shall mean any income, franchise or similar tax
measured by net income payable to a State taxing jurisdiction or local taxing
jurisdiction within any State.

         1.44 "State Income Tax Return" shall mean Tax Returns relating to State
Income Tax.

         1.45 "Subsidiary" shall mean entities owned and controlled by
Distributing or Controlled wherever formed.

         1.46 "Tax" shall mean any Federal Income Tax, or any net income,
alternative or add-on minimum, gross income, gross receipts, sales, use, ad
valorem, value added, transfer, franchise, profits, license, withholding (as
payor or recipient), payroll, employment, excise, severance, stamp, capital
stock, occupation, property, real property gains, environmental, windfall,
premium, custom, duty or other tax, governmental fee or other like assessment or
charge of any kind whatsoever and imposed by any governmental body, together
with any interest thereon and any penalty, addition to tax or additional amount
thereto.

         1.47 "Tax Asset" shall mean any net operating loss, net capital loss,
business tax credit, foreign tax credit, charitable deduction, or any other
loss, credit, deduction or tax attribute that could be applied to reduce any tax
(including, without limitation, deductions, credits, alternative minimum net
operating loss carryforwards related to alternative minimum taxes or additions
to the basis of property).

         1.48 "Tax Benefit" shall mean a reduction in the Income Tax Liability
of a Party to this Agreement (or any member of the Affiliated Group of which it
is a member) from a Tax Item to the extent any portion of such reduction is
deemed to be realized. Except as otherwise provided in this Agreement, a Tax
Benefit shall be deemed to have been actually realized or received from a Tax
Item in a taxable period only if and to the extent that the Income Tax Liability
of the Party (or any member of the Affiliated Group of which it is a member) for
such period, after taking into account the effect of the Tax Item on the Income
Tax Liability of such Party in all prior periods, is less than it would have
been if such Income Tax Liability were determined without regard to such Tax
Item. In determining the amount of the Tax Benefit, the marginal Federal income
tax rate, without regard to alternative minimum tax, shall be utilized, the
marginal state income tax rate shall be deemed to be four percent (reduced to
account for any loss of a Federal income tax deduction for state taxes) and net
operating loss carryforwards shall be ignored. A Tax Item that results in
additional tax basis to a depreciable or amortizable asset (or that results in a
tax asset that otherwise extends beyond one year) shall be treated as resulting
in a Tax Benefit in the year of a Final Determination of such Tax Item and shall
be deemed to create Tax Benefit in the year of such


                                       6








Final Determination (and in no other year) in an amount equal to the total
amount of the present value of the present and future anticipated tax reductions
from such Tax Item, applying for this purpose an assumption that the Tax Item
will be absorbed in full as and when it first becomes deductible or creditable
under applicable law and applying for this purpose a discount rate equal to the
prevailing five-year United States Treasury rate (as published in the Wall
Street Journal) plus 105 basis points as of the date of such Final
Determination. A Tax Item that results in additional tax basis to a
non-depreciable, non-amortizable asset shall not be treated as resulting in a
Tax Benefit until a reduction in Income Tax Liability is actually realized on a
Tax Return.

         1.49 "Tax Detriment" shall mean an increase in the Income Tax Liability
of a Party to this Agreement (or any member of the Affiliated Group of which it
is a member) for any taxable period. Except as otherwise provided in this
Agreement, a Tax Detriment shall be deemed to have been realized or suffered
from a Tax Item in a taxable period, only if and to the extent that the Income
Tax Liability of the Party (or any member of the Affiliated Group of which it is
a member) for such period, after taking into account the effect of the Tax Item
on the Income Tax Liability of such Party in all prior periods, is greater than
it would have been if such Income Tax Liability were determined without regard
to such Tax Item.

         1.50 "Tax Item" shall mean any item of income, gain, loss, deduction,
credit, recapture of credit, or any other item which may have the effect of
increasing or decreasing Income Tax Liability.

         1.51 "Tax Period" shall mean, respectively, as follows: (i) the period
commencing on or before the September 1, 2000 and ending on December 31, 2000;
(ii) the period commencing January 1, 2001 and ending December 31, 2001, and
(iii) the period commencing January 1, 2002 and ending on the Distribution Date.

         1.52 "Tax Returns" shall mean all reports, estimates, declarations of
estimated tax, information statements and returns relating to, or required to be
filed in connection with any Income Taxes or Other Taxes, including information
returns or reports with respect to backup withholding and other payments to
third Parties.

         1.53 "Transferred Ag Businesses" shall mean the assets, liabilities and
businesses transferred to Controlled pursuant to the terms of the Separation
Agreement.

         1.54 "Treas. Reg." shall mean the United States Treasury Regulations
promulgated under the Code.

         1.55 "Waiver" shall have the meaning ascribed to such term in Section
14.6 hereof.

Section 2. RESPONSIBILITY FOR PRE-SEPTEMBER 1, 2000 TAXES.

         2.1 General Responsibility for Pre-September 1, 2000 Taxes.
Notwithstanding any other provision of this Agreement, except for any IPO
Restructuring Tax and any DeKalb Tax Liability, Distributing shall be
responsible for, and shall indemnify and hold harmless each member of the
Controlled Group from and against, any Income Tax liability of any member of the
Distributing Group, attributable to periods through and including August 31,
2000, whether or not such period constitutes a fiscal period under applicable
law.


                                       7








         2.2 Method of Determining Pre-September 1, 2000 Taxes. For purposes of
Section 2.1 hereof, the determination of Tax liability attributable to fiscal
periods beginning before August 31, 2000 and ending after August 31, 2000 shall
be made on the basis of a closing of the books of each relevant entity.

         2.3 Responsibility for Pre-September 1, 2000 Taxes Attributable to IPO
Restructuring and DeKalb Tax Liabilities and Other Taxes Attributable to the
Controlled Group's Assets and Businesses. Notwithstanding any other provision of
this Agreement, Controlled shall be responsible for, and shall indemnify and
hold harmless each member of the Distributing Group from and against: (i) Other
Taxes attributable to assets or businesses of the Controlled Group; (ii) any IPO
Restructuring Tax; and (iii) any DeKalb Tax Liabilities. Indemnification
payments under this Section 2.3 shall be made by Controlled to Distributing
within 30 days after a Final Determination that Distributing owes such IPO
Restructuring Tax, DeKalb Tax Liability, or Other Taxes.


Section 3. RESPONSIBILITY FOR POsT-AUGUST 31, 2000 TAXES.

         3.1 Distributing Responsibility for Post-August 31, 2000 Taxes of
Distributing Group. Except as otherwise expressly provided herein, Distributing
shall be responsible for, and shall indemnify and hold harmless each member of
the Controlled Group from and against, Tax liability of all members of the
Distributing Group (other than members of the Controlled Group), attributable to
periods commencing on or after the September 1, 2000 whether or not such period
constitutes a fiscal period.

         3.2 Distributing Responsibility for Post-August 31, 2000 Taxes of
Controlled Group. Distributing shall, to the extent provided by and pursuant to
Section 4.3 hereof, be responsible for, and shall indemnify each member of the
Controlled Group from and against: (i) all Federal Income Taxes of Controlled
and each member of the Controlled Group, and (ii) Income Tax liability for each
Applicable State, to the extent that such United States Federal Income Tax or
Applicable State Income Tax liability is attributable to any Tax Period,
provided, however, that Distributing shall be entitled to receive Consolidated
Tax Amounts from Controlled as provided in Section 5 hereof.

         3.3 Controlled Responsibility for Post-August 31, 2000 Taxes. Except as
otherwise expressly provided herein, Controlled shall be responsible for, and
shall indemnify and hold each member of the Distributing Group harmless from and
against, all Taxes attributable to any member of the Controlled Group's assets
and businesses for periods commencing on or after the September 1, 2000, other
than those Taxes referred to in Section 3.2 hereof.


Section 4. FILING OF INCOME AND OTHER TAX RETURNS.

         4.1 Federal Consolidated Income Tax Return. A consolidated Federal
Income Tax Return for the Distributing Affiliated Group, including the
Controlled Affiliated Group as member thereof, shall be filed for each Tax
Period. Distributing and Controlled shall execute and file any and all consents,
elections, and other documents and take such other action as may be required or
appropriate for the proper filing of such returns.


                                       8








         4.2 State Income Tax Returns. If Distributing in its discretion elects
(or if required by law), Distributing and its eligible affiliates and Controlled
and its eligible affiliates shall join in the filing of combined, unitary or
other similar consolidated Tax Returns with respect to Income Taxes imposed by
any State for each Tax Period. Distributing and Controlled shall execute and
file any and all consents, elections, and other documents and take such other
action as may be required or appropriate for the proper filing of such returns.

         4.3 Distributing Responsibilities for Consolidated, Combined and
Unitary Tax Returns. Distributing shall prepare and timely file, or cause to be
prepared and filed, all Tax Returns for Income Taxes referred to in Sections 4.1
and 4.2 hereof and Distributing shall timely pay, or cause to be timely paid,
the liability for Income Taxes due in respect of such Tax Returns.

         4.4 Distributing Responsibilities for Foreign Income Taxes and Other
Taxes. Distributing shall prepare and timely file or cause to be timely prepared
and filed, all Tax Returns in respect of foreign Income Taxes and Other Taxes
attributable to the businesses and assets of the Distributing Group (other than
members of the Controlled Group) and shall timely pay all Taxes due in respect
of those Tax Returns.

         4.5 Controlled's Responsibilities for Separate Income Tax Returns.
Controlled and its Subsidiaries shall prepare and timely file, or cause to be
prepared and filed, all Tax Returns for Income Taxes required by law to be filed
by it or them and not referred to in Sections 4.3 or 4.4 hereof and Controlled
and its Subsidiaries shall timely pay or cause to be timely paid all Income
Taxes due in respect of such Tax Returns.

         4.6 Controlled's Responsibilities for Other Taxes. Controlled shall
prepare and timely file or cause to be prepared and timely filed, all Tax
Returns in respect of Other Taxes attributable to the businesses and assets of
members of the Controlled Group and shall timely pay all Taxes due in respect of
those Tax Returns.

         4.7 Manner of Preparation. All Tax Returns filed after the Distribution
Date shall be prepared on a basis that is consistent with the rulings obtained
from the IRS or any other governmental authority in connection with the
Distribution (in the absence of a controlling change in law or circumstances) by
the Party responsible for such filing under this Agreement. In the absence of a
controlling change in law or circumstances, or except as otherwise provided in
this Agreement or agreed in writing by Distributing and Controlled, all Tax
Returns filed after the date of this Agreement shall be prepared on a basis
consistent with the elections, accounting methods, conventions, and principles
of taxation used by the Parties for the most recent taxable periods for which
Tax Returns involving similar Tax Items have been filed, except that, with
respect to Tax Items not relating to the Distribution, one Party may take an
inconsistent position to the extent such position does not create a Tax
Detriment to the other Party. Subject to the provisions of this Agreement, all
decisions relating to the preparation of Tax Returns shall be made in the sole
discretion of the Party responsible under this Agreement for such preparation.


                                       9









Section 5. Sharing of income taxes.

         5.1 General Tax Sharing Principles. Controlled shall pay to
Distributing (and shall indemnify and hold harmless Distributing against) the
Consolidated Tax Amount at such times and in such amounts specified in Sections
5.2 and 5.3 hereof.

         5.2 Estimated Payments. No later than 5 days prior to the date on which
an estimated Federal Income Tax installment or an estimated State Income Tax
installment of the Distributing Group is due, Controlled shall determine the
Estimated Tax Amount. No later than the Federal Income Tax estimated tax payment
date for any Tax Period or the State Income Tax estimated tax payment date for
any Tax Period, as the case may be, Controlled shall pay to Distributing the
Estimated Tax Amount.

         5.3 Payment of Taxes After Year-End.

         (a) No later than 15 days prior to the due date (including all
             applicable and valid extensions) for the Distributing Group's
             consolidated Federal Income Tax Return for each Tax Period,
             Controlled shall deliver to Distributing a pro forma Federal Income
             Tax Return of Controlled reflecting Controlled's Consolidated Tax
             Amount for such Tax Period prepared by Controlled in good faith.
             Each pro forma return prepared by Controlled shall include the
             information required for subsidiaries pursuant to Treas. Reg.
             Section 1.1502-75 or such other information as may be reasonably
             requested by Distributing. No later than 15 days prior to the due
             date (including all applicable and valid extensions) for each State
             Income Tax Return that includes Controlled and another member of
             the Distributing Group for each Tax Period, Controlled shall
             deliver to Distributing a pro forma State Income Tax Return
             reflecting Controlled's Consolidated Tax Amount for such Tax Period
             prepared by Controlled in good faith. Each pro forma Tax Return
             shall be delivered together with a statement showing a calculation
             of the amount to be paid pursuant to Section 5.1 hereof.

         (b) Upon receipt of a pro forma Federal Income Tax Return or State
             Income Tax Return from Controlled, Distributing may adjust such
             return if it determines that the calculation of the Consolidated
             Tax Amount reflected on such return or returns is incorrect or
             incomplete. Any adjustment made by Distributing under this Section
             5.3(b) shall be treated as though it had always been reflected on
             such pro forma return. Controlled shall not be permitted to invoke
             the dispute resolution procedures in Section 12 of this Agreement
             until it shall have paid any amounts required under Section 5.1
             hereof.

         (c) No later than the due date for any Distributing Tax Return to which
             a pro forma Return prepared pursuant to Section 5.3(a) of this
             Agreement is attributable (i), if the Consolidated Tax Amount
             reflected on such pro forma Income Tax Return is greater than the
             aggregate Estimated Tax Amount paid by Controlled with respect to
             such Tax Return and Tax Period under Section 5.2 hereof, Controlled
             shall pay to Distributing an amount equal to the difference between
             the Consolidated Tax Amount reflected on such pro forma Income Tax
             Return for the applicable Tax Period and the aggregate Estimated
             Tax Amount paid by Controlled with respect to such Tax Return and
             Tax


                                       10










             Period under Section 5.2 hereof; or (ii), if the Consolidated Tax
             Amount reflected on such pro forma Income Tax Return is less than
             the aggregate Estimated Tax Amount paid by Controlled with respect
             to such Tax Return and Tax Period under Section 5.2 hereof,
             Distributing shall pay to Controlled an amount equal to the
             difference between the aggregate Estimated Tax Amount paid by
             Controlled with respect to such Tax Return and Tax Period under
             Section 5.2 hereof and the Consolidated Tax Amount reflected on
             such pro forma Income Tax Return for the applicable Tax Period.

         (d) If a pro forma Tax Return described in Section 5.3 of this
             Agreement reflects a Tax Asset that may under applicable law be
             used to produce a Tax Benefit to Distributing, Distributing shall
             pay to Controlled an amount equal to the Tax Benefit produced by
             such Tax Asset within 30 days of the realization by Distributing of
             such Tax Benefit, and the pro forma Tax Returns of Controlled and
             other relevant determinations hereunder shall thereafter reflect
             such use. Without limiting the generality of the foregoing, the
             determination of the Tax Benefit for purposes of this Section
             5.3(d) shall take into account any net decrease in the foreign tax
             credits and business credits which would otherwise have been
             available to, and usable by, the Distributing Group by reason of
             the use of such Tax Asset.

         5.4 Consolidated Overall Foreign Losses and Consolidated Separate
Limitation Losses. If: (i) an overall foreign loss (as defined in Treas. Reg.
'SS' 1.904(f)-1(c)(1)) ("OFL") account is generated in Controlled's pro forma
Tax Return calculation of the Consolidated Tax Amount in respect of any Tax
Period, (ii) such OFL has not been recaptured by Controlled in Controlled's
calculation of the Consolidated Tax Amount for any subsequent Tax Period, and
(iii) such OFL will not be available for recapture in Controlled's post-
Distribution actual tax calculation, Controlled shall, on or before the due
date for filing Controlled's United States Federal income tax return for the
period that includes the Distribution Date, pay to Distributing the amount of
any Tax Detriment incurred by Distributing as a result of Distributing's prior
inclusion of such OFL in its calculation of its Consolidated Federal Income
Tax liability, plus interest calculated thereon at a rate equal to the
prevailing five-year United States Treasury rate as published in the Wall
Street Journal plus 105 basis points from the Distribution Date to the date
of actual payment of such amount. If pursuant to Treas. Reg. 'SS' 1.1502-9
Controlled is required to succeed to any portion of a consolidated overall
foreign loss ("COFL") (as defined in Treas. Reg. 'SS' 1.1502-9(b)(3)) account
or consolidated separate limitation loss ("CSLL") (as defined in Treas. Reg.
'SS' 1.1502-9(b)(1)) account, that was not reflected in its calculation of the
Consolidated Tax Amount for any Tax Period, Distributing shall, within 60 days
after the Distribution Date, pay Controlled the amount of any Tax Detriment
incurred by Controlled as a result.

         5.5 Carryback Reporting. If the Income Taxes of the Distributing Group
are reduced for a taxable period beginning before the Distribution Date, by
reason of a Controlled Group loss or other Tax Asset arising on or after the
Distribution Date (a "Controlled Carryback") Distributing shall pay to
Controlled an amount equal to the portion of the Distributing Tax Reduction that
is attributable to the Controlled Carryback. If both a Controlled Carryback and
a Distributing loss or other Tax Asset arising on or after the Distribution Date
(a "Distributing Carryback") exists, the absorption rules of Treas. Reg.
1.1502-21(b)(1), shall be applied to determine the portion of the Distributing
Tax Reduction that is attributable to the Controlled Carryback and the
Distributing Carryback, respectively.


                                       11








Nothing herein shall require either Distributing or Controlled to carry back a
loss or other Income Tax attribute that it generates. Any payment required
pursuant to this Section 5.5 shall be made no later than ten (10) days after the
Distributing Tax Reduction is actually realized by Distributing.

         5.6 Treatment of Adjustments. (a) If any Adjustment of a Tax Item is
made to a Tax Return relating to Federal or State Taxes of the Distributing
Group, after the filing thereof, in which income or loss of any Controlled or
any of its Subsidiaries is included, then within 30 days of a Final
Determination of such Adjustment, Controlled shall pay to Distributing, or
Distributing shall pay to Controlled, as the case may be and as appropriate, (i)
the difference between (A) all payments actually made, net of all refunds or
recoupments received or otherwise realized, by Controlled or Distributing, as
the case may be (or treated as such) in accordance with the principles of this
Section 5 with respect to such Tax Item for the Tax Period or fiscal period
covered by such Return, and (B) all payments that would have been made by
Controlled or Distributing, as the case may be (or treated as such) in
accordance with the principles under this Article 5 with respect to such Tax
Item for the Tax Period or fiscal period covered by such Return taking such
Adjustment into account and (ii) related penalties and interest.

         5.7 Earnings and Profits. Except as otherwise specifically provided
herein, pre-Distribution earnings and profits shall be allocated in accordance
with Code Section 312(h) and Treas. Reg. 'SS' 1.312-10(b).


Section 6. Audits and Tax Controversies and Adjustments.


         6.1 Audit Responsibility and Control. Except as otherwise provided in
this Agreement, Distributing shall have sole responsibility for and control over
all audits, appeals or litigation with respect to any Income Tax Returns that
include periods through August 31, 2000, whether or not those periods constitute
fiscal periods, and any Tax Return that it is required to file under this
Agreement. Controlled shall have sole responsibility and control over all
audits, appeals or litigation with respect to any Tax Return that it is required
to file under this Agreement.

         6.2 Notice; Contest. Whenever Distributing or Controlled receives in
writing from the IRS or any other taxing authority notice of an Adjustment which
may give rise to a payment from the other Party under this Agreement,
Distributing or Controlled (as the case may be) shall give notice of the
Adjustment to the other Party within 10 business days of becoming aware of such
receipt, but in no case less than 30 days before Distributing or Controlled, as
the case may be, is required to respond to the IRS or other taxing authority.
The Indemnifying Party shall, at its cost and expense, have control over all
matters with respect to which such Party has an indemnification or payment
obligation pursuant to this Agreement. The foregoing notwithstanding, the
Indemnified Party and its representatives, at the Indemnified Party's expense,
shall be entitled to participate in all conferences, meetings, and proceedings
with respect thereto and shall be entitled to consult with the Indemnifying
Party with respect to all such matters. If the IRS or any other taxing authority
proposes to disallow any of the deductions required to be taken by a member of
the Distributing or Controlled Group pursuant to Section 7 of this Agreement,
Distributing or Controlled, as the case may be, shall contest such proposed
disallowance, or shall cause such disallowance to be contested to a Final
Determination unless otherwise agreed by the Parties in writing.


                                       12







         6.3 Consultation with Controlled. Distributing may consult with
Controlled, and Controlled agrees to fully cooperate with Distributing, in the
negotiation, settlement, or litigation of any liability for taxes of any member
of the Distributing Group regardless of the effect of any such negotiation,
settlement, or litigation on the liability for taxes of any member of the
Controlled Group.

         6.4 Consultation with Distributing. Controlled may consult with
Distributing, and Distributing agrees to fully cooperate with Controlled, in the
negotiation, settlement, or litigation of any liability for taxes of any member
of the Controlled Group regardless of the effect of any such negotiation,
settlement, or litigation on the liability for taxes of any member of the
Distributing Group.

         6.5 Cooperation and Exchange of Information for Audits, Appeals and
Litigation. The parties shall cooperate and exchange information needed to
respond to audits, appeals and litigation in accordance with the provisions of
Section 10 of this Agreement.

         6.6 Certain Adjustments. Except as otherwise provided in this
Agreement, if a Final Determination with respect to any Tax Item (including,
without limitation, any Tax Item relating to depreciation or amortization) of
one Party (the "First Party") results in a Tax Detriment to the First Party and,
if as a result of such Final Determination, (i) the other Party becomes entitled
to take a reporting position with respect to the same Tax Item that may result
in a Tax Benefit to such other Party, on an appropriate Tax Return, including an
amended Tax Return, or (ii) the other Party has already taken a reporting
position consistent with such Final Determination on an appropriate tax return,
and, in the case of both (i) and (ii), such reporting position will result in
the realization of a Tax Benefit for the other Party, then such other Party
shall, within 30 days after notification and documentation of such Final
Determination, pay to the First Party the aggregate amount of such Tax Detriment
(not including interest or penalties) suffered by the First Party but limited to
an amount not greater than the Tax Benefit to be realized by the other Party.
For purposes of this Section, Party may refer to any member of the Distributing
Group or Controlled Group.


Section 7. Taxability and Reporting of Stock Options. Each of Distributing and
Controlled shall be responsible for making all reports required to be made to
any relevant tax authority with respect to any grants or exercises of stock
options with respect to their respective stocks. Distributing (or the
appropriate member of the Distributing Group) shall take all tax deductions
arising by reason of exercises of such stock options to purchase shares of
Distributing stock. Controlled (or the appropriate member of the Controlled
Group) shall take all tax deductions arising by reason of exercises of stock
options to purchase shares of Controlled stock. If, pursuant to a Final
Determination, all or any part of a tax deduction taken pursuant to this Section
7 is disallowed to Distributing, then, to the extent permitted by law, the
appropriate member of the Controlled Group shall take such deduction. If a
member of the Controlled Group receives a Tax Benefit in any period as a result
of any deduction taken by a member of the Controlled Group in respect of options
exercised against Distributing stock, Controlled shall pay the amount of such
Tax Benefit to Distributing. If, pursuant to a Final Determination, all or any
part of a tax deduction taken pursuant to this Section 7 is disallowed to
Controlled, then, to the extent permitted by law, the appropriate member of the
Distributing Group shall take such deduction. If a member of the Distributing
Group receives a Tax Benefit in any period as a result of any deduction taken by
a member of the Distributing Group in respect of options exercised against
Controlled stock, Distributing shall pay the amount of such Tax Benefit to
Controlled.


                                      13









Section 8. LIABILITY OF CONTROLLED GROUP FOR UNDERTAKING CERTAIN
           TRANSACTIONS. Controlled shall, and shall cause each member of the
Controlled Group to, comply with each representation and statement made, or to
be made, to any taxing authority. Controlled represents that at no time during
the two-year period preceding the Distribution Date, has Controlled had any
plan, agreement, arrangement, substantial negotiation, or other intention to
enter into a transaction (or series of related transactions) whereby a person or
entity, or persons or entities acting in concert, would acquire greater than 50
percent of the vote or value of any class of stock of Controlled, or more than
50 percent of Controlled's assets, in each case within the meaning of Section
355(e) of the Code. Controlled shall indemnify and hold Distributing harmless
against any Tax or other loss arising from Controlled's breach of any
representation in this Section 8 or if it takes any action that causes
Distributing to have liability with respect to the Distribution under Section
355(e) of the Code, provided, however, that Controlled shall not be considered
in breach of any representation or to have caused Distributing liability under
Section 355(e) of the Code if such liability would not have arisen but for
actions taken by Distributing with respect to which Controlled had no actual
knowledge prior to Controlled taking its action or entering into a definitive
agreement with respect thereto. Distributing shall, and shall cause each member
of the Distributing Group to, comply with each representation and written
statement made, or to be made, to any taxing authority. Distributing shall
reasonably cooperate with Controlled to provide information sufficient to allow
Controlled to analyze or determinate whether Distributing's activities could
contribute to cause Controlled to trigger a liability under Section 355(e) of
the Code.


Section 9. Indemnification.

         9.1 Timing in General. Unless otherwise specified in this Agreement,
all indemnification and other payments to be made pursuant to this Agreement
shall be made within 30 days of written notice of a request for indemnification
or payment by the Indemnified Party, which notice shall be accompanied by a
computation of the amount due.

         9.2 Special Timing Rules. If any indemnification or other payment is
required to be made under Section 5 and Section 6 of this Agreement upon the
actual or deemed realization by the Indemnifying Party of a Tax Benefit, such
payment shall be made no later than 30 days after the earlier of (a) the filing
or (b) the due date (including extensions) of the Tax Return with respect to
which such Tax Benefit is realized. The Parties shall cooperate in good faith in
enforcing the provisions of this Section 9.2, which cooperation shall include
the provision of reasonable access to the Tax Returns of the Indemnifying Party
by the Indemnified Party in order to determine the amount of any indemnification
or other payment to be made pursuant to this Section 9.2.

         9.3 Interest. Except as otherwise specifically provided herein, if any
indemnification payment required to be made pursuant to this agreement is not
made when due, such payment shall bear interest at a rate equal to the
prevailing five-year United States Treasury rate as published in the Wall Street
Journal plus 105 basis points.

         9.4 Treatment of Tax Indemnity and Tax Benefit Payments. In the absence
of any change in tax treatment under the Code or other applicable Tax Law, any
Tax indemnity payments or Tax Benefit payments made by a Party under this
Agreement shall be reported for Tax purposes by the payor and the recipient as
distributions or capital contributions, as


                                      14








appropriate, occurring immediately before the Distribution, but only to the
extent the payment does not relate to a Tax allocated to the payor in accordance
with Treas. Reg. 'SS' 1.1502-33(d) (or under corresponding principles of other
applicable Tax Laws).

         9.5 Tax Gross Up. If, notwithstanding the manner in which Tax indemnity
payments and Tax Benefit payments were reported, there is an adjustment to the
Tax liability of a Party as a result of its receipt of a payment pursuant to
this Agreement, such payment shall be appropriately adjusted so that the amount
of such payment, reduced by the amount of all Income Taxes payable with respect
to the receipt thereof (but taking into account all correlative Tax Benefits
resulting from the payment of such Income Taxes), shall equal the amount of the
payment which the party receiving such payment would otherwise be entitled to
receive pursuant to this Agreement.

         9.6 Interest Under This Agreement. Anything herein to the contrary
notwithstanding, to the extent an Indemnifying Party makes a payment of interest
to an Indemnified Party under this Agreement with respect to the period from the
date that the Indemnified Party made a payment of Tax to a Tax authority to the
date that the Indemnifying Party reimbursed the Indemnified Party for such Tax
payment, or with respect to the period from the date that the Indemnifying Party
received a Tax Benefit to the date Indemnifying Party paid the Tax Benefit to
the Indemnified Party, the interest payment shall be treated as interest expense
to the Indemnifying Party (deductible to the extent provided by law) and as
interest income by the Indemnified Party (includible in income to the extent
provided by law).


Section 10. Cooperation and Exchange of Information

         10.1 Information from Controlled. Controlled shall, and shall cause
each appropriate member of the Controlled Group to, provide (at Controlled's
cost and expense) Distributing with all information and other assistance
reasonably requested by Distributing to enable the members of the Distributing
Group to prepare and file the Tax Returns required or authorized to be filed by
them for any Tax Period pursuant to this Agreement and to respond to audits,
appeals and litigation with respect to such Returns to the extent that
Distributing is responsible for such audits under Section 6 of this Agreement.

         10.2 Information from Distributing. Distributing shall, and shall cause
each appropriate member of the Distributing Group to, provide (at Distributing's
cost and expense) Controlled with all information and other assistance
reasonably requested by Controlled to enable the members of the Controlled Group
to file the Tax Returns required to be filed by them pursuant to this Agreement
and to respond to audits, appeals and ligitation with respect to such Returns to
the extent that Controlled is responsible for such audits under Section 6 of
this Agreement.

         10.3 Tax Return Information. Within 5 days before filing a Tax Return
that affects the liability or the determination of the liability for Taxes of
any member of the Controlled Group by a member of the Distributing Group, such
member of the Distributing Group shall provide Controlled with a copy of only
that portion of such Tax Return which is relevant to the Controlled Group.

         10.4 General Cooperation. Distributing and Controlled agree to fully
cooperate with each other in connection with the preparation of all Tax Returns
required to be filed by


                                       15








them and in connection with responses to audits, appeals and litigation with
respect to such Returns consistent with the assignment of responsibility for
audits under Section 6 of this Agreement. Such cooperation shall include making
personnel and records available promptly and within 20 days (or such other
period as may be reasonable under the circumstances) after a request for such
personnel or records is made by the taxing authority or the other Party. If any
member of Distributing Group or the Controlled Group, as the case may be,
unreasonably fails to provide any information required pursuant to this Section,
then the requesting Party shall have the right to engage an independent
certified public accountant of its choice to gather such information.
Distributing or Controlled, as the case may be, agrees to permit any such
independent certified public accountant full access to the Tax Return
information in the possession of any member of the Distributing Group or
Controlled Group, as the case may be, during reasonable business hours, and to
reimburse or pay directly all costs and expenses in connection with the
engagement of such independent certified public accountant.

         10.5 Indemnification. Distributing shall indemnify and hold harmless
each member of the Controlled Group and its officers and employees, and
Controlled shall indemnify and hold harmless each member of the Distributing
Group and its officers and employees, against any cost, fine, penalty, or other
expenses of any kind attributable to the negligence of a member of the
Distributing Group or the Controlled Group, as the case may be, in supplying a
member of the other group with inaccurate or incomplete information, in
connection with the preparation of any Tax Return.

         10.6 Controlled Payroll and Unemployment Compensation Taxes For Periods
Ending On or After the Distribution Date. Distributing shall make available to
Controlled sufficient data to facilitate a determination of the desirability of
the transfer to the Controlled Group of any payroll tax experience and/or any
favorable unemployment compensation tax experience rating of Distributing; and
at Controlled's election, Distributing shall cooperate to effect a transfer of
such payroll tax experience and/or such favorable unemployment compensation
experience rating (including state unemployment reserves) to the Controlled
Group within one hundred and twenty (120) days after Controlled's written
request therefor.

         10.7 Research Tax Credit Information. Upon Controlled's request,
Distributing will timely furnish to Controlled the base period information the
Controlled Group will need, pursuant to Code Section 41 and similar statements,
to properly compute its research tax credits for years beginning after or on the
Distribution Date.


Section 11. Retention of Records.

         11.1 General. Distributing and Controlled agree to retain the
appropriate records which may affect the determination of the liability for
taxes of any member of the Distributing Group or the Controlled Group,
respectively, until such time as there has been a Final Determination with
respect to such liability for taxes.

         11.2 Notice of Waivers. Distributing and Controlled will notify each
other in writing of any waivers or extensions of the applicable statute of
limitations that may affect the period for which any materials, records, or
documents must be retained.


Section 12. Resolution of Disputes. The Parties hereto shall attempt in good
faith to resolve any dispute arising out of, or relating to, this Agreement (a
"Dispute") and shall


                                       16







attempt in good faith to negotiate a settlement of any Dispute. If, after the
filing of any Tax Return under this Agreement, the Parties hereto are unable to
resolve any disagreement or Dispute relating to such Tax Return or the
calculation of any payment under this Agreement, such Dispute shall be submitted
for resolution by the certified public accounting firms then acting as
independent auditors of each of Distributing and Controlled. If the independent
auditors cannot agree to a resolution, then such Dispute shall be submitted for
resolution by a third certified public accounting firm to be appointed by mutual
agreement of the independent auditors. Any decision by such third certified
public accounting firm shall be binding on the Parties to this Agreement without
further recourse.


Section 13. Termination of Prior Intercompany Tax Allocation
            Agreements. Immediately prior to the close of business on the
Distribution Date (i) all written or oral agreements or any other arrangements
relating to allocation of Taxes then existing between or among the Distributing
Group and the Controlled Group (other than this Agreement) shall be terminated,
and (ii) amounts due under such agreements as of the Distribution Date shall be
settled as of the Distribution Date (including capitalization or distribution of
amounts due or receivable under such agreements). Upon such termination and
settlement, no further payments by or to Distributing or by or to Controlled
with respect to such agreements shall be made, and all other rights and
obligations resulting from such agreements between the Parties and their
affiliates shall cease at such time. Any payments pursuant to such agreements
shall be ignored for purposes of computing amounts due under this Agreement. The
terms of this Section 13, do not impact any service agreements that exist
between Distributing or Controlled with respect to the provision of services for
audits, appeals and litigation matters.


Section 14. Miscellaneous.

         14.1 Term of the Agreement. This Agreement shall become effective as of
the date of its execution and, except as otherwise expressly provided herein,
shall continue in full force and effect until the expiration of the latest
applicable statute of limitations period.

         14.2 Severability. If any term, provision, covenant, or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions set forth herein shall remain in full force and effect, and shall
in no way be affected, impaired, or invalidated. It is hereby stipulated and
declared to be the intention of the Parties that they would have executed the
remaining terms, provisions, covenants, and restrictions without including any
of such which may be hereafter declared invalid, void, or unenforceable. In the
event that any such term, provision, covenant, or restriction is held to be
invalid, void, or unenforceable, the Parties hereto shall use their best efforts
to find and employ an alternate means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant, or
restriction.

         14.3 Assignment. Except by operation of law or in connection with the
sale of all or substantially all the assets of a Party hereto, this Agreement
shall not be assignable, in whole or in part, directly or indirectly, by any
Party hereto without the advance written consent of the other Party; and any
attempt to assign any rights or obligations arising under this Agreement without
such consent shall be void; provided, however, that the provisions of


                                       17







this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the Parties hereto and their respective successors and permitted
assigns.

         14.4 Further Assurances. Subject to the provisions hereof, the Parties
hereto shall make, execute, acknowledge, and deliver such other instruments and
documents, and take all such other actions, as may be reasonably required in
order to effectuate the purposes of this Agreement and to consummate the
transactions contemplated hereby. Subject to the provisions hereof, each of the
Parties shall, in connection with entering into this Agreement, performing its
obligations hereunder and taking any and all actions relating hereto, comply
with all applicable laws, regulations, orders, and decrees, obtain all required
consents and approvals and make all required filings with any governmental
agency, other regulatory or administrative agency, commission or similar
authority, and promptly provide the other Parties with all such information as
they may reasonably request in order to be able to comply with the provisions of
this sentence.

         14.5 Parties in Interest. Except as herein otherwise specifically
provided, nothing in this Agreement expressed or implied is intended to confer
any right or benefit upon any person, firm, or corporation other than the
Parties and their respective successors and permitted assigns.

         14.6 Waivers, Etc. No failure or delay on the part of the Parties in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise or any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure by the Parties therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.

         14.7 Setoff. All payments to be made by any Party under this Agreement
shall be made without setoff, counterclaim, or withholding, all of which are
expressly waived.

         14.8 Change of Law. If, due to any change in applicable law or
regulations or their interpretation by any court of law or other governing body
having jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated thereby shall become
impracticable or impossible, the Parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such provision.

         14.9 Confidentiality. Subject to any contrary requirement of law and
the right of each Party to enforce its rights hereunder in any legal action,
each Party agrees that it shall keep strictly confidential, any information
which it or any of its employees or agents may require pursuant to, or in the
course of performing its obligations under, any provision of this Agreement;
provided, however, that the Parties hereby consent to disclosure of this
Agreement to the IRS in connection with any ruling request made or to be made
relating to the Distribution.

         14.10 Headings. Descriptive headings are for convenience only and shall
not control or affect the meaning or construction of any provision of this
Agreement.


                                       18








         14.11 Counterparts. This Agreement may be executed in any two or more
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.

         14.12 Notices. All notices, consents, requests, instructions,
approvals, and other communications provided for herein shall be validly given,
made, or served, if in writing and delivered personally, by telegram or sent by
registered mail, postage prepaid, or by facsimile transmission to:

  If to Distributing, to it at:

         Pharmacia Corporation
         100 Route 206 North
         Peapack, New Jersey 07977
         Attention: General Counsel
         Facsimile Number: 908-901-8379

  With a copy to:

         Pharmacia Corporation
         100 Route 206 North
         Peapack, New Jersey 07977
         Attention: Vice President-Tax
         Facsimile Number: 908-901-8379

  If to Controlled, to it at:

         Monsanto Company
         800 North Lindbergh Boulevard
         St. Louis, Missouri 63167
         Attention: General Counsel
         Facsimile Number: 314-694-3011

  With a copy to:

         Monsanto Company
         800 North Lindbergh Boulevard
         St. Louis, Missouri 63167
         Attention: Vice President-Tax
         Facsimile Number: 314-694-5423

Or such other address as any Party may, from time to time, designate in a
written notice given in like manner. Notice given by telegram shall be deemed
delivered when received by the recipient. Notice given by mail as set above
shall be deemed delivered five calendar days after the date the same is mailed.
Notice given by facsimile transmission shall be deemed delivered on the day of
the transmission provided telephone confirmation or receipt is obtained promptly
after completion of transmission.


                                       19







         14.13 Costs and Expenses. Unless otherwise specifically provided
herein, each Party agrees to pay its own costs and expenses resulting from the
fulfillment of its respective obligations hereunder.

         14.14 Applicable Law. This Agreement shall be governed by and construed
and enforced in accordance with the domestic substantive laws of the State of
Delaware without regard to any choice or conflict of laws, rules, or provisions
that would cause the application of the domestic substantive laws of any other
jurisdiction.


IN WITNESS WHEREOF, the Parties, by their duly authorized officers, have
executed this Agreement as of the date first written above.



                                         PHARMACIA CORPORATION


                                         By: // A.J. Shoultz
                                             --------------------------
                                             Name:  A.J. Shoultz
                                             Title: Vice President - Tax


                                         MONSANTO COMPANY


                                         By: // Kevin P. Buchanan
                                             --------------------------
                                             Name:  Kevin P. Buchanan
                                             Title: Vice President - Tax



                                       20