-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RL1a8s5A5Pw3UFMY6J7vrI2xE34RZuwNz1AXczQfSq4r1M7ACeltmgHfCItKsccv Kfk0EbwHANi6igffSB2OJA== 0000950123-00-005116.txt : 20000517 0000950123-00-005116.hdr.sgml : 20000517 ACCESSION NUMBER: 0000950123-00-005116 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHARMACIA CORP /DE/ CENTRAL INDEX KEY: 0000067686 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 430420020 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02516 FILM NUMBER: 636487 BUSINESS ADDRESS: STREET 1: 100 ROUTE 206 NORTH CITY: PEAPACK STATE: NJ ZIP: 07977 BUSINESS PHONE: 888-768-5501 MAIL ADDRESS: STREET 1: 100 ROUTE 206 NORTH CITY: PEAPACK STATE: NJ ZIP: 07977 FORMER COMPANY: FORMER CONFORMED NAME: MONSANTO CO DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MONSANTO CHEMICAL CO DATE OF NAME CHANGE: 19711003 10-Q 1 PHARAMCIA CORPORATION 1 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 March 31, 2000 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 43-0420020 (State of incorporation) (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 (Formerly Monsanto Company, 800 North Lindbergh Blvd., St. Louis, MO 63167) 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 May 4, 2000 was 1,269,325,253. Page 1 of 27 pages The exhibit index is set forth on page 25 1 2 QUARTERLY REPORT ON FORM 10-Q PHARMACIA CORPORATION QUARTER ENDED MARCH 31, 2000 INDEX OF INFORMATION INCLUDED IN REPORT
Page ---- PART I - FINANCIAL INFORMATION 3 - ----------------------------------------------------------------------------------------------------- ITEM 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 - UNAUDITED 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 23 PART II - OTHER INFORMATION 24 - ------------------------------------------------------------------------------------------------------ ITEM 1. LEGAL PROCEEDINGS 24 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 25 ITEM 5. OTHER INFORMATION 25 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 26
2 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements PHARMACIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS For the three months ended March 31 (In millions of U.S. dollars, except per-share data)
======================================================================== Unaudited 2000 1999 - ------------------------------------------------------------------------- Net sales $ 4,293 $ 4,100 Cost of products sold 1,405 1,377 Research and development 700 710 Selling, general and administrative 1,602 1,369 Goodwill amortization 57 61 Interest expense 97 105 Interest income (29) (28) Merger and restructuring 461 -- All other, net (59) (6) - ------------------------------------------------------------------------- Earnings from continuing operations before income taxes 59 512 Provision for income taxes 19 180 - ------------------------------------------------------------------------- Earnings from continuing operations 40 332 Discontinued operations Earnings from discontinued operations, net of tax -- 12 Gain of sale of discontinued operations, net of tax 58 -- - ------------------------------------------------------------------------- Earnings before cumulative effect of accounting change 98 344 Cumulative effect of a change in accounting principle, net of tax -- (20) - ------------------------------------------------------------------------- Net earnings $ 98 $ 324 ======================================================================== ======================================================================== Net earnings per common share: Basic Earnings from continuing operations $ .03 $ .26 Net earnings .07 .25 Diluted Earnings from continuing operations .03 .26 Net earnings .07 .25 ========================================================================
Consolidated results for all periods presented have been restated retroactively for the effects of the March 31, 2000 merger involving a subsidiary of Monsanto Company and Pharmacia & Upjohn, Inc. accounted for as a pooling of interests. See Note B. See accompanying notes. 3 4 PHARMACIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions of U.S. dollars) (Unaudited) For the three months ended March 31
===================================================================================== 2000 1999 - ------------------------------------------------------------------------------------- Net cash (required) by continuing operations $ (764) $(1,073) Net cash provided (required) by discontinued operations 21 (60) Net cash (required) by operations $ (743) $(1,133) - ------------------------------------------------------------------------------------- Cash flows provided (required) by investment activities: Proceeds from sale of subsidiaries 64 35 Additions of properties (320) (293) Proceeds from sales of investments 73 116 Purchases of investments (41) (30) Proceeds from discontinued operations 570 327 Other (20) (30) - ------------------------------------------------------------------------------------- Net cash (required) provided by investment activities 326 125 - ------------------------------------------------------------------------------------- Cash flows provided (required) by financing activities: Proceeds from issuance of debt 7 59 Repayment of debt (36) (55) Payments of ESOP debt (31) (22) Net increase in debt with initial maturity of 90 days or less 151 1,465 Dividend payments (163) (160) Purchases of treasury stock -- (144) Proceeds from exercise of stock options 89 66 Other -- 1 - ------------------------------------------------------------------------------------- Net cash provided by financing activities 17 1,210 - ------------------------------------------------------------------------------------- Effect of exchange rate changes on cash (25) (27) - ------------------------------------------------------------------------------------- Net change in cash and cash equivalents (425) 175 Cash and cash equivalents, beginning of year 1,600 970 - ------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 1,175 $ 1,145 =====================================================================================
Consolidated results for all periods presented have been restated retroactively for the effects of the March 31, 2000 merger involving a subsidiary of Monsanto Company and Pharmacia & Upjohn, Inc. accounted for as a pooling of interests. See Note B. See accompanying notes. 4 5 PHARMACIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
================================================================================ (In millions of U.S. dollars) (Unaudited) March 31, December 31, 2000 1999 - -------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 1,175 $ 1,600 Short-term investments 98 138 Trade accounts receivable, less allowance of $268 (1999: $271) 4,886 4,131 Inventories 2,782 2,905 Other current assets 1,896 1,908 - -------------------------------------------------------------------------------- Total current assets 10,837 10,682 Long-term investments 543 476 Properties, net 6,840 6,825 Goodwill and other intangible assets, net 5,665 5,796 Other noncurrent assets 2,144 1,858 Net assets of discontinued operations 968 1,557 - -------------------------------------------------------------------------------- Total assets $ 26,997 $ 27,194 ================================================================================ ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt, including current maturities of long-term debt $ 3,154 $ 1,992 Accounts payable 992 1,272 Other current liabilities 3,598 3,910 - -------------------------------------------------------------------------------- Total current liabilities 7,744 7,174 Long-term debt and guarantee of ESOP debt 5,175 6,236 Other noncurrent liabilities 2,861 2,873 - -------------------------------------------------------------------------------- Total liabilities 15,780 16,283 - -------------------------------------------------------------------------------- Shareholders' equity: Preferred stock, one cent par value; at stated value; authorized 10,000,000 shares; issued 6,640 shares (1999: 6,692 shares) 267 270 Common stock, two dollar par value; authorized 3,000,000,000 shares; issued 1,467,084,000 shares (1999: 1,465,381,000 shares) 2,934 2,931 Capital in excess of par value 2,100 1,791 Retained earnings 10,633 10,696 ESOP-related accounts (333) (330) Treasury stock (2,375) (2,432) Accumulated other comprehensive (loss) (2,009) (2,015) - -------------------------------------------------------------------------------- Total shareholders' equity 11,217 10,911 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 26,997 $ 27,194 ================================================================================
Consolidated financial position for all periods presented has been restated retroactively for the effects of the March 31, 2000 merger involving a subsidiary of Monsanto Company and Pharmacia & Upjohn, Inc. accounted for as a pooling of interests. See Note B. See accompanying notes. 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (ALL U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE DATA) Trademarks of Pharmacia Corporation and its subsidiaries are indicated in all upper case letters. In the notes that follow, per-share amounts are presented on a diluted, after-tax basis. The term "the company" is used to refer to Pharmacia Corporation or to Pharmacia Corporation and its subsidiaries, as appropriate to the context. A - INTERIM CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial information presented herein is unaudited. The interim financial statements and notes thereto do not include all disclosures required by generally accepted accounting principles and should be read in conjunction with the financial statements and notes thereto included in the latest annual reports of Monsanto Company and Pharmacia & Upjohn, Inc. filed on Forms 10-K. The 1999 financial statements of Pharmacia Corporation (the company), formed by the merger involving Monsanto Company and Pharmacia & Upjohn in March 2000 (see Note B), are being filed on Form 8-K in May 2000. In the opinion of management, the interim 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. In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires companies to record derivatives on the balance sheet as assets and liabilities measured at fair value. The accounting treatment of gains and losses resulting from changes in the value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. The company expects to adopt SFAS No. 133 as of January 1, 2001, and is currently assessing the impact of adoption on its financial position, results of operations, and liquidity. In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin (SAB) No. 101, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the Commission. Implementation of this guidance is required no later than the second quarter of this year. The company is currently in the process of analyzing the implications of the document on previously reported revenues. Prior to the March 31, 2000 merger, Monsanto had effected an accounting change with respect to SAB No. 101 in relation to one specific contract (See Note I). B - MERGER On March 31, 2000, the company completed a merger accounted for as a pooling of interests. The merger was accomplished according to an Agreement and Plan of Merger dated December 19, 1999 as amended on February 18, 2000, whereby a wholly owned subsidiary of formerly Monsanto Company merged with and into Pharmacia & Upjohn and Monsanto Company changed its name to Pharmacia Corporation. Monsanto was a life sciences company, committed to finding solutions to the growing global needs for food and health by applying common forms of science and technology to agriculture, nutrition and health. Monsanto manufactured, researched and marketed high-value agricultural products, pharmaceuticals and nutrition-based health products. Pharmacia & Upjohn was a global pharmaceutical group engaged in the research, development, manufacture and sale of pharmaceutical and health care products. 6 7 Pursuant to the merger agreement, each share of common stock of Pharmacia & Upjohn issued and outstanding was converted into 1.19 shares of common stock of Pharmacia Corporation and each share of Series A Convertible Perpetual Preferred Stock of Pharmacia & Upjohn issued and outstanding was converted into one share of a new series of convertible preferred stock of Pharmacia Corporation designated as Series B Convertible Perpetual Preferred Stock. The Series B preferred shares have a conversion ratio into common shares of 1,725.5:1. Approximately 620 million shares of common stock were issued and approximately 6,640 shares of preferred stock were issued. As the merger was accounted for as a pooling of interests under Accounting Principles Board Opinion No. 16, all prior period consolidated financial statements have been restated to reflect the combined results of operations, financial position and cash flows of both companies as if they had always been combined. There were no material transactions between Monsanto Company and Pharmacia & Upjohn prior to the combination. Certain reclassifications have been made to conform the respective earnings statement and balance sheet presentations. The results of operations for the separate companies and the combined amounts as presented in the consolidated financial statements follow.
=================================================== Three months ended March 31 2000 1999 - --------------------------------------------------- Net sales: Pharmacia & Upjohn $ 1,807 $ 1,774 Monsanto Company 2,486 2,326 - --------------------------------------------------- Combined $ 4,293 $ 4,100 =================================================== Net earnings: Pharmacia & Upjohn $ 186 $ 211 Monsanto Company (88) 113 - --------------------------------------------------- Combined $ 98 $ 324 ===================================================
In connection with the merger, the company recorded approximately $460 in merger-related costs comprised, in part, of transaction costs including investment bankers, attorneys, registration and regulatory fees and other professional services. In addition, these costs included various employee incentive and change-of-control costs directly associated with the merger. The latter includes a non-cash charge of $232 related to certain employee stock options that were repriced in conjunction with the merger pursuant to a change of control provisions. Pursuant to the terms of these "premium options," at consummation of the merger, the original above-market exercise price was reduced to equal the fair market value on the date of grant. 7 8 C - INVENTORIES
- ------------------------------------------------------------------------- March 31, December 31, 2000 1999 - ------------------------------------------------------------------------- Estimated replacement cost (FIFO basis): Pharmaceutical, Agricultural and other finished products $ 1,189 $ 1,281 Raw materials, supplies and work-in-process 1,805 1,794 - ------------------------------------------------------------------------- Inventories (FIFO basis) 2,994 3,075 Less reduction to LIFO cost (212) (170) - ------------------------------------------------------------------------- $ 2,782 $ 2,905 =========================================================================
Inventories valued on the LIFO method had an estimated replacement cost (FIFO basis) of $1,166 at March 31, 2000, and $1,038 at December 31, 1999. D - CONTINGENT LIABILITIES AND LITIGATION The condensed consolidated balance sheets include accruals for estimated product and intellectual property litigation and environmental liabilities. The latter includes exposures related to discontinued operations, including the industrial chemical facility referred to below and several sites which, 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. With regard to the company's discontinued industrial chemical facility in North Haven, Connecticut, the company will soon be required to submit a corrective measures study report to the U.S. Environmental Protection Agency (EPA). It now appears likely that this report will need to be submitted for EPA review in the latter part of 2000, at which time it may become appropriate to reevaluate the existing reserves designated for remediation in light of changing circumstances. 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. In April 1999, a jury verdict was returned against DEKALB Genetics Corporation, a subsidiary of the company in a lawsuit filed in U.S. District Court in North Carolina. The lawsuit claims that a 1994 license agreement was induced by fraud stemming from nondisclosure of relevant information and that DEKALB did not have the right to license, make or sell products using the plaintiffs technology for glyphosate resistance under this agreement. The jury awarded $15 in actual damages for unjust enrichment and $50 in punitive damages. DEKALB has appealed this verdict, has meritorious grounds to overturn the verdict and intends to vigorously pursue all available means to have the verdict overturned. No provision has been made in the company's consolidated financial statements with respect to the award for punitive damages. 8 9 On March 20, 1998, a jury verdict was returned against the company in a lawsuit filed in the California Superior Court. The lawsuit claims that the company delayed providing access to certain gene technology under a 1989 agreement. The jury awarded $175 in future damages. The company has filed an appeal and has no provision established in the company's consolidated financial statements with respect to this verdict. The company intends to defend itself vigorously against this action. G. D. Searle & Co. and Pharmacia & Upjohn, Inc., subsidiaries of the company have been parties along with a number of other defendants (both manufacturers and wholesalers) in several federal civil antitrust lawsuits, some of which were consolidated and transferred to the Federal District Court for the Northern District of Illinois. These suits, brought by independent pharmacies and chains, generally allege unlawful conspiracy, price discrimination and price fixing and, in some cases, unfair competition. These suits specifically allege that the defendants violated the following: (1) the Robinson-Patman Act by giving substantial discounts to hospitals, nursing homes, mail-order pharmacies and health maintenance organizations ("HMOs") without offering the same discounts to retail drugstores, and (2) Section I of the Sherman Antitrust Act by entering into agreements with other manufacturers and wholesalers to restrict certain discounts and rebates so they benefited only favored customers. The Federal District Court for the Northern District of Illinois certified a national class of retail pharmacies in November 1994. A similar action is pending by a proposed retailer class in the state court of California. Eighteen class action lawsuits seeking damages based on the same alleged conduct have been filed in 14 states and the District of Columbia. The plaintiffs claim to represent consumers who purchased prescription drugs in those jurisdictions and four other states. Two of the lawsuits have been dismissed. Pharmacia & Upjohn announced in 1998 that it reached a settlement with the plaintiffs in the federal class action cases for $103; and Searle received a favorable verdict in 1999. Although the results of litigation cannot be predicted with certainty, management's belief is that any potential remaining liability that might exceed amounts already accrued will not have a material adverse effect on the company's consolidated financial position, profitability or liquidity. E - COMPREHENSIVE INCOME (LOSS) Comprehensive income was $104 and $(150) for the three months ended March 31, 2000 and March 31, 1999, respectively. F - 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. Under these assumptions, the weighted-average number of common shares outstanding is increased accordingly, and net earnings is reduced by an incremental contribution to the applicable Employee 9 10 Stock Ownership Plan (ESOP). This contribution is the after-tax difference between the income that the ESOP would have received from the preferred stock and the assumed dividend yield to be earned on the common shares. The following table reconciles the numerators and denominators of the basic and diluted earnings per share computations on earnings from continuing operations:
- ---------------------------------------------------------------------------------------------- For the three months ended March 31, 2000 1999 Basic Diluted Basic Diluted - ---------------------------------------------------------------------------------------------- EPS numerator: Earnings from continuing operations $ 40 $ 40 $ 332 $ 332 Less: Preferred stock dividends, net of tax (3) -- (3) -- Less: ESOP contribution, net of tax -- (1) -- (1) - ---------------------------------------------------------------------------------------------- Earnings from continuing operations available to common shareholders $ 37 $ 39 $ 329 $ 331 ============================================================================================== - ---------------------------------------------------------------------------------------------- For the three months ended March 31, 2000 1999 Basic Diluted Basic Diluted - ---------------------------------------------------------------------------------------------- EPS denominator: Average common shares outstanding 1,257 1,257 1,246 1,246 Effect of dilutive securities: Stock options -- 17 -- 25 Convertible preferred stock and incentive compensation -- 12 -- 12 - ---------------------------------------------------------------------------------------------- Total shares 1,257 1,286 1,246 1,283 ============================================================================================== - ---------------------------------------------------------------------------------------------- Earnings per share Continuing operations $ .03 $ .03 $ .26 $ .26 ==============================================================================================
G - SEGMENT INFORMATION The company operates in two primary segments: pharmaceuticals and agricultural products. The pharmaceutical segment consists principally of prescription and nonprescription products for humans and animals, bulk pharmaceuticals and contract manufacturing. The agricultural segment develops, produces and markets crop protection products, seeds, and related traits. The following tables show net sales and earnings for the company's segments. Information about segment assets, interest income and expense, and income taxes is not provided as the segments are reviewed based on earnings before interest and income taxes. Assets are not allocated to segments. Corporate support functions and restructuring charges are not allocated to segments. There are no intersegment revenues. Depreciation is not available on a segment basis. 10 11
- ---------------------------------------------------------------------------------------------- Sales Earnings For the quarter ended March 31, 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------- Pharmaceutical $ 2,851 $ 2,617 $ 518 $ 453 Agricultural 1,442 1,483 245 268 - ---------------------------------------------------------------------------------------------- $ 4,293 $ 4,100 763 721 ======= ======= Unallocated corporate and other (636) (132) - ---------------------------------------------------------------------------------------------- Earnings from continuing operations before interest and taxes* $ 127 $ 589 Interest expense, net 68 77 - ---------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes $ 59 $ 512 ==============================================================================================
* 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 generally accepted accounting principles. Determination of EBIT may vary from company to company. As a result of the recent merger involving a subsidiary of Monsanto Company and Pharmacia & Upjohn, management reporting methodologies will tend to evolve and segment definition and related disclosures may change in future periods. H - DISCONTINUED OPERATIONS On July 1, 1999, the company announced its intention to sell the artificial sweetener (bulk aspartame and tabletop sweeteners) and biogum businesses. In addition, the company's Board of Directors approved, in 1998, the divestiture of the alginates and ORTHO lawn-and-garden products business. Net sales, income and net assets from discontinued operations in the first quarter of 2000 include bulk aspartame, biogums and nearly three months of the tabletop sweeteners businesses. Net sales, income and net assets from discontinued operations in 1999 include the alginates, biogums, bulk aspartame, tabletop sweeteners businesses and nearly one month of the ORTHO lawn-and-garden products business. Net sales, income and net assets from discontinued operations are as follows:
- ------------------------------------------------------------------------- Three months ended March 31, 2000 1999 - ------------------------------------------------------------------------- Net Sales $ 160 $ 235 - ------------------------------------------------------------------------- Earnings from discontinued operations, before tax -- 18 Gain on sale of discontinued operations, before tax 61 -- Discontinued operations income tax provision 3 6 - ------------------------------------------------------------------------- Earnings from discontinued operations $ 58 $ 12 - ------------------------------------------------------------------------- Diluted earnings per share: Discontinued operations $ -- $0.01 Gain on sale of discontinued operations 0.04 -- - ------------------------------------------------------------------------- Total discontinued operations earnings per share 0.04 0.01 =========================================================================
11 12
Net assets of discontinued operations as of: Mar. 31, Dec. 31, 2000 1999 - -------------------------------------------------------------------- Current assets $ 386 $ 545 Non-current assets 818 1,240 - -------------------------------------------------------------------- Total Assets $1,204 $1,785 ==================================================================== Current liabilities $ 233 $ 213 Non-current liabilities 3 15 - -------------------------------------------------------------------- Total liabilities $ 236 $ 228 ==================================================================== Net assets of discontinued operations $ 968 $1,557 ====================================================================
On March 20, 2000, the company completed the sale of the tabletop sweeteners business to Merisant Company for $570 cash. Proceeds from the sale will be used to pay down debt and for other corporate purposes. On March 27, 2000, the company announced the signing of a definitive agreement to sell the artificial sweeteners business, including the NUTRASWEET brand, to J.W. Childs Equity Partners II, L.P. for $440. On February 22, 2000, the company announced the signing of a definitive agreement to sell the biogums business to a joint venture between Hercules, Inc. and Lehman Brothers Merchant Banking Partners II, L.P. for $685. Closings of the latter two transactions are subject to customary closing conditions and are anticipated to occur during the second quarter of 2000. The net after-tax gain recognized during the first quarter of 2000 on these transactions was $58. In addition, the company announced the signing of a definitive agreement to sell its interest in two European joint venture companies, NutraSweet A.G., and Euro-Aspartame S.A., to Ajinomoto Co. Inc. for $67. I - ACCOUNTING CHANGE In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" (SAB 101). SAB 101 provides guidance related to revenue recognition. SAB 101 allows companies to report any changes in revenue recognition related to adopting its provisions as an accounting change at the time of implementation in accordance with APB Opinion No. 20, "Accounting Changes." In response to a specific dialogue with the SEC, the company recorded a cumulative effect of a change in accounting principle, effective January 1, 1999, for revenue recognized in 1998 related to the sale of certain marketing rights. The effect on earnings in 1999 was an after-tax loss of $20 ($0.02 per share), net of taxes of $12. The pretax amount of $32 will be amortized to income over twenty years. The proforma effect of this change on the first quarter was immaterial. The company is currently in the process of assessing whether or not there may be other revenue recognition issues to which SAB 101 applies and has not yet determined the effect, if any, that potential changes may have on consolidated financial position or results of operations. Companies must adopt SAB 101 no later than June 30, 2000, effective as of January 1, 2000. 12 13 J - RESTRUCTURINGS During 1999, the company recorded $54 in restructuring expenses which is comprised of $57 of restructuring charges related to Pharmacia & Upjohn's merger with SUGEN, INC. net of a $3 adjustment to the 1998 turnaround restructuring. The charge included costs pertaining to reorganizations that will result in the elimination of certain research and development (R&D) projects as well as the elimination of 375 employee positions impacting the pharmaceutical segment and corporate and administrative functions. The objective of the restructuring is to eliminate duplicate functions and investments in R&D as well as reorganize the sales force based on anticipated future requirements of the company. During the first quarter of 2000, $5 was paid and charged against the liability. These amounts related to a portion of separation benefits for the approximately 20 employees severed during the first quarter as well as those terminated during 1999. The company anticipates all activities associated with this restructuring to be substantially complete at the end of 2000. The remaining cash expenditures relating to this restructuring total $46 and are expected to be made during 2000 with some separation annuity payments being completed in 2001. At March 31, 2000, $29 remained of the restructuring accruals made during 1998 by Pharmacia & Upjohn related to a comprehensive turnaround program. The balance primarily represents annuity payments that will extend into 2001. In the fourth quarter of 1998, the company recorded net restructuring charges of $327 as part of an approved plan to close facilities, reduce the current workforce and exit nonstrategic businesses. The activities Monsanto planned to exit in connection with this plan principally comprised of a tomato business and a business involved in the operation of membership-based health and wellness centers. The charge of $327 was comprised of facility shut-down charges of $99, workforce reduction costs of $103 and asset impairments and other costs of $125. During the first quarter of 2000, 297 employees were severed at a cost of approximately $26. Cash outflows associated with these separations were charged against the 1998 restructuring liability. Additional charges and adjustments of the 1998 accrual amounting to $7 were made during the quarter. The company expects to complete the remaining restructuring actions within the originally planned time frame.
- ---------------------------------------------------------- Workforce Facility Reductions Closures Balance - ---------------------------------------------------------- December 31, 1999 $40 $ 4 $44 Additions -- -- -- Deductions 30 3 33 - ---------------------------------------------------------- Balance March 31, 2000 $10 $ 1 $11 ==========================================================
13 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Trademarks of Pharmacia Corporation and its subsidiaries are indicated in all upper case letters. In the following discussion of consolidated results, per-share amounts are presented on a diluted, after-tax basis. The term "the company" is used to refer to Pharmacia Corporation or to Pharmacia Corporation and its subsidiaries, as appropriate to the context. FINANCIAL REVIEW OVERVIEW On March 31, 2000, a subsidiary of Monsanto Company and Pharmacia & Upjohn merged and Monsanto was renamed Pharmacia Corporation (the company). The merger was accounted for as a pooling of interests. As such, all data presented herein are reflective of the combined results of operations of the two predecessor companies, their statements of financial position and their cash flows as though they had always been combined, by applying consistent disclosures and classification practices. The table below provides a comparative overview of consolidated results for the first quarters of 2000 and 1999 in millions of U.S. dollars, except per-share data.
- ------------------------------------------------------------------------------------- Percent 2000 Change 1999 - ------------------------------------------------------------------------------------- Net sales $ 4,293 5% $ 4,100 Earnings from continuing operations before interest and income taxes* 127 (78) 589 Earnings from continuing operations 40 (88) 332 Discontinued operations 58 n.m. 12 Cumulative effect of an accounting change -- n.m. (20) Net earnings 98 (70) 324 Earnings per common share: Continuing operations: Basic $ .03 (89) $ .26 Diluted .03 (89) .26 Net earnings Basic .07 (72) .25 Diluted .07 (72) .25 - -------------------------------------------------------------------------------------
n.m. = not meaningful * 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 generally accepted accounting principles. Determination of EBIT may vary from company to company. Year-to-year comparisons are complicated by a number of factors including charges incurred during the first quarter of 2000 specifically related to the merger (approximately $460 million before tax, $320 million after tax or $0.25 per share) and a charitable cash contribution of $100 million ($62 million after tax or $0.05 per share). Also, divestments of certain product lines not accounted for as discontinued operations should be taken into account when comparing sales growth rates. 14 15 NET SALES Consolidated sales increased 5 percent in the first quarter of 2000 as compared to the first quarter of 1999. Excluding sales of the divested Nutrition (Pharmacia & Upjohn nutritional therapies business) and Stoneville Pedigreed Seed Company business (Stoneville), sales growth for continuing businesses was 6 percent. Currency exchange had a 2 percent unfavorable effect on combined sales as the strength of the Japanese yen was offset by weak European currencies. The continued implementation of the Company's ROUNDUP pricing stratregy negatively affected consolidated net sales by one percent. More than offsetting the adverse effects of exchange and price variances, volume increases contributed 9 percent to consolidated sales growth. Pharmaceutical sales growth was 10 percent on a year-to-year basis when Nutrition sales are eliminated from the calculation. Pharmaceutical sales in this context consist of the former Pharmacia & Upjohn businesses and the pharmaceutical business of Monsanto's Searle unit. Divestiture of the Nutrition business began in December 1998 and concluded in the first quarter of 2000 with the closing of the sale of the China operation. Agricultural sales declined 2 percent, exclusive of Stoneville, sold in August 1999. The company reports its operations within the two segments indicated in the table below. Sales of divested businesses have been excluded from the analysis.
- --------------------------------------------------------------------- Percent Three months ended March 31, 2000 Change 1999 - --------------------------------------------------------------------- Sales: Pharmaceuticals $ 2,845 10% $ 2,587 Agricultural products 1,442 (2) 1,466 - --------------------------------------------------------------------- Total sales, excluding divested businesses $ 4,287 6% $ 4,053 Earnings: Pharmaceuticals EBIT* $ 518 14% $ 453 Agricultural products EBIT* 245 (9) 268 - --------------------------------------------------------------------- EBIT from operations 763 721 Corporate and other (636) (132) - --------------------------------------------------------------------- Consolidated EBIT* 127 589 Interest expense (68) (77) Income tax provision (19) (180) - --------------------------------------------------------------------- Net Earnings from continuing Operations $ 40 $ 332 =====================================================================
* 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 generally accepted accounting principles. Determination of EBIT may vary from company to company. As a result of the recent merger, management is still in the process of defining the segments and the financial metric that will be used to measure segment performance. Therefore, segment reporting will tend to evolve and may change in future periods. 15 16 PHARMACEUTICAL SEGMENT - As evidenced in the table below, pharmaceutical sales in the U.S. rose 14 percent in the quarter while sales outside the U.S. increased 6 percent. The proportion of global pharmaceutical sales in the U.S. is 52 percent. In Japan, the company's second largest market, sales increased 24 percent reflecting improved performance and a favorable currency effect. Sales performance by country in the following table is based on location of customer and is in millions of U.S. dollars.
- ---------------------------------------------------------------------------------------------- Percent Change Net Excluding Percent Currency Three months ended March 31, 2000 Change Effect* 1999 - ---------------------------------------------------------------------------------------------- United States $1,485 14% 14% $ 1,305 Japan 209 24 14 168 Italy 137 (3) 9 141 Germany 108 (9) (3) 119 United Kingdom 102 (3) (1) 105 France 90 (14) (2) 104 Rest of world 714 11 16 645 - ---------------------------------------------------------------------------------------------- Total sales, excluding divested businesses 2,845 10 12 2,587 Divested business 6 n/a n/a 30 - ---------------------------------------------------------------------------------------------- Consolidated pharmaceutical sales $ 2,851 9% 11% $ 2,617 ==============================================================================================
* Underlying growth reflects the percentage change excluding currency exchange effects. A period-to-period consolidated net sales comparison of the company's top 20 pharmaceutical products (including generic equivalents where applicable) is provided in the table below.
- --------------------------------------------------------------------- (U.S. dollars in millions) Net Percent Three months ended March 31, 2000 Change 1999 - --------------------------------------------------------------------- CELEBREX $ 534 92% $ 279 XALATAN 161 58 102 GENOTROPIN 113 7 105 AMBIEN 103 15 89 DETROL/DETRUSITOL 100 55 65 XANAX 84 (5) 88 CLEOCIN/DALACIN 80 (12) 91 CAMPTOSAR 80 25 64 MEDROL 66 (14) 77 FRAGMIN 58 14 51 ARTHROTEC 56 (34) 86 DEPO-PROVERA 56 (15) 66 NICORETTE 55 (9) 60 PHARMORUBICIN/ELLENCE 51 9 46 COVERA/CALAN/VERAPAMIL 40 (16) 47 DAYPRO 36 (50) 73 ROGAINE 32 24 26 HEALON 30 (7) 32 MIRAPEX/MIRAPEXIN 30 61 19 CABASER/DOSTINEX 25 47 17 - --------------------------------------------------------------------- Total $1,790 21% $1,483 =====================================================================
16 17 CELEBREX is the company's leading product and the number one selling brand of prescription arthritis medication in the world. Since its introduction in the U.S. in January 1999 and subsequent approval in 46 countries, more than 21 million prescriptions have been written for CELEBREX. In March 2000, CELEBREX was approved in the European Union under the Mutual Recognition Process, creating opportunities for provision of European product licenses and launches during the remainder of the year. In the majority of Europe, as in the U.S., CELEBREX will be co-promoted by Pfizer, Inc. Also, during the first quarter, the company began promotion of CELEBREX for adjunctive treatment of familial adenomatous polyposis, a genetic precursor to colorectal cancer. XALATAN is the world's largest selling product for the treatment of glaucoma. Sales growth in the first quarter continued at a robust pace of 58 percent as XALATAN gains additional share in key markets including the U.S. and Japan, the two largest markets for glaucoma treatments. The 1999 launch of XALATAN in Japan was the company's most successful to date and is a key driver of sales growth outside the U.S. Sales of DETROL, the leading treatment for overactive bladder with symptoms of urinary urgency, frequency and urge incontinence, increased to $100 million based on increasing sales both in and outside the U.S. In an effort to further the development of the overactive bladder treatment market, the company recently expanded its promotional efforts in the U.S. by adding 466 representatives to the field sales force bringing the total U.S. DETROL sales force to 1,800 representatives - more than double that of the largest competitor. Sales of AMBIEN, the market-leading short-term treatment for insomnia in the U.S., increased 15% as the market for prescription insomnia treatments has grown with the entry of a new competitor. Despite the new competition, AMBIEN maintained a market share of greater than 50% and prescription volume continues to increase. GENOTROPIN is the world's leading growth hormone. Sales growth during the quarter was driven by rapid growth in the U.S. where over 40% of all new patients are being treated with GENOTROPIN and the company launched a new convenience device, GENOTROPIN Miniquick, expanding the market potential. In Europe, GENOTROPIN has a stable but very large market share, while in Japan, GENOTROPIN is gaining share in a market that is contracting due to government imposed prescribing restrictions and price reductions. Among other key pharmaceutical products that grew faster than the average are CAMPTOSAR for colorectal cancer, FRAGMIN for prevention of blood clots, MIRAPEX for Parkinson's disease and ROGAINE for hair loss. CAMPTOSAR sales grew 25% as it is being used earlier in the treatment of patients with colorectal cancer. Based on new clinical data that indicate CAMPTOSAR use is associated with increased survival in patients with colorectal cancer, in March an FDA advisory committee unanimously recommended CAMPTOSAR for approval as a first-line therapy for the treatment of colorectal cancer. Growth in the quarter was slowed by wholesaler inventory build-up of CAMPTOSAR during the fourth quarter of 1999. FRAGMIN is growing in the U.S. as the product is being added to hospital formularies following FDA approval for two new indications in 1999 - use in hip surgery and use in the treatment of unstable coronary artery disease. Several products experienced declines in the quarter. Arthritis treatments ARTHROTEC and DAYPRO experienced reductions in sales volume as the Cox-2 inhibitors, led by CELEBREX, take a larger share of the U.S. market. Sales of a number of older products including XANAX (CNS), CLEOCIN (antibiotic) and MEDROL (steroid) declined in part as a result of reduced trade inventories. 17 18 In other developments, the company launched AROMASIN for advanced breast cancer, and acquired U.S. marketing rights for three hormone replacement therapy products from Novo Nordisk. One of these products, ACTIVELLA, was recently approved by the FDA for the additional indication of prevention of osteoporosis in menopausal patients. Pharmacia recently received FDA approval for ZYVOX, the first antibiotic from a completely new class of antibiotics in over 30 years. ZYVOX is indicated for the treatment of patients with severe Gram-positive infections including pneumonia, skin and skin structure infections, and bacteremia. ZYVOX is also indicated for the treatment of patients with hospital-acquired pneumonia caused by resistant bacteria. ZYVOX will be launched in the U.S. during the second quarter and is pending approval in Europe. Pharmaceutical segment EBIT improved 14% in 1999 compared with 1998. Gross margin increased nearly 10% due to a more profitable product mix within the segment. Newer pharmaceutical products, representing an increasing percentage of the company's sales, are contributing a higher gross margin. These favorable trends were partially offset by unfavorable manufacturing variances and a higher level of sales from low-margin contract or toll manufacturing. Costs associated with research and development activities were nearly comparable quarter-to-quarter and represented a lower percentage of sales, 20% in 2000 versus 21% in 1999, due to the strong revenue growth. SG&A expenses rose in total dollars and percentage versus the prior year quarter primarily as the result of a charitable contribution in the first quarter of 2000. SG&A expenses also reflect continuing investments in worldwide sales force expansions particularly in Japan in support of XALATAN, launched in May 1999, and in the U.S. as well increased promotional costs related to CELEBREX and XALATAN. AGRICULTURAL PRODUCTS SEGMENT- Net sales for the agricultural segment were down 2 percent from the prior-year quarter. Revenues for ROUNDUP herbicide decreased 5 percent as volume gains were offset by a combination of lower prices and a less favorable product mix. Volumes for ROUNDUP increased 12 percent on a global basis with volume gains of more than 20% in the U.S. and Europe. Net sales from all seeds and biotechnology traits decreased one percent compared with the first quarter of 1999. Sales of cotton traits were strong, driven by increased demand, particularly for seeds stacked with both the ROUNDUP Ready and Bollgard traits. Revenues for ROUNDUP lawn-and garden herbicide grew 30 percent year-to-year. ROUNDUP lawn-and garden is sold to consumer outlets through a marketing and distribution agreement with Scotts. Sixty-two percent of first-quarter agricultural sales in 2000 were in the U.S. compared to 61 percent the prior year first quarter. EBIT for the Agricultural Products segment was 9% or $23 million lower than the same quarter a year ago as gross margin decreased due to lower ROUNDUP herbicide prices and a less favorable product mix. Operating expenses for the segment were comparable to the prior year quarter. CORPORATE AND OTHER- Corporate expenses of $636 million in 2000 included approximately $460 million of merger-related costs and a $100 million charitable contribution from the proceeds of divested businesses, fulfilling a pre-merger commitment. The merger-related costs include expenditures such as investment bankers' fees, legal and accounting costs related to the merger of Monsanto with Pharmacia & Upjohn. In addition, there were a number of employee benefit arrangements for which expense was recognized in direct connection with the merger. These included premium stock option awards for which the exercise price was reset 18 19 coincident with the change in control. Other employee benefit expenses were similarly accelerated due to the merger. The company expects to incur additional charges to operations currently estimated to be between $500 million and $800 million, pre-tax, associated with combining and restructuring operations of the two companies. In spite of an increase in interest rates, compared to the first quarter of 1999, interest expense declined 8 percent due to lower debt levels. The estimated annual effective tax rate for 2000 is 32 percent. In the first quarter of 1999, the effective rate was 35 percent. The decrease in the tax rate from 35 percent in the first quarter of 1999 to 32 percent in the same quarter of 2000 is the result of increased earnings in jurisdictions with lower tax rates in 2000 and lower nondeductible goodwill amortization in 2000. RESTRUCTURINGS During 1999, the company recorded $54 million in restructuring expenses which is comprised of $57 million of restructuring charges related to the merger with SUGEN, INC. net of a $3 million adjustment to the 1998 turnaround restructuring. The charge included costs pertaining to reorganizations that will result in the elimination of certain research and development (R&D) projects as well as the elimination of 375 employee positions impacting the pharmaceutical segment and corporate and administrative functions. The objective of the restructuring is to eliminate duplicate functions and investments in R&D as well as reorganize the sales force based on anticipated future requirements of the company. During the first quarter of 2000, $5 million was paid and charged against the liability. These amounts related to a portion of separation benefits for the approximately 20 employees severed during the first quarter as well as those terminated during 1999. The company anticipates all activities associated with this restructuring to be substantially complete at the end of 2000. The remaining cash expenditures relating to this restructuring total $46 million and are expected to be made during 2000 with some separation annuity payments being completed in 2001. At March 31, 2000, $29 million remained of the restructuring accruals made during 1998 related to a comprehensive turnaround program. The balance primarily represents annuity payments that will extend into 2001. In the fourth quarter of 1998, the company recorded net restructuring charges of $327 million as part of an approved plan to close facilities, reduce the current workforce and exit nonstrategic businesses. The activities Monsanto planned to exit in connection with this plan principally comprised of a tomato business and a business involved in the operation of membership-based health and wellness centers. The charge of $327 million was comprised of facility shutdown charges of $99 million, workforce reduction costs of $103 and asset impairments and other costs of $125 million. During the first quarter of 2000, 297 employees were severed at a cost of approximately $26 million. Cash outflows associated with these separations were charged against the 1998 restructuring liability. Additional charges and adjustments of the 1998 accrual amounting to $7 million were made during the quarter. The company expects to complete the remaining restructuring actions within the originally planned time frame. 19 20
- ------------------------------------------------------------------------------------------ Workforce Facility Reductions Closures other Balance Dollars in Millions - ------------------------------------------------------------------------------------------ December 31, 1999 $ 40 $ 4 $ -- $44 Additions -- -- -- -- Deductions 30 3 -- 33 - ------------------------------------------------------------------------------------------ Balance March 31, 2000 $ 10 $ 1 $ -- $11 ==========================================================================================
Additional restructuring charges are expected to be incurred as the combining and restructuring of operations of Monsanto and Pharmacia & Upjohn takes place. COMPREHENSIVE INCOME Comprehensive income equals net earnings plus other comprehensive income (OCI). For Pharmacia Corporation, OCI includes currency translation adjustments, unrealized gains and losses on available-for-sale securities, and minimum pension liability adjustments. Comprehensive income (loss) for the three months ended March 31, 2000, and March 31, 1999, was $104 million and $(150) million, respectively. The difference between net earnings and comprehensive income in both years was largely due to fluctuations in the currency translation adjustments reflecting the changes in the strength of the dollar against other currencies at March 31 as compared to the previous December 31. FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
- -------------------------------------------------------------------------------- March 31, December 31, 2000 1999 - -------------------------------------------------------------------------------- Working capital (U.S. dollars in millions) $ 3,093 $ 3,508 Current ratio 1.40:1 1.49:1 Debt to total capitalization 42.5% 42.9% - --------------------------------------------------------------------------------
The company's working capital and current ratio decreased at the end of the first quarter as compared to year-end, largely due to a seasonal increase in short-term debt. Seasonal activity related to the growing season in the agricultural business, was the main factor that led to the rise in short-term debt levels. For the quarter ended March 31, 2000, the company was in a net cash required position of $425 million. This differs from the same period in the prior year where the company realized net cash provided of $175 million. The change between years is substantially attributable to favorable changes in the company's working capital position versus the prior year, cash inflows related to sales of discontinued operations, and a liquid asset position, which enabled the company to operate out of existing cash reserves. Significant uses of cash during the quarter were related to normal operating expenses, purchases of fixed assets, and the payment of dividends. 20 21 The company's future cash provided by operations and borrowing capacity are 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 company is involved in a number of legal and environmental proceedings. These include a substantial number of product liability suits claiming damages as a result of the use of the company's products and administrative and judicial proceedings at several "Superfund" sites. Although the results of litigation cannot be predicted with certainty, management's belief is that any potential remaining liability that might exceed amounts already accrued will not have a material adverse effect on the company's consolidated financial position, profitability or liquidity. The company's estimate of the ultimate cost to be incurred in connection with environmental situations could change due to uncertainties at many sites with respect to potential cleanup remedies, the estimated cost of cleanup, and the company's share of a site's cost. With regard to the company's discontinued industrial chemical facility in North Haven, Connecticut, the company will soon be required to submit a corrective measures study report to the EPA. It now appears likely that this report will need to be submitted for EPA review in the latter part of 2000, at which time it may become appropriate to reevaluate the existing reserves designated for remediation in light of changing circumstances. It is reasonably possible that a material increase in accrued liabilities will be required but it is not possible to determine what, if any, exposure exists at this time. OTHER In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires companies to record derivatives on the balance sheet as assets and liabilities measured at fair value. The accounting treatment of gains and losses resulting from changes in the value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. The company expects to adopt SFAS No. 133 no earlier than January 1, 2001, and is currently assessing the impact of adoption on its financial position, results of operations, and liquidity. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" (SAB 101) which provides guidance related to revenue recognition. SAB 101 allows companies to report any changes in revenue recognition related to adopting its provisions as an accounting change at the time of implementation in accordance with APB Opinion No. 20, "Accounting Changes." In response to a specific dialogue with the SEC, the company recorded a cumulative effect of a change in accounting principle, effective January 1, 1999, for revenue recognized in 1998 related to the sale of certain marketing rights. The effect on earnings in 1999 was an after-tax loss of $20 million ($0.02 per share), net of taxes of $12 million. The pretax amount of $32 million will be amortized to income over twenty years. The company is currently in the process of assessing whether or not there may be other revenue recognition issues to which SAB 101 applies. Companies must adopt the new guidance no later than June 30, 2000, effective as of January 1, 2000. 21 22 Item 5 of PART II of this report is incorporated herein by reference. Item 3. Quantitative and Qualitative Disclosures about Market Risk There are no material changes from the disclosures in Monsanto's and Pharmacia and Upjohn's Forms 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1999. 22 23 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Because of the size and nature of its business, Pharmacia and its subsidiaries are parties to numerous legal proceedings. Most of these proceedings have arisen in the ordinary course of business and involve claims for money damages (including product liability) or seek to restrict the company's business activities. While the results of litigation cannot be predicted with certainty, Pharmacia does not believe these matters or their ultimate disposition will have a material adverse effect on its consolidated financial position, profitability or liquidity, as applicable. On April 11, 2000, the University of Rochester filed suit in U.S. District Court for the Western District of New York, asserting patent infringement against Pharmacia, Monsanto, Searle, and Pfizer, Inc. The University asserts that its U.S. patent granted on April 11 is infringed by the sale and use of CELEBREX arthritis treatment. The patent has claims directed to a method of treating human patients by administering a selective COX-2 inhibitor. The University has sought injunctive relief, as well as monetary compensation for infringement of the patent. On March 27, 2000, E. I. DuPont De Nemours & Company ("DuPont") filed a suit against Pharmacia in the U.S. District Court for the District of South Carolina, seeking damages and injunctive relief for alleged violations of federal antitrust acts and state law in connection with glyphosate-related business matters. The complaint asserts that a Du Pont herbicide product has not been successfully introduced into the marketplace due to alleged anti-competitive practices that have enhanced sales of ROUNDUP herbicide and ROUNDUP Ready cotton. Pharmacia entered into a glyphosate supply agreement with DuPont in December 1999. On March 30, 2000, DuPont filed a suit against Pharmacia and its subsidiary, Asgrow Seed Company LLC, in the U.S. District Court for Delaware, seeking damages and equitable relief including the divestiture of Asgrow by Pharmacia for alleged violations of federal antitrust acts and state law in connection with glyphosate-tolerant soybean business matters. The complaint asserts that Asgrow breached certain contract obligations, and as a consequence DuPont is asserting previously resolved claims that Asgrow misappropriated intellectual property of DuPont. The complaint also alleges that Asgrow's actions improperly accelerated Pharmacia's development of glyphosate tolerant soybeans. As described in the Monsanto Company Annual Report on Form 10-K for the year ended December 31, 1999, on November 22, 1999, Pharmacia, Solutia Inc., and P4 Production, L.L.C. ("P4 Production"), received notice that the U.S. Department of Justice was preparing a federal court enforcement action against the companies on behalf of the Environmental Protection Agency ("EPA"). On March 7, 2000, the Department of Justice filed suit in U.S. District Court for the District of Wyoming against Pharmacia, Solutia, 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. In light of the government's lawsuit, the companies have voluntarily dismissed a declaratory judgment action that they had previously brought, and have raised the same issues as an affirmative defense to this action, arguing that it is precluded by the doctrine of res judicata because 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 23 24 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. Other information with respect to specific legal proceedings appears in the Monsanto Company Report on Form 10-K for the year ended December 31, 1999, and in the Pharmacia & Upjohn, Inc., Report on Form 10-K for the year ended December 31, 1999. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the company's Special Meeting of Shareholders on March 23, 2000, two matters were submitted to a vote of shareholders. 1. A proposal to issue shares of common stock and convertible perpetual preferred stock in connection with the merger contemplated by an Agreement and Plan of Merger among the company, a subsidiary of the company and Pharmacia & Upjohn, Inc. was submitted to a vote of shareholders. The Board recommended a vote for the proposal. A total of 493,894,866 votes were cast in favor of this proposal, a total of 10,893,733 votes were cast against it, and 3,929,337 votes were counted as abstentions. 2. A proposal to amend the company's Restated Certificate of Incorporation as provided in the Merger Agreement was submitted to a vote of shareholders. The Board recommended a vote for the proposal. A total of 479,122,040 votes were cast in favor of the proposal, a total of 26,514,709 votes were cast against it, and 3,081,227 votes were counted as abstentions. There were no matters on which brokers were permitted to vote without instructions from street-name holders. Therefore, there were no broker non-votes on either of the two matters. Item 5. OTHER INFORMATION CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Certain statements contained in this Report, and in statements and presentations made by representatives of the company, are "forward-looking statements". Forward-looking statements include statements regarding anticipated financial results, growth plans, product performance, development, regulatory approval and public acceptance of new products, the potential impact of currency fluctuations and other economic and business developments, and other matters that are not historical facts. Forward-looking statements often include the words "believes," "expects," "will," intends," "plans," "estimates," or similar expressions. The company's forward-looking statements are based on current expectations, currently available information and assumptions that the company believes to be reasonable. However, these statements are necessarily based on factors that involve risks and uncertainties, and actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that may cause or contribute to those differences include, among others: management's ability to integrate the operations of the historic Monsanto Company with those of the historic Pharmacia & Upjohn, Inc, to integrate earlier mergers and acquisitions involving those companies, and to implement strategic initiatives; the ability to fund research and development, the success of research and development activities and the speed with which regulatory authorizations and product roll-outs may be achieved; the ability 24 25 to bring new products to market ahead of competition; the ability to successfully market new and existing products in new and existing domestic and international markets; the ability to meet generic competition after the expiration of the company's patents, including the expiration of its ROUNDUP herbicide patent in the United States; domestic and foreign social, legal and political developments, especially those relating to health care reform, governmental and public acceptance of products developed through biotechnology, and product liabilities; the ability to successfully negotiate pricing of pharmaceutical products with managed care groups, health care organizations and government agencies worldwide; the effect of seasonal conditions and of commodity prices on agricultural markets worldwide; exposure to product liability, antitrust and other lawsuits, and contingencies related to actual or alleged environmental contamination; the company's ability to protect its intellectual property, and its success in litigation involving its intellectual property; fluctuations in foreign currency exchange rates; general domestic and foreign economic and business conditions; the effects of the company's accounting policies and general changes in generally accepted accounting practices; the company's ability to attract and retain current management and other employees of the company; and other factors that may be described elsewhere in this Report or in other company filings with the United States Securities and Exchange Commission. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - See Exhibit Index. (b) Reports on Form 8-K during the quarter ended March 31, 2000: A Form 8-K was filed January 11, 2000, in connection with a press release announcing the co-promotion of DETROL by Monsanto Company and Pharmacia & Upjohn, Inc. A Form 8-K was filed January 25, 2000, filing: pro forma financial information relating to the proposed merger with Pharmacia & Upjohn, Inc.; financial information relating to Pharmacia & Upjohn, Inc.; information relating to Monsanto's earnings for the fiscal quarter and fiscal year ended December 31, 1999; and certain information concerning persons who may be deemed to be participants in the solicitation of proxies. A Form 8-K/A was filed January 25, 2000, filing amended pro forma financial statements related to the acquisition of DEKALB Genetics Corporation. A Form 8-K was filed February 11, 2000, in connection with a press release announcing Monsanto Company's 1999 fourth quarter and full-year Results. A Form 8-K/A was filed February 11, 2000, filing amended pro forma financial information relating to the proposed merger with Pharmacia & Upjohn, Inc. 25 26 EXHIBIT INDEX
Exhibit Number Description - ------ ----------- 2 Omitted - Inapplicable 3 1. Certificate of Amendment to Restated Certificate of Incorporation of the company, effective March 31, 2000 (incorporated herein by reference to Exhibit 4.2 of the company's Form S-8 filed on April 5, 2000) 2. By-Laws of the company, as amended and restated effective March 31, 2000 4 Omitted - Inapplicable 10 1. Monsanto Company Non-Employee Director Equity Incentive Compensation Plan, as amended March 23, 2000 2. Pharmacia Corporation Directors Equity Compensation and Deferral Plan, as effective April 18, 2000 3. Form of Indemnification Agreement entered into with each Officer and Director of Pharmacia & Upjohn, Inc. (incorporated herein by reference to Exhibit (10)(a) to Pharmacia & Upjohn, Inc.'s Form 10-K for the year ended December 31, 1995) 4. Employment Agreement with Fred Hassan dated November 15, 1999 (incorporated herein by reference to Exhibit (10)(e) to Pharmacia & Upjohn, Inc.'s Form 10-K for the year ended December 31, 1999) 5. Long-Term Incentive Plan (incorporated herein by reference to Exhibit (10)(j) to Pharmacia & Upjohn, Inc.'s Form 10-K for the year ended December 31, 1995) 6. Annual Incentive Plan (incorporated herein by reference to Exhibit (10)(k) to Pharmacia & Upjohn, Inc.'s Form 10-K for the year ended December 31, 1995) 7. Employment Agreement with Timothy G. Rothwell (incorporated by reference to Exhibit (10)(i) to Pharmacia & Upjohn's Form 10-K for the year ended December 31, 1997) 11 Omitted - Inapplicable; see Note F of Notes to Financial Statements 12 Omitted - Inapplicable 15 Omitted - Inapplicable 18 Omitted - Inapplicable 19 Omitted - Inapplicable 22 Omitted - Inapplicable 23 Omitted - Inapplicable 24 Omitted - Inapplicable 27 Financial Data Schedule
26 27 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: May 14, 2000 /S/R. G. Thompson R. G. Thompson Senior Vice President and Corporate Controller 27 EX-3.2 2 AMENDED AND RESTATED BY-LAWS 1 EXHIBIT 3 PHARMACIA CORPORATION AMENDED AND RESTATED BY-LAWS EFFECTIVE AS OF MARCH 31, 2000 OFFICES 1. Registered The name of the registered agent of the Company is The Corporation Trust Company and the registered office of the Company shall be located in the City of Wilmington, County of New Castle, State of Delaware. 2. Other The Company shall have offices at such places both within or without the State of Delaware as the Board of Directors may from time to time designate or the business of the Company may require. STOCKHOLDERS' MEETINGS 3. Annual Meeting An annual meeting of stockholders shall be held on such day and at such time as may be designated by the Board of Directors for the purpose of electing Directors and for the transaction of such other business as properly may come before such meeting. Any previously scheduled annual meeting of the stockholders may be postponed by resolution of the Board of Directors upon public notice given on or prior to the date previously scheduled for such annual meeting of stockholders. 4. Business to be Conducted at Annual Meeting (a) At an annual meeting of stockholders, only such business shall be conducted as shall have been brought before the meeting (i) pursuant to the Company's notice of the meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Company who is a stockholder of record at the time of giving of the notice provided for in this By-Law, who shall be entitled to vote at such meeting and who shall have complied with the notice procedures set forth in this By-Law. (b) For business to be properly brought before an annual meeting by a stockholder pursuant to Section (a)(iii) of this By-Law, notice in writing must be delivered or mailed to the Secretary and received at the principal offices of the Company, not less than 90 days nor more than 120 days prior to the first 2 anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder must be received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of the annual meeting is first made. Such stockholder's notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business to be brought before the annual meeting and the reasons for conducting such business at such meeting; (ii) the name and address, as they appear on the Company's books, of the stockholder proposing such business, and the name and address of the beneficial owner, if any, on whose behalf the proposal is made; (iii) the class and number of shares of the Company's stock which are beneficially owned by the stockholder, and by the beneficial owner, if any, on whose behalf the proposal is made; and (iv) any material interest of the stockholder, and of the beneficial owner, if any, on whose behalf the proposal is made, in such business. For purposes of these By-Laws, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Company with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(b) of the Securities Exchange Act of 1934, as amended. (c) Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this By-Law. The chairman of the meeting may, if the facts warrant, determine that the business was not properly brought before the meeting in accordance with the provisions of this By-Law; and if the chairman should so determine, the chairman shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Nothing in this By-Law shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Company's proxy statement pursuant to Rule 14a-8 under the Exchange Act. The provision of this Section 4 shall also govern what constitutes timely notice for purposes of Rule 14a-4(c) of the Exchange Act. 5. Special Meetings Special meetings of stockholders, unless otherwise provided by the law of Delaware, may be called by the Chairman of the Board or the Chief Executive Officer, or pursuant to resolution of the Board of Directors, and such person calling the meeting shall have the sole right to determine the proper purpose or purposes of 2 3 such meeting. Business transacted at a special meeting of stockholders shall be confined to the purpose or purposes of the meeting as stated in the notice of such meeting. Any previously scheduled special meeting of the stockholders may be postponed by resolution of the Board of Directors upon notice by public announcement given on or prior to the date previously scheduled for such special meeting of stockholders. 6. Place of Meetings Meetings of stockholders shall be held at a location determined by resolution of the Board of Directors. 7. Notice of Meetings Except as otherwise required by the law of Delaware, notice of each meeting of the stockholders, whether annual or special, shall, at least ten days but not more than sixty days before the date of the meeting, be given to each stockholder of record entitled to vote at the meeting by mailing such notice in the United States mail, postage prepaid, addressed to such stockholder at such stockholder's address as the same appears on the records of the Company. Such notice shall state the place, date and hour of the meeting, and in the case of a special meeting, shall also state the purpose or purposes thereof. 8. Nominations of Directors (a) Only persons who are nominated in accordance with the procedures set forth in these By-Laws shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors may be made at a meeting of stockholders (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Company who is a stockholder of record at the time of giving of the notice provided for in this By-Law, who shall be entitled to vote for the election of Directors at the meeting and who complies with the notice procedures set forth in this By-Law. (b) Nominations by stockholders shall be made pursuant to notice in writing, delivered or mailed to the Secretary and received at the principal offices of the Company (i) in the case of an annual meeting, not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting, provided, however, that in the event that the date of the meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder must be received not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of the meeting is first made; or (ii) in the case of a special meeting at which directors are to be elected, not earlier than the 90th day 3 4 prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the tenth day following the day on which public announcement of the date of the meeting and of the nominees proposed by the Board of Directors to be elected at such meeting is first made. In the case of a special meeting of stockholders at which Directors are to be elected, stockholders may nominate a person or persons (as the case may be) for election only to such position(s) as are specified in the Company's notice of meeting as being up for election at such meeting. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a Director, all information relating to such person that would be required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person's written consent to being named as a nominee and to serving as a Director if elected); (ii) as to the stockholder giving the notice, the name and address, as they appear on the Company's books, of such stockholder and the class and number of shares of the Company's stock which are beneficially owned by such stockholder; and (iii) as to any beneficial owner on whose behalf the nomination is made, the name and address of such person and the class and number of shares of the Company's stock which are beneficially owned by such person. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a Director shall furnish to the Secretary that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. Notwithstanding anything in this By-Law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Company is increased and there is no public statement naming all the nominees for Director or specifying the size of the increased Board of Directors made by the Company at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal offices of the Company not later than the close of business on the 10th day following the day on which such public announcement is first made by the Company. (c) No person shall be eligible for election as a Director of the Company unless nominated in accordance with the procedures set forth in these By-Laws. The chairman of the meeting may, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed in this By-Law; and if the chairman should so determine, the chairman shall so declare to the meeting, and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law. 4 5 9. List of Stockholders (a) The Secretary of the Company shall prepare, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. (b) The stock ledger of the Company shall be the only evidence as to the identity of the stockholders entitled (i) to vote in person or by proxy at any meeting of stockholders, or (ii) to exercise the rights in accordance with Delaware law to examine the stock ledger, the list required by this By-Law or the books and records of the Company. 10. Quorum The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of any business at all meetings of the stockholders, except as otherwise provided by the law of Delaware, by the Certificate of Incorporation or by these By-Laws. The stockholders present at any duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of sufficient stockholders to render the remaining stockholders less than a quorum. Whether or not a quorum is present, either the chairman of the meeting or a majority of the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which the requisite amount of voting stock shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. 11. Voting and Required Vote Subject to the provisions of the Certificate of Incorporation, each stockholder shall, at every meeting of stockholders, be entitled to one vote for each share of capital stock held by such stockholder. Subject to the provisions of the Certificate of 5 6 Incorporation and Delaware law, Directors shall be chosen by the vote of a plurality of the shares present in person or represented by proxy at the meeting; and all other questions shall be determined by the affirmative vote of the majority of shares present in person or represented by proxy at the meeting. In all matters, votes cast in accordance with any method adopted by the Company shall be valid so long as such method is permitted under Delaware law. 12. Proxies Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy, in any manner permitted by law. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. 13. Inspectors of Election; Polls Before each meeting of stockholders, the Chairman of the Board or another officer of the Company designated by resolution of the Board of Directors shall appoint one or more inspectors of election for the meeting and may appoint one or more inspectors to replace any inspector unable to act. If any of the inspectors appointed shall fail to attend, or refuse or be unable to serve, substitutes shall be appointed by the chairman of the meeting. Each inspector shall have such duties as are provided by law, and shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such person's ability. The chairman of the meeting shall fix and announce at the meeting the date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting. 14. Organization The Chairman of the Board of Directors, or in the Chairman's absence, (i) the Chief Executive Officer, if a member of the Board of Directors, (ii) one of the Vice Chairmen of the Board who is a member of the Board of Directors, if any, in such order as may be designated by the Chairman of the Board, in that order, or (iii) in the absence of each of them, a chairman chosen by a majority of the Directors present, shall act as chairman of the meetings of the stockholders. The order of business and the procedure at any meeting of stockholders shall be determined by the chairman of the meeting. 15. No Stockholder Action by Written Consent Any action required or permitted to be taken by the stockholders of the Company must be effected at a duly called annual or special meeting of stockholders of the 6 7 Company and may not be effected by any consent in writing in lieu of a meeting of such stockholders. BOARD OF DIRECTORS 16. General Powers, Number, Term of Office The business of the Company shall be managed under the direction of its Board of Directors. Subject to the rights of the holders of any series of preferred stock, par value $0.01 per share, of the Company ("Preferred Stock") to elect additional directors under specified circumstances, the number of directors of the Company which shall constitute the whole Board shall be not less than five nor more than 20. The exact number of directors within the minimum and maximum limitation specified in the preceding sentence shall be fixed from time to time exclusively by resolution of a majority of the whole Board. The Directors, other than those who may be elected by the holders of any series of Preferred Stock, shall be divided into three classes, as nearly equal in number as possible. One class of directors shall have a term expiring at the annual meeting of stockholders to be held in 2000, another class shall have a term expiring at the annual meeting of stockholders to be held in 2001, and another class shall have a term expiring at the annual meeting of stockholders to be held in 2002. Members of each class shall hold office until their successors are elected and qualified. At each annual meeting of the stockholders of the Company commencing with the 2000 annual meeting, (1) directors elected to succeed those directors whose terms then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified, and (2) only if authorized by a resolution of the Board of Directors, directors may be elected to fill any vacancy on the Board of Directors, regardless of how such vacancy shall have been created. Directors need not be stockholders of the Company or residents of the State of Delaware. 17. Vacancies Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by a director nominated by the nominating committee and approved by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, or by a sole remaining director, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and 7 8 qualified. No decrease in the number of authorized directors constituting the Board of Directors shall shorten the term of any incumbent director. 18. Regular Meetings Following the annual meeting of stockholders, the first meeting of each newly elected Board of Directors may be held, without notice, on the same day and at the same place as such stockholders' meeting. The Board of Directors by resolution may provide for the holding of regular meetings and may fix the times and places at which such meetings shall be held. Notice of regular meetings shall not be required provided that whenever the time or place of regular meetings shall be fixed or changed, notice of such action shall be given promptly to each director, as provided in Section 19 below, who was not present at the meeting at which such action was taken. 19. Special Meetings Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board of Directors or the Chief Executive Officer, or in the absence of each of them, by any Vice Chairman of the Board, in such order as may be designated by the Chairman of the Board, or by the Secretary at the written request of a majority of the Directors. 20. Notices Notice of any special meeting of the Board of Directors shall be addressed to each Director at such Director's residence or business address and shall be sent to such Director by mail, electronic mail, telecopier, telegram or telex or telephoned or delivered to such Director personally. If such notice is sent by mail, it shall be sent not later than three days before the day on which the meeting is to be held. If such notice is sent by electronic mail, telecopier, telegram or telex, it shall be sent not later than 12 hours before the time at which the meeting is to be held. If such notice is telephoned or delivered personally, it shall be received not later than 12 hours before the time at which the meeting is to be held. Such notice shall state the time, place and purpose or purposes of the meeting. 21. Quorum One-third of the total number of Directors constituting the whole Board, but not less than two, shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such required number of Directors for a quorum is present at a meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice. Except as otherwise specifically provided by the law of Delaware, the Certificate of 8 9 Incorporation or these By-Laws, the act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. 22. Organization At each meeting of the Board of Directors, the Chairman of the Board or, in the Chairman's absence, (i) the Chief Executive Officer, if a member of the Board of Directors, (ii) one of the Vice Chairmen of the Board who is a member of the Board of Directors, if any, in such order as may be designated by the Chairman of the Board, in that order, or (iii) in the absence of each of them, a chairman chosen by a majority of the Directors present, shall act as chairman of the meeting, and the Secretary or, in the Secretary's absence, an Assistant Secretary or any employee of the Company appointed by the chairman of the meeting, shall act as secretary of the meeting. 23. Resignations Any Director may resign at any time by giving written notice to the Chairman of the Board, the Chief Executive Officer or the Secretary of the Company. Such resignation shall take effect upon receipt thereof or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 24. Removal Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, any director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80 percent of the voting power of the then outstanding Voting Stock, voting together as a single class. For purposes of these By-Laws, "Voting Stock" shall mean the outstanding shares of capital stock of the Company entitled to vote generally in the election of directors. 25. Action Without a Meeting Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. 9 10 26. Location of Books Except as otherwise provided by resolution of the Board of Directors and subject to the law of Delaware, the books of the Company may be kept at the principal offices of the Company and at such other places as may be necessary or convenient for the business of the Company. 27. Dividends Subject to the provisions of the Certificate of Incorporation and the law of Delaware, dividends upon the capital stock of the Company may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the Company's capital stock. 28. Compensation of Directors Directors shall receive such compensation and benefits as may be determined by resolution of the Board for their services as members of the Board and committees. Directors shall also be reimbursed for their expenses of attending Board and committee meetings. Nothing contained herein shall preclude any Director from serving the Company in any other capacity and receiving compensation therefor. 29. Additional Powers In addition to the powers and authorities by these By-Laws expressly conferred upon it, the Board of Directors may exercise all such powers of the Company and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. COMMITTEES OF DIRECTORS 30. Designation, Power, Alternate Members (a) The Board of Directors shall have an executive committee, a compensation committee, a nominating and corporate governance committee, an audit and finance committee, a public affairs and social responsibility committee, a science and technology committee and may, by resolution or resolutions passed by a majority of the whole Board, designate one or more additional committees, each committee to consist of two or more of the Directors of the Company. Any such committee, to the extent provided in said resolution or resolutions and subject to any limitations provided by law, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Company. The Board of Directors may designate one or more Directors as alternate members of any 10 11 committee, who may replace any absent or disqualified member at any meeting of the committee. If at a meeting of any committee one or more of the members thereof is absent or disqualified, and if either the Board of Directors has not so designated any alternate member or members, or the number of absent or disqualified members exceeds the number of alternate members who are present at such meeting, then the member or members of such committee (including alternates) present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another Director to act at the meeting in the place of such absent or disqualified member. The term of office of the members of each committee shall be as fixed from time to time by the Board; provided, however, that any committee member who ceases to be a member of the Board shall automatically cease to be a committee member. (b) The executive committee shall have six members, one of whom shall be the Chief Executive Officer and one of whom shall be the Chairman of the Board (if not the same person). (c) The nominating committee shall have four members. The power of the Board of Directors to nominate persons for election as Directors is delegated to the nominating committee. In the event of a vacancy of the nominating committee, the remaining Directors on the nominating committee shall appoint a replacement member or members, as applicable. 31. Quorum, Manner of Acting At any meeting of a committee, the presence of one-third, but not less than two, of its members then in office shall constitute a quorum for the transaction of business; and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of the committee; provided that in the event that any member or members of the committee is or are in any way interested in or connected with any other party to a contract or transaction being approved at such meeting, or are themselves parties to such contract or transaction, the act of a majority of the members present who are not so interested or connected, or are not such parties, shall be the act of the committee. Each committee may provide for the holding of regular meetings, make provision for the calling of special meetings and, except as otherwise provided in these By-Laws or by resolution of the Board of Directors, make rules for the conduct of its business. 32. Minutes The committees shall keep minutes of their proceedings and report the same to the Board of Directors when required; but failure to keep such minutes shall not affect the validity of any acts of the committee or committees. 11 12 ADVISORY DIRECTORS 33. Advisory Directors The Board of Directors may, by resolution adopted by a majority of the whole Board, appoint such number of senior executives of the Company as Advisory Directors as the Board may from time to time determine. The Advisory Directors shall have such advisory responsibilities as the Chairman of the Board may designate and the term of office of such Advisory Directors shall be as fixed by the Board. OFFICERS 34. Designation The officers of the Company shall be a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, a Treasurer and a Controller. The Board of Directors may also elect one or more Vice Chairmen of the Board, one or more Vice Chairmen of the Company, one or more Executive Vice Presidents, Senior Vice Presidents, Group Vice Presidents, a Chief Financial Officer, Deputy and Assistant Secretaries, Deputy and Assistant Treasurers, Deputy and Assistant Controllers and such other officers as it shall deem necessary. Any number of offices may be held by the same person. The Chairman of the Board of Directors shall be chosen from among the Directors. 35. Election and Term At least annually, the Board of Directors of the Company shall elect the officers of the Company and at any time thereafter the Board may elect additional officers of the Company and each such officer shall hold office until the officer's successor is elected and qualified or until the officer's earlier death, resignation, termination of employment or removal. 36. Removal Any officer shall be subject to removal or suspension at any time, for or without cause, by the affirmative vote of a majority of the whole Board of Directors. 37. Resignations Any officer may resign at any time by giving written notice to the Chairman of the Board, the President or to the Secretary. Such resignation shall take effect upon receipt thereof or at any later time specified therein; and, unless otherwise specified 12 13 therein, the acceptance of such resignation shall not be necessary to make it effective. 38. Vacancies A vacancy in any office because of death, resignation, removal or any other cause may be filled for the unexpired portion of the term by the Board of Directors. 39. Compensation The compensation committee of the Board of Directors shall fix the salaries of all employees of the Company who are subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 or any successor statute, rule or provision, and other members of executive management designated by such committee. 40. Chairman of the Board The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors, except as may be otherwise required under the law of Delaware. The Chairman shall act in an advisory capacity with respect to matters of policy and other matters of importance pertaining to the affairs of the Company. The Chairman shall, in consultation with the Chief Executive Officer, establish the agenda for the meetings of the Board of Directors. The Chairman, alone or with the Chief Executive Officer, one or more of the Vice Chairmen of the Board, and/or the Secretary shall sign and send out reports and other messages which are to be sent to stockholders from time to time. The Chairman shall also perform such other duties as may be assigned to the Chairman by these By-Laws, the Board of Directors or, if applicable, the Chief Executive Officer. If Fred Hassan is the Chief Executive Officer of the Company on September 30, 2001, on such date he shall become Chairman of the Board and Chief Executive Officer of the Company, unless otherwise determined at such time by the affirmative vote of at least 80 percent of the whole Board of Directors. 41. Chief Executive Officer The Chief Executive Officer, if a member of the Board of Directors, shall, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and of the Board of Directors. The Chief Executive Officer shall have the general and active management and supervision of the business of the Company. The Chief Executive Officer shall see that all orders and resolutions of the Board of Directors are carried into effect and shall be responsible to the Board of Directors for the Company's strategic development, operational results and for the running of the Company in accordance with policies approved by the Board of Directors. The Chief 13 14 Executive Officer shall also perform such other duties as may be assigned to the Chief Executive Officer by these By-Laws or the Board of Directors. 42. President The President shall perform such duties as may be assigned to the President by these By-Laws, the Board of Directors or the Chief Executive Officer. 43. Vice Chairmen of the Board; Vice Chairmen The Vice Chairmen of the Board, if a member of the Board of Directors, shall, in the absence of the Chairman of the Board and the Chief Executive Officer, and in such order as may be designated by the Chairman of the Board, preside at all meetings of the stockholders and of the Board of Directors. The Vice Chairmen of the Board and the Vice Chairmen shall perform such other duties as may be assigned to them by these By-Laws, the Board of Directors or the Chief Executive Officer. 44. Executive, Senior, Group and other Vice Presidents Each Executive Vice President, Senior Vice President, Group Vice President and each other Vice President shall perform the duties and functions and exercise the powers assigned to such officer by the Board of Directors or the Chief Executive Officer. 45. Chief Financial Officer The Chief Financial Officer (if any) shall act in an executive financial capacity. The Chief Financial Officer shall assist the Chairman of the Board and the Chief Executive Officer in the general supervision of the Company's financial policies and affairs. 46. Secretary The Secretary shall attend all meetings of the Board of Directors and of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors and, when appropriate, shall cause the corporate seal to be affixed to any instruments executed on behalf of the Company. The Secretary shall also perform all duties incident to the office of Secretary and such other duties as may be assigned to the Secretary by these By-Laws, the Board of Directors, the Chairman of the Board or the Chief Executive Officer. 14 15 47. Assistant Secretaries The Assistant Secretaries shall, during the absence of the Secretary, perform the duties and functions and exercise the powers of the Secretary. Each Assistant Secretary shall perform such other duties as may be assigned to such Assistant Secretary by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the Secretary. 48. Treasurer The Treasurer shall have the custody of the funds and securities of the Company and shall deposit them in the name and to the credit of the Company in such depositories as may be designated by the Board of Directors or by any officer or officers authorized by the Board of Directors to designate such depositories; disburse funds of the Company when properly authorized by vouchers prepared and approved by the Controller; and invest funds of the Company when authorized by the Board of Directors or a committee thereof. The Treasurer shall render to the Board of Directors, the Chief Executive Officer or the Chief Financial Officer, whenever requested, an account of all transactions as Treasurer and shall also perform all duties incident to the office of Treasurer and such other duties as may be assigned to the Treasurer by these By-Laws, the Board of Directors, the Chief Executive Officer or the Chief Financial Officer. 49. Assistant Treasurers The Assistant Treasurers shall, during the absence of the Treasurer, perform the duties and functions and exercise the powers of the Treasurer. Each Assistant Treasurer shall perform such other duties as may be assigned to the Assistant Treasurer by the Board of Directors, the Chief Executive Officer, the Chief Financial Officer or the Treasurer. 50. Controller The Controller shall serve as the principal accounting officer of the Company and shall keep full and accurate account of receipts and disbursements in books of the Company and render to the Board of Directors, the Chief Executive Officer or the Chief Financial Officer, whenever requested, an account of all transactions as Controller and of the financial condition of the Company. The Controller shall also perform all duties incident to the office of Controller and such other duties as may be assigned to the Controller by these By-Laws, the Board of Directors, the Chief Executive Officer or the Chief Financial Officer. 15 16 51. Assistant Controllers The Assistant Controllers shall, during the absence of the Controller, perform the duties and functions and exercise the powers of the Controller. Each Assistant Controller shall perform such other duties as may be assigned to such officer by the Board of Directors, the Chief Executive Officer, the Chief Financial Officer or the Controller. COMPANY CHECKS, DRAFTS AND PROXIES 52. Checks, Drafts All checks, drafts or other orders for the payment of money by the Company shall be signed by such person or persons as from time to time may be designated by the Board of Directors or by any officer or officers authorized by the Board of Directors to designate such signers; and the Board of Directors or such officer or officers may determine that the signature of any such authorized signer may be facsimile. 53. Proxies Except as otherwise provided by resolution of the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, any Vice Chairman of the Board, any Vice President, the Treasurer and any Assistant Treasurer, the Controller and any Assistant Controller, the Secretary and any Assistant Secretary of the Company, shall each have full power and authority, in behalf of the Company, to exercise any and all rights of the Company with respect to any meeting of stockholders of any corporation in which the Company holds stock, including the execution and delivery of proxies therefor, and to consent in writing to action by such corporation without a meeting. CAPITAL STOCK 54. Stock Certificates Each holder of stock in the Company shall be entitled to have a certificate signed by, or in the name of the Company by, the Chairman of the Board, the Chief Executive Officer, the President, any Vice Chairman of the Board, any Executive Vice President, any Senior Vice President, any Group Vice President or any other Vice President, and by the Secretary or any Assistant Secretary of the Company, certifying the number of shares owned by such holder in the Company. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same 16 17 effect as if such person were such officer, transfer agent or registrar at the date of issue. 55. Record Ownership The Company shall be entitled to treat the person in whose name any share, right or option is registered as the owner thereof, for all purposes, and shall not be bound to recognize any equitable or other claim to or interest in such share, right or option on the part of any other person, whether or not the Company shall have notice thereof, except as otherwise provided by the law of Delaware. 56. Record Dates In order that the Company may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. 57. Transfer of Stock Transfers of shares of stock of the Company shall be made only on the books of the Company by the registered holder thereof, or by the registered holder's attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or a transfer agent of the Company, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. 58. Lost, Stolen or Destroyed Certificates The Board of Directors may authorize a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Company alleged to have been lost, stolen or destroyed, upon the making of an affidavit of the fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or the owner's legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be made against the Company on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate. 17 18 59. Terms of Preferred Stock The provisions of these By-Laws, including those pertaining to voting rights, election of Directors and calling of special meetings of stockholders, are subject to the terms, preferences, rights and privileges of any then outstanding class or series of Preferred Stock as set forth in the Certificate of Incorporation and in any resolutions of the Board of Directors providing for the issuance of such class or series of Preferred Stock; provided, however, that the provisions of any such Preferred Stock shall not affect or limit the authority of the Board of Directors to fix, from time to time, the number of Directors which shall constitute the whole Board as provided in Section 16 above, subject to the right of the holders of any class or series of Preferred Stock to elect additional Directors as and to the extent specifically provided by the provisions of such Preferred Stock. INDEMNIFICATION 60. Indemnification (a) The Company shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any claim, action, suit, or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that the person, or a person for whom he or she is the legal representative, is or was a Director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, non-profit entity, or other enterprise, including service with respect to employee benefit plans, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person. The right to indemnification conferred in this By-Law shall be a contract right. Except as provided in paragraph (c) of this By-Law with respect to proceedings seeking to enforce rights to indemnification, the Company shall indemnify a person in connection with a proceeding initiated by such person or a claim made by such person against the Company only if such proceeding or claim was authorized by the Board of Directors of the Company. (b) The Company shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that if and to the extent required by law the payment of expenses incurred by any person covered hereunder in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by or on behalf of the affected person to repay all amounts advanced if it should ultimately be determined that such person is not entitled to be indemnified under this By-Law or otherwise. 18 19 (c) If a claim for indemnification or payment of expenses under this By-Law is not paid in full within thirty days, or such other period as might be provided pursuant to contract, after a written claim therefor has been received by the Company, the claimant may file suit to recover the unpaid amount of such claim or may seek whatever other remedy might be provided pursuant to contract. In any such action the Company shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. If successful in whole or in part, claimant shall be entitled to be paid the expense of prosecuting such claim. Neither the failure of the Company (including its Directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the claimant has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Company (including its Directors, independent legal counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (d) Any determination regarding whether indemnification of any person is proper in the circumstances because such person has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware shall be made by independent legal counsel selected by such person with the consent of the Company (which consent shall not unreasonably be withheld). (e) The rights conferred on any person by this By-Law shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (f) Any repeal or modification of the foregoing provisions of this By-Law shall not adversely affect any right or protection hereunder of any person with respect to any act or omission occurring prior to or at the time of such repeal or modification. MISCELLANEOUS 61. Corporate Seal The seal of the Company shall be circular in form, containing the words "Pharmacia Corporation" and the word "Delaware" on the circumference surrounding the word "Seal." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 19 20 62. Fiscal Year The fiscal year of the Company shall begin on the first day of January in each year. 63. Auditors The Board of Directors shall select certified public accountants to audit the books of account and other appropriate corporate records of the Company annually and at such other times as the Board shall determine by resolution. 64. Waiver of Notice Whenever notice is required to be given pursuant to the law of Delaware, the Certificate of Incorporation or these By-Laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting of stockholders or the Board of Directors or a committee thereof shall constitute a waiver of notice of such meeting, except when the stockholder or Director attends such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders or the Board of Directors or committee thereof need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or by these By-Laws. AMENDMENT TO BY-LAWS 65. Amendments Notwithstanding any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any series of Preferred Stock of the Company required by law, the Certificate of Incorporation or any Preferred Stock designation, the affirmative vote of the holders of at least 80 percent of the voting power of all of the then-outstanding Voting Stock (as defined in the Certificate of Incorporation), voting together as a single class, shall be required for the stockholders to amend or repeal the By-Laws or to adopt new By-Laws. The By-Laws may also be amended or repealed and new By-Laws may be adopted by the affirmative vote of a majority of the whole Board of Directors at any regular or special meeting of the Board of Directors. 20 21 EMERGENCY BY-LAWS These Emergency By-Laws, notwithstanding any different provision in the Certificate of Incorporation or By-Laws, shall be operative during any emergency resulting from an attack on the United States or on a locality in which the Company conducts its business or customarily holds meetings of the Board of Directors or its stockholders, or during any nuclear or atomic disaster, or during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board of Directors or a committee thereof cannot be readily convened for action. These Emergency By-Laws shall cease to be operative upon termination of such emergency. During any such emergency: (a) A meeting of the Board of Directors or a committee thereof may be called by any officer or Director. Notice of the time and place of the meeting shall be given by the person calling the meeting to only such of the Directors as it may be feasible to reach at the time and by such means as may be feasible at the time. Such notice shall be given at such time in advance of the meeting as circumstances permit in the judgment of the person calling the meeting. (b) The officers or other persons designated on a list approved by the Board of Directors before the emergency, all in such order or priority and subject to such conditions and for such period of time (not longer than reasonably necessary after the termination of the emergency) as may be provided in the resolution approving the list, shall, to the extent required to constitute a quorum at any meeting of the Board of Directors during the emergency, be deemed Directors for such meeting. If at the time of the emergency the Board of Directors has not approved such a list of persons, then to the extent required to constitute a quorum at any meeting of the Board of Directors during the emergency, the officers of the Company who are present shall be deemed, in order of rank and within the same rank in order of seniority, Directors for such meeting. Two Directors (including persons deemed to be Directors) in attendance at the meeting shall constitute a quorum. (c) The Board of Directors, either before or during any such emergency, may provide, and from time to time modify, lines of succession in the event that during such an emergency any or all officers or agents of the Company shall for any reason be rendered incapable of discharging their duties. (d) The Board of Directors, either before or during any such emergency, may, effective in the emergency, change the principal offices or designate several alternative principal offices or regional offices, or authorize an officer, or officers, so to do. 21 22 No officer, Director or employee acting in accordance with these Emergency By-Laws shall be liable except for willful misconduct. These Emergency By-Laws shall be subject to repeal or change by further action of the Board of Directors or by action of the stockholders, but no such repeal or change shall modify the provisions of the next preceding paragraph with regard to action taken prior to the time of such repeal or change. Any amendment of these Emergency By-Laws may make any further or different provision that may be practical and necessary for the circumstances of the emergency. 22 EX-10.1 3 NON-EMPLOYEE DIRECTOR EQUITY INCENTIVE PLAN 1 Exhibit 10.1 THE MONSANTO COMPANY NON-EMPLOYEE DIRECTOR EQUITY INCENTIVE COMPENSATION PLAN (AS AMENDED MARCH 23, 2000) 1. NAME OF PLAN. This plan shall be known as the "The Monsanto Company Non-Employee Director Equity Incentive Compensation Plan" and is hereinafter referred to as the "Plan." 2. PURPOSES OF PLAN. The purposes of the Plan are to enable Monsanto Company, a Delaware corporation (the "Company"), to retain qualified persons to serve as Directors by providing for their compensation and permitting them to elect to defer a portion thereof, and to further align the interests of Directors with the interests of shareholders of the Company by providing them with equity-based compensation. 3. EFFECTIVE DATE AND TERM. The Plan shall be effective as of September 1, 1997 (the "Effective Date"). The Plan shall remain in effect until terminated by action of the Board, or until all Participants have received all amounts to which they are entitled hereunder, if earlier. 4. DEFINITIONS. The following terms shall have the meanings set forth below: "Annual Meeting" means an annual meeting of the shareholders of the Company. 2 "Annual Retainer Amount" has the meaning set forth in Section 6(a). "Beneficiaries" has the meaning set forth in Section 7(b)(iii). "Beneficiary Designation" has the meaning set forth in Section 7(b)(iii). "Board" means the Board of Directors of the Company. "Cash Account" has the meaning set forth in Section 7(a). The "Committee" means the committee that administers the Plan, as more fully defined in Section 12. "Common Stock" means the Company's common stock, par value $2.00 per share. The "Company" has the meaning set forth in Section 2. "Current Cash" has the meaning set forth in Section 6(a). "Deferral Account" means a bookkeeping account maintained by the Company for a Director representing the Director's interest in the stock units or cash credited to such account pursuant to Sections 6 and 7. "Deferred Cash" has the meaning set forth in Section 6(a). "Deferred Delivery Election" has the meaning set forth in Section 7(b)(i). "Deferred Stock" means shares of Common Stock credited to a Stock Unit Account pursuant to Section 6(d)(iii) and Section 7 and later delivered pursuant to Section 7. "Delivery Election" has the meaning set forth in Section 7(b)(i). "Director" means an individual who is a non-employee member of the Board. -2- 3 The "Dividend Equivalent" for a given dividend or distribution means a number of shares (or fractions of a share) of Common Stock having a Value, as of the date such Dividend Equivalent is credited to a Stock Unit Account, equal to the amount of cash, plus the fair market value on the date of distribution of any property, that is distributed with respect to one share of Common Stock pursuant to such dividend or distribution; such fair market value to be determined by the Committee in good faith. The "Effective Date" has the meaning set forth in Section 3. "Elective Amount" has the meaning set forth in Section 6(a). "Exchange Act" means the Securities Exchange Act of 1934. "Grant Date" has the meaning set forth in Section 6(b). "Immediate Payment Election" has the meaning set forth in Section 7(b)(i). The "Interest Rate" for a calendar year means the average Moody's Baa Bond Index Rate, as in effect from time to time. "IRA Election" means an election to receive distributions from a Deferral Account in annual installments beginning on the Starting Date, over a period of years equal to the life expectancy of the Participant or joint life expectancy of the Participant and his or her spouse (if any), as elected by the Participant, such life expectancy to be determined as of the Starting Date. "Keogh Election" means an election to receive distributions from a Deferral Account in annual installments beginning on the Starting Date, over a period of years equal to the life expectancy of the Participant or joint life expectancy of the Participant and his or her spouse (if any), as elected by the Participant, such -3- 4 life expectancy to be determined as of the Starting Date and redetermined as of each anniversary thereof. "Options" has the meaning set forth in Section 6(a). "Participant" has the meaning set forth in Section 5. "Periodic Election" has the meaning set forth in Section 6(a). "Plan" has the meaning set forth in Section 1. "Plan Year" means the period from the Effective Date through the day before the date of the Company's 1998 Annual Meeting and each subsequent period beginning on the date of an Annual Meeting and ending on the day before the date of the next Annual Meeting. "Required Option Amount" has the meaning set forth in Section 6(a). "Restricted Stock" means shares of Common Stock granted in accordance with Section 6(d)(ii). "Section" means a section of the Plan except where otherwise specifically indicated. "Single Sum Election" means an election to receive distributions under the Plan in a single payment on the Starting Date. "Starting Date" has the meaning set forth in Section 7(b)(i). "Stock Unit Account" has the meaning set forth in Section 7(a). "Tax Withholding Election" has the meaning set forth in Section 7(e). "Tax Withholding Percentage" has the meaning set forth in Section 7(e). "Term" means the term of years for which a Participant has been elected a Director. -4- 5 "Term Certain Election" means an election to receive distributions from a Deferral Account in annual installments over a specified number of years beginning on the Starting Date, provided, that in the case of a Stock Unit Account, such number of years may not exceed ten, and in the case of a Cash Account, such number of years may not exceed the Participant's life expectancy determined as of the Starting Date. The "Termination Date" for a Participant is the date his or her service as a Director terminates for any reason. The "Value" of a share of Common Stock as of a particular date shall mean the average (rounded to the nearest cent) of the means between the reported high and low sale prices of a share of Common Stock on the New York Stock Exchange Composite Tape (or, if the Common Stock is not listed on such exchange, on any other national securities exchange on which the Common Stock is listed) on that date or, if that date is not a trading day, on the most recent trading day preceding such date. If the Common Stock is not traded on any national securities exchange, the Value of the Common Stock shall be determined by the Committee in good faith. 5. ELIGIBLE PARTICIPANTS. Each individual who is a Director on the Effective Date or becomes a Director thereafter while the Plan is in effect shall be a participant ("Participant") in the Plan. Notwithstanding the foregoing, each person who becomes a Director pursuant to the merger contemplated by the Agreement and Plan of Merger dated as of December 19, 1999 among Monsanto Company, MP Sub, Incorporated, and Pharmacia & Upjohn, Inc. ("PNU"), as amended (the "Merger"), who was a Director of PNU immediately prior to the effective time of the Merger -5- 6 shall not be a Participant in the Plan and shall, instead, continue to participate in the Pharmacia & Upjohn Directors Equity Compensation and Deferral Plan. 6. DIRECTOR COMPENSATION. (a) GENERAL. In consideration for his or her services as a Director, each Participant shall receive compensation having a total annual value (the "Annual Retainer Amount") equal to $100,000 in the case of a Participant who serves as the Chair of a committee of the Board and $90,000 for all other Participants (which amount shall be pro-rated for partial years, as applicable); provided, that the Annual Retainer Amount for the Participants listed on Schedule I hereto for the Terms indicated on Schedule I shall be reduced as set forth on Schedule I to take account of the previously granted restricted stock being earned by such Participants; and provided, further, that the Board may specify different Annual Retainer Amounts from time to time. Such compensation for each Term shall be provided as follows: (i) half of such compensation (the "Required Option Amount") shall take the form of options to purchase Common Stock ("Options"), as more fully set forth in Section 6(b); and (ii) the other half of the Annual Retainer Amount (the "Elective Amount") shall take the form of (A) additional Options, as more fully set forth in Section 6(b), (B) cash paid -6- 7 currently ("Current Cash") or deferred cash ("Deferred Cash"), as more fully set forth in Section 6(c), or (C) Restricted Stock or Deferred Stock, as more fully set forth in Section 6(d), or a combination thereof. Each Participant shall be provided with the opportunity, in accordance with procedures established by the Committee from time to time, to make an election with respect to each Term during which he or she is a Participant (a "Periodic Election") specifying what percentages, in increments of one percentage point, of the Elective Amount for such Term will be provided to the Participant in the form of Options, Current Cash, Deferred Cash, Restricted Stock and Deferred Stock. Each Periodic Election for a particular Term shall be filed with the Committee at least 30 days before the beginning of such Term; provided, that the Periodic Elections for Terms beginning before the Effective Date shall be made on or before November 20, 1997 (and such Periodic Elections shall relate only to the Annual Retainer Amounts paid with respect to service after the Effective Date); and provided, further, that, with respect to an individual who becomes a Participant after the Effective Date, the Periodic Election for such Participant's first Term shall be filed with the Committee no later than 30 days after the first day of such Term. If a Participant fails to make a timely Periodic Election -7- 8 with respect to any Term, he or she shall be deemed to have elected to receive the entire Elective Amount in the form of Current Cash. (b) OPTIONS. (i) Each Participant shall be granted, for each of his or her Terms ending after the Effective Date, Options having a value on the applicable Grant Date (as defined below) determined by the Committee in accordance with the Black-Scholes option valuation method, equal to the sum of (A) the Required Option Amount for the Term and (B) the portion of the Elective Amount for the Term that the Participant has elected to receive in the form of Options. The effective date of each such grant (the "Grant Date") shall be the first day of the applicable Term; provided, that in the case of the first grant to those individuals who are Participants on the Effective Date, the Grant Date shall be November 21, 1997. Each Option shall be evidenced by an agreement, shall have a per-share exercise price equal to the Value of a share of Common Stock on the Grant Date and shall have the other terms and conditions set forth below in this Section 6(b). (ii) The Options granted to a Participant on a particular Grant Date shall vest in installments on the last day of each Plan Year ending during the Term for which they were -8- 9 granted, pro rata based upon the percentage of the Term that is included in such Plan Year, but in each case only if the Participant remains a Director on the last day of such Plan Year; provided, that if a Participant's Termination Date occurs other than on the last day of a Plan Year, a pro rata portion of the installment of the Participant's then-unvested Options that would otherwise have vested as of the last day of the Plan Year during which such Termination Date occurs, based on the percentage of such Plan Year that occurs on or before such Termination Date, shall instead vest on the Termination Date; and provided, further, that the number of shares with respect to which Options vest on a particular day shall be rounded to the nearest whole number of shares, if necessary to avoid vesting with respect to a fractional share. (iii) Each Option that vests in accordance with the foregoing shall be exercisable from and after the later of the date of such vesting and the first anniversary of the Grant Date, through the earlier of (A) the tenth anniversary of the Grant Date and (B) in the case of the Participant's death during or after his or her service as a Director, the first anniversary of the date of death, in the case of the Participant's removal from the Board before the end of any Term, the Termination Date, -9- 10 and in all other cases, the fifth anniversary of the Participant's Termination Date. Any Options held by a Participant that have not become vested as of the Participant's Termination Date shall terminate on the Termination Date. (iv) Subject to the limitations of this Section 6(b), Options may be exercised, in whole or in part, by giving written notice of exercise to the Company specifying the number of shares of Common Stock subject to the Option to be purchased. Such notice shall be accompanied by payment in full of the purchase price by certified or bank check or such other instrument as the Company may accept. Payment, in full or in part, may also be made in the form of unrestricted Common Stock already owned by the Participant, based on the Value of the Common Stock on the date the Option is exercised; provided, that such already owned shares have been held by the Participant for at least six months at the time of exercise. Payment for any shares subject to a Stock Option may also be made by delivering a properly executed exercise notice to the Company, together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds necessary to pay the purchase price. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage -10- 11 firms. No shares of Common Stock shall be issued pursuant to the exercise of Options until full payment therefor has been made. (v) No Option shall be transferable by the Participant other than by will or by the laws of descent and distribution. All Options shall be exercisable, subject to the terms of this Section 6(b), only by the Participant, the guardian or legal representative of the Participant, or any person to whom such Option is transferred pursuant to the preceding sentence, it being understood that references to the Participant shall be deemed, where appropriate, to refer to such guardian, legal representative or other transferee. (c) CASH. The portion, if any, of the Elective Amount for a particular Term that the Participant elects to have paid in Current Cash shall be paid, and the portion, if any, of the Elective Amount for a particular Term that the Participant elects to have paid in Deferred Cash shall be credited to a Cash Account maintained by the Company pursuant to Section 7 below, in each case in installments on the last day of each Plan Year that ends during the Term for which it is paid or credited (as applicable), pro rata based upon the percentage of the Term that is included in such Plan Year, but in each case only if the Participant re- -11- 12 mains a Director on that day. If a Participant's Termination Date occurs other than on the last day of a Plan Year, a pro rata portion of the installment of any Current Cash and any Deferred Cash that would otherwise have been paid or credited, as applicable, as of the last day of the Plan Year during which such Termination Date occurs, based upon the percentage of such Plan Year that occurs on or before such Termination Date, shall instead be paid or credited, as applicable, on the Termination Date. (d) STOCK. (i) The portion, if any, of the Elective Amount for a particular Term that the Participant elects to have provided in Restricted Stock, shall be issued as of the first day of such Term in the name of the Participant in the form of a number of shares of Common Stock having a Value, as of the first day of such Term, equal to the amount of such portion. Such shares shall be forfeitable and nontransferable, and shall be held in escrow for the Participant, until they vest in accordance with the provisions of Section 6(d)(iii). Dividends and other distributions with respect to Restricted Stock that has not yet vested as of the record date therefor shall be held in escrow, and shall vest and be delivered, together with the related Restricted Stock. -12- 13 (ii) The portion, if any, of the Elective Amount for a particular Term that the Participant elects to have provided in Deferred Stock shall be provided by crediting to a Stock Unit Account maintained by the Company pursuant to Section 7, a number of stock units representing hypothetical shares of Common Stock having a Value, as of the first day of such Term, equal to the amount of such portion. Such Deferred Stock shall vest as set forth in Section 6(d)(iii). (iii) Any Restricted Stock and Deferred Stock provided to a Participant for a particular Term shall vest in installments on the last day of each Plan Year that ends during the Term for which they were granted, pro rata based upon the percentage of the Term that is included in such Plan Year, but only if the Participant remains a Director on such day; provided, that if a Participant's Termination Date occurs other than on the last day of a Plan Year, a pro rata portion of the installment of the Participant's then-unvested Restricted Stock and Deferred Stock that would otherwise have vested as of the last day of the Plan Year during which such Termination Date occurs, based on the percentage of such Plan Year that occurs on or before such Termination Date, shall instead vest on the Termination Date; and provided, further, that the number of shares with respect to which -13- 14 Restricted Stock and/or Deferred Stock vests on a particular day shall be rounded to the nearest whole number of shares, if necessary to avoid vesting with respect to a fractional share. (e) Notwithstanding any other provision of the Plan, each Participant shall be permitted to make an election (a "Tax Withholding Election") in connection with each Periodic Election to have a percentage of (i) the shares of Common Stock delivered to him pursuant to the exercise of Options, (ii) any Restricted Stock, and/or (iii) any Deferred Stock, as applicable, delivered in the form of cash to enable him or her to pay the taxes due with respect thereto. If a Participant makes a Tax Withholding Election with respect to Options, then as and when such Options are exercised, a percentage of the Common Stock purchased in such exercise, equal to the "Tax Withholding Percentage" (as defined below), shall be withheld by the Company, and the Company shall instead pay to such Participant any amount of cash equal to the Value, as of the date of exercise, of the withheld Common Stock. If a Participant makes a Tax Withholding Election with respect to Restricted Stock, then as and when such Restricted Stock vests, a percentage of such Restricted Stock, equal to the Tax Withholding Percentage, shall be withheld by the Company, and the Company shall instead pay to such Participant an amount of cash equal to -14- 15 the Value, as of the date of vesting, of the withheld Restricted Stock. If a Participant makes a Tax Withholding Election with respect to Deferred Stock, then as and when such Deferred Stock is delivered to the Participant (or the Participant's Beneficiary) pursuant to Section 7, a percentage of such Deferred Stock, equal to the Tax Withholding Percentage, shall be withheld by the Company, and the Company shall instead pay to such Participant (or such Beneficiary) an amount of cash equal to the Value, as of the date of delivery, of the withheld Deferred Stock. The "Tax Withholding Percentage" means the percentage of the value of the Common Stock, Restricted Stock or Deferred Stock, as applicable, that would be required to be withheld by the Company under all applicable federal, state, local and other tax laws, if the Participant were an employee of the Company. 7. (a) DEFERRAL ACCOUNTS. The Company shall maintain one or two Deferral Accounts for each Participant who makes a Periodic Election to receive Deferred Cash or Deferred Stock, consisting of a "Stock Unit Account" and/or a "Cash Account," as applicable, and shall make credits thereto as provided in Section 6 and this Section 7. Whenever a dividend is paid or other distribution made with respect to the Common Stock, each Stock Unit Account shall be credited with a number of shares of Common Stock -15- 16 having a Value, as of the date such dividend is paid or such distribution is made, equal to (i) the number of stock units in such Stock Unit Account as of the record date for such dividend or distribution multiplied by (ii) the Dividend Equivalent for such dividend or other distribution. The shares so credited with respect to Deferred Stock that has not vested as of the record date for the dividend or distribution shall vest as and when such Deferred Stock vests. Each Cash Account shall accrue interest on the balance therein at the Interest Rate, to be credited and compounded monthly. (b) DELIVERY OF ACCOUNT BALANCES. (i) Each Participant shall be provided the opportunity to elect, in accordance with procedures established by the Committee, the manner in which his or her Deferral Account balances will be distributed on or after his or her Termination Date (each such election, a "Delivery Election"). A separate Delivery Election may be made with respect to each amount of cash credited to a Cash Account pursuant to a single Periodic Election and each amount of stock units credited to a Stock Unit Account pursuant to a single Periodic Election. Each such Delivery Election may call for delivery in a single sum or in installments on or beginning on the later of (i) the Termination Date or (ii) the date which is six months -16- 17 after the Delivery Election is made (an "Immediate Payment Election") or for deferred delivery in a single sum or in installments (a "Deferred Delivery Election") on or beginning on a specified date (in either case, the date on which delivery is to be made or is to begin is referred to as the "Starting Date"). The Starting Date for a Deferred Delivery Election must be on or after the third anniversary of the Termination Date; provided, that in no event shall the Starting Date for a Deferred Delivery Election be later than the later of (i) the Participant's 73rd birthday and (ii) the third anniversary of the Termination Date. Each Delivery Election shall specify whether it is a Single Sum Election, a Term Certain Election, a Keogh Election, or an IRA Election; provided, that Keogh Elections and IRA Elections may only be made in connection with Deferred Delivery Elections made with respect to amounts credited to Cash Accounts. (ii) The stock units in a Participant's Stock Unit Account and/or the cash in a Participant's Cash Account, as applicable, shall be delivered on or beginning on the Starting Date in accordance with the Participant's applicable Delivery Elections. In the case of deliveries from a Stock Unit Account, except as provided in Section 6(e), such delivery shall be made in the form of stock representing a number of shares of Common -17- 18 Stock equal to the number of stock units as and when they are to be delivered; provided, that if the number of shares to be delivered on any particular date included a fractional share, such number of shares shall be rounded down to the nearest whole number, and if such delivery is the last to be made to the Participant, the Company shall pay the Participant cash in an amount equal to the Value of such fractional share on the date of delivery. If any such stock units or cash are to be delivered after the Participant has died or become legally incompetent, they shall be delivered to the Participant's Beneficiary or legal guardian, as the case may be, in accordance with the foregoing; provided, that if a Participant who has made a Keogh Election dies before beginning to receive or receiving all of his or her distributions, the entire balance in his or her Deferral Account to which such Keogh Election applies shall be distributed to his or her Beneficiary immediately. References to a Participant in this Plan shall be deemed to refer to the Participant's Beneficiary or legal guardian, where appropriate. (iii) Participants shall be provided with the opportunity to designate, in accordance with procedures to be established by the Committee, the person or persons ("Beneficiaries") who will receive distributions of his or her interests in -18- 19 the Plan upon the death of the Participant (a "Beneficiary Designation"). Once made, a Beneficiary Designation or Delivery Election may be superseded by another Beneficiary Designation or Delivery Election (as applicable) or revoked in writing by the Participant. However, in order for any initial or superseding Delivery Election or revocation thereof to be valid, it must be received by the Committee before the Participant's Termination Date, and it shall in any event be subject to the approval of the Board or of a committee of the Board if the Committee determines that such approval is required in order for such Delivery Election and/or transactions resulting therefrom to be exempt under Rule 16b-3 under Section 16 of the Exchange Act. In the case of multiple Beneficiary Designations, Delivery Elections and/or revocations by any Participant, the most recent valid Beneficiary Designation, Delivery Election or revocation (as applicable) in effect as of the date of death or Termination Date, as applicable, shall be controlling. If a Participant does not have a valid Beneficiary Designation in effect as of the date of his or her death, his or her Beneficiary shall be his or her estate. If a Participant does not have a valid Delivery Election in effect as of his or her Termination Date with respect to any portion of his or her Cash Account or Stock Unit Account, he or she shall be -19- 20 deemed to have made an Immediate Payment Election with respect to such portion. 8. DELIVERY OF SHARES; VOTING AND OTHER RIGHTS. The shares delivered to a Participant pursuant to Section 6 or 7 above shall be issued in the name of the Participant, and the Participant shall be entitled to all rights of a shareholder with respect to Common Stock for all such shares issued in his or her name, including the right to vote the shares, and the Participant shall receive all dividends and other distributions paid or made with respect thereto from and after the date of such issuance, except as specifically provided in Section 6(d)(i). 9. GENERAL RESTRICTIONS. (a) Notwithstanding any other provision of the Plan or agreements made pursuant thereto, the Company shall not be required to issue or deliver any shares of Common Stock under the Plan prior to fulfillment of all of the following conditions: (i) Listing or approval for listing upon official notice of issuance of such shares on the New York Stock Exchange, Inc., or such other securities exchange as may at the time be a market for the Common Stock; (ii) Any registration or other qualification of such shares under any state or federal law or regulation, or the maintaining in effect of any such registration or other qualification which the Committee shall, in its absolute -20- 21 discretion upon the advice of counsel, deem necessary or advisable; and (iii) Obtaining any other consent, approval, or permit from any state or federal governmental agency which the Committee shall, in its absolute discretion after receiving the advice of counsel, determine to be necessary or advisable. (b) Nothing contained in the Plan shall prevent the Company from adopting other or additional compensation arrangements for the Participants. (c) Except as specifically provided in the Plan with respect to Beneficiary Designations, no Participant or Beneficiary shall have the right to assign, pledge or otherwise dispose of his or her interest in any Deferral Account, nor shall the interest of a Participant or Beneficiary therein be subject to garnishment, attachment, transfer by operations of law, or any legal process. (d) The Plan is intended to constitute an unfunded plan for incentive and deferred compensation of Directors, and the rights of Directors with respect to Deferral Accounts under the Plan shall be those of general creditors of the Company. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Stock or make payments, so long as the existence of such -21- 22 trusts or other arrangements is consistent with the unfunded status of the Plan. 10. NUMBER AND SOURCE OF SHARES AVAILABLE. Subject to adjustment pursuant to Section 11, 500,000 shares of Common Stock may be issued under the Plan. Shares of Common Stock issuable under the Plan shall be taken from treasury shares of the Company or purchased on the open market. If any shares of Restricted Stock or Deferred Stock are forfeited, or if any Option terminates without having been exercised, the shares subject thereto shall again be available under the Plan. 11. CHANGE IN CAPITAL STRUCTURE; CHANGE OF CONTROL. (a) In the event that there is, at any time after the Board adopts the Plan, any change in the Common Stock by reason of any stock dividend, stock split, combination of shares, exchange of shares, warrants or rights offering to purchase Common Stock at a price below its fair market value, reclassification, recapitalization, merger, consolidation, spin-off or other change in capitalization of the Company, appropriate adjustment shall be made in the number and kind of shares or other property subject to the Plan and the number and kind of shares or other property held in the Stock Unit Accounts (taking into account whether any Dividend -22- 23 Equivalent is credited to the Stock Unit Accounts in connection therewith), and any other relevant provisions of the Plan by the Committee, whose determination shall be binding and conclusive on all persons. Without limiting the generality of the foregoing, the Committee shall, to the greatest extent possible, make such adjustments so that Deferred Stock in Stock Unit Accounts under the Plan is treated in the same manner as actual shares of Common Stock. (b) If the shares of Common Stock credited to the Stock Unit Accounts are converted pursuant to this Section 11 into cash or another form of property, references in the Plan to the Common Stock shall be deemed, where appropriate, to refer to such cash or other form of property, with such other modifications as may be required for the Plan to operate in accordance with its purposes. Without limiting the generality of the foregoing, references to delivery of certificates for shares of Common Stock shall be deemed to refer to delivery of cash and the incidents of ownership of any other property held in the Stock Unit Accounts. 12. ADMINISTRATION; AMENDMENT. (a) The Plan shall be administered by a committee consisting of the Chief Financial Of- -23- 24 ficer, the General Counsel and the Corporate Vice President -- Human Resources of the Company (or the holder of any successor officer position thereto) (the "Committee"), which shall have full authority to construe and interpret the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to take all such actions and make all such determinations in connection with the Plan as it may deem necessary or desirable, including without limitation the determination of life expectancies and other assumptions and information to be used in determining the effect of Delivery Elections. (b) The Board may from time to time make such amendments to the Plan as it may deem proper and in the best interest of the Company, and it may terminate the Plan at any time. 13. MISCELLANEOUS. (a) Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any Director for reelection by the Company's shareholders or to limit the rights of the shareholders to remove any Director. (b) The Company shall have the right to require, prior to the issuance or delivery of any cash or shares of Common Stock pursuant to the Plan, that a Director make arrangements satisfactory to the Committee for the withholding of any taxes re- -24- 25 quired by law to be withheld with respect to the issuance or delivery of such cash or shares, including without limitation by the withholding of shares that would otherwise be so issued or delivered, by withholding from any other payment due to the Director, or by a cash payment to the Company by the Director. 14. GOVERNING LAW. The Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware. -25- 26 THE MONSANTO COMPANY NON-EMPLOYEE DIRECTOR EQUITY INCENTIVE PLAN SCHEDULE I As provided in Section 6(a) of the Plan, the Annual Retainer Amount for the following Participants shall be reduced in the amounts set forth below to take account of the previously granted restricted stock being earned by such Participants:
Annual Retainer for year(s) ending at Director Amount reduction the Annual Meeting in -------- ---------------- --------------------- Robert M. Heyssel $10,000 1998 Gwendolyn S. King $10,000 1998 Philip Leder $10,000 1998 and 1999 John S. Reed $ 5,000 1998, 1999 and 2000 John E. Robson $ 5,000 1998, 1999, 2000 and 2001 William D. Ruckelshaus $ 5,000 1998, 1999 and 2000
-26- EX-10.2 4 DIRECTORS EQUITY COMPENSATION AND DEFERRAL PLAN 1 EXHIBIT 10.2 PHARMACIA CORPORATION DIRECTORS EQUITY COMPENSATION AND DEFERRAL PLAN The Pharmacia Corporation Directors Equity Compensation and Deferral Plan (the "Plan") is a continuation and amendment and restatement of the Pharmacia & Upjohn, Inc. Directors Equity Compensation and Deferral Plan (the "P&U Plan"). The purpose of the Plan is to provide non-employee members of the Board of Directors (the "Board") of Pharmacia Corporation (the "Company") with the opportunity to receive grants of nonqualified stock options and stock awards. The Plan also permits non-employee directors to defer payment of part or all of their directors fees payable by the Company. The Company believes that the Plan will encourage the participants to contribute materially to the growth of the Company, thereby benefitting the Company's shareholders, and will align the economic interests of the participants with those of the shareholders. As a result of the merger contemplated by the Agreement and Plan of Merger dated as of December 19, 1999, as amended (the "Merger Agreement"), among Monsanto Company ("Monsanto"), a subsidiary of Monsanto and Pharmacia & Upjohn, Inc. ("P&U"), all outstanding stock options, stock awards and deferrals under the P&U Plan have been converted into options, stock awards and deferrals with respect to shares of common stock of the Company under this Plan. The number of shares and exercise price for such options, stock awards and deferrals have been adjusted pursuant to the Merger Agreement. 1. Administration (1) Committee. The Plan shall be administered and interpreted by the Board or by a committee of "non-employee directors," as defined under Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), appointed by the Board. If a committee administers the Plan, references in the Plan to the "Board," as they relate to Plan administration, shall be deemed to refer to the committee. (2) Board Authority. The Board shall have the sole authority to (i) determine the individuals to whom grants shall be made under the Plan, (ii) determine the type, size and terms of the grants to be made, (iii) determine the time when the grants will be made and the duration of any applicable exercise or restriction period, including the criteria for exercisability and the acceleration of exercisability, (iv) amend the terms of any previously issued grant, (v) establish the terms of deferrals and payments under the Plan, and (vi) deal with any other matters arising under the Plan. (3) Board Determinations. The Board shall have full power and authority to administer and interpret the Plan, to make factual determinations and to adopt or 2 amend such rules, regulations, agreements and instruments for implementing the Plan and for the conduct of its business as it deems necessary or advisable, in its sole discretion. The Board's interpretations of the Plan and all determinations made by the Board pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interest in the Plan or in any awards granted hereunder. All powers of the Board shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals. 2. Grants Awards under the Plan may consist of nonqualified stock options as described in Section 5 ("Options") and stock awards as described in Section 6 ("Stock Awards") (hereinafter collectively referred to as "Grants"). All Grants shall be subject to the terms and conditions set forth herein and to such other terms and conditions consistent with this Plan as the Board deems appropriate and as are specified in writing by the Board to the individual in a grant instrument or an amendment to the grant instrument (the "Grant Instrument"). Unrestricted Stock Awards may be granted without a Grant Instrument. The Board shall approve the form and provisions of each Grant Instrument. Grants under a particular Section of the Plan need not be uniform as among the Directors. 3. Shares Subject to the Plan (a) Shares Authorized. Subject to adjustment as described below, the aggregate number of shares of common stock of the Company ("Company Stock") that may be issued or transferred under the Plan is 400,000 shares. The shares shall all be treasury shares of Company Stock, and all Grants and other Company Stock payments under the Plan must be made from treasury shares. If and to the extent Options granted under the Plan (including without limitation Options granted under the P&U Plan) terminate, expire, or are canceled, forfeited, exchanged or surrendered without having been exercised or if any Stock Awards (including without limitation Stock Awards granted under the P&U Plan) are forfeited, the shares subject to such Grants shall again be available for purposes of the Plan. If shares of Company Stock are used to pay the exercise price of an Option, only the net number of shares received by the Director pursuant to such exercise shall be considered to have been issued or transferred under the Plan with respect to such Option, and the remaining number of shares subject to the Option shall again be available for purposes of the Plan. (2) Adjustments. If there is any change in the number or kind of shares of Company Stock outstanding (i) by reason of a stock dividend, spinoff, recapitalization, stock split, or combination or exchange of shares, (ii) by reason of a merger, reorganization or consolidation in which the Company is the surviving corporation, (iii) by reason of a reclassification or change in par value, or (iv) by reason of any other extraordinary or unusual event affecting the outstanding Company Stock as a class without the Company's receipt of consideration, or if the value of outstanding shares of Company Stock is substantially reduced 2 3 as a result of a spinoff or the Company's payment of an extraordinary dividend or distribution, the maximum number of shares of Company Stock available for distribution under the Plan, the number of shares covered by outstanding Grants and deferrals, the kind of shares issued under the Plan, and the price per share of outstanding Grants may be appropriately adjusted by the Board to reflect any increase or decrease in the number of, or change in the kind or value of, issued shares of Company Stock to preclude, to the extent practicable, the enlargement or dilution of rights and benefits of Plan participants; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. Any adjustments determined by the Board shall be final, binding and conclusive. 4. Eligibility for Participation; Grant Elections (1) Eligibility. All members of the Board who are not employees of the Company or a subsidiary ("Directors") shall be eligible to participate in the Plan. (2) Grant Elections. The Board may establish amounts and terms for Grants as it deems appropriate, pursuant to Sections 5 and 6. Before the beginning of each Plan Year (as defined below), each Director may elect to receive, as part of his compensation to be earned as a director, Stock Awards or Options, in amounts to be determined by the Board before the beginning of the Plan Year. If a Director makes no affirmative election, the Director will receive a Stock Award. The Options and Stock Awards shall be granted on the first day of the Plan Year for which the elections are effective or as of such other date as the Board may determine. Unless the Board determines otherwise, each Option shall have an exercise price (the "Exercise Price") equal to the Fair Market Value (as defined below) of a share of Company Stock on the date the Option is granted, shall be fully exercisable on the date of grant and shall have a ten-year term. Unless the Board determines otherwise, each Stock Award shall be fully vested on the date of grant. (3) Plan Year. The first Plan Year for the restated Plan is the period beginning on the date of the next Board meeting following the effective date of the restated Plan and ending on the day before the 2001 annual Company shareholders meeting. For subsequent years, a Plan Year is each period that begins on the date of an annual Company shareholders meeting and ends on the day before the next annual Company shareholders meeting. 5. Terms of Options (1) Type of Option and Price. The Board shall establish the terms of each Option in the Grant Instrument as follows: (1) All Options granted under the Plan shall be nonqualified stock options, which are not intended to qualify as "incentive stock options" within the meaning of section 422 of the Internal Revenue Code of 1986, as amended. 3 4 (2) The Exercise Price shall be determined by the Board and shall be not less than the Fair Market Value of a share of Company Stock on the date the Option is granted. (3) "Fair Market Value" shall mean, per share of Company Stock, the average of the highest and lowest prices of the Company Stock on the New York Stock Exchange (the "NYSE"), or such other national securities exchange as may be designated by the Board, on the applicable date, or, if there are no sales of Company Stock on the NYSE on such date, then the average of the highest and lowest prices of the Company Stock on the last previous day on which a sale on the NYSE is reported. (2) Option Term. The Board shall determine the term of each Option, which shall not exceed ten years from the date of grant. (3) Exercisability of Options. Options may become exercisable immediately upon grant or they may become exercisable over time in accordance with such terms and conditions as may be determined by the Board and specified in the Grant Instrument. The Board may accelerate the exercisability of any or all outstanding Options at any time for any reason. (4) Termination of Service. The Board shall determine whether and under what circumstances Options may be exercised after a Director ceases to be a member of the Board. Unless the Board determines otherwise, if a Director ceases to be a member of the Board for any reason, the Director's Options that are exercisable at the date the Director ceases to be a member of the Board shall continue to be exercisable for three years following the date the Director ceases to be a member of the Board (but not later than the expiration of the Option term). (5) Exercise of Options. A Director may exercise an Option that has become exercisable, in whole or in part, by delivering a notice of exercise to the Company with payment of the Exercise Price. The Director shall pay the Exercise Price for an Option as specified by the Board (i) in cash, (ii) with the approval of the Board, by delivering shares of Company Stock owned by the Director (including Company Stock acquired in connection with the exercise of an Option, subject to such restrictions as the Board deems appropriate) and having a Fair Market Value on the date of exercise equal to the Exercise Price, or by attestation (on a form prescribed by the Board) to ownership of shares of Company Stock having a Fair Market Value on the date of exercise equal to the Exercise Price, (iii) by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board or (iv) by such other method as the Board may approve. Shares of Company Stock used to exercise an Option shall have been held by the Director for the requisite period of time to avoid adverse accounting consequences to the Company with respect to the Option. The 4 5 Director shall pay the Exercise Price and the amount of any withholding tax due at the time of exercise. 6. Stock Awards The Board may issue or transfer shares of Company Stock to a Director under a Stock Award, upon such terms as the Board deems appropriate. The following provisions are applicable to Stock Awards: (1) General Requirements. The Board shall determine the number of shares of Company Stock to be issued or transferred pursuant to a Stock Award. Shares of Company Stock issued or transferred pursuant to Stock Awards may be issued or transferred for cash consideration or for no cash consideration (subject to applicable state law), and subject to restrictions or no restrictions, as determined by the Board. The period of time during which the Stock Award will remain subject to any restrictions imposed by the Board will be designated in the Grant Instrument as the "Restriction Period." All restrictions imposed on Stock Awards shall lapse upon the expiration of the applicable Restriction Period and the satisfaction of all conditions imposed by the Board. The Board may determine, as to any or all Stock Awards, that the restrictions shall lapse without regard to any Restriction Period. (2) Restrictions on Transfer and Legend on Stock Certificate. During the Restriction Period, a Director may not sell, assign, transfer, pledge or otherwise dispose of the shares of a Stock Award except to a successor under Section 10. Each certificate for a Stock Award shall contain a legend giving appropriate notice of the restrictions. The Director shall be entitled to have the legend removed from the stock certificate covering the shares subject to restrictions when all restrictions on such shares have lapsed. The Board may determine that the Company will not issue certificates for Stock Awards until all restrictions on such shares have lapsed, or that the Company will retain possession of certificates for Stock Awards until all restrictions on such shares have lapsed. (3) Right to Vote and to Receive Dividends. During the Restriction Period, the Director shall have the right to vote shares of Stock Awards and to receive any dividends or other distributions paid on such shares, subject to any restrictions deemed appropriate by the Board. 7. Deferral of Directors Compensation (1) Terms of Deferral Elections. Directors may elect to defer payment of their Stock Awards and their fees to be earned for service as a member of the Board or any committee of the Board, on such terms as the Board may establish. Unless the Board determines otherwise, deferrals may be made according to the provisions of subsections (b) through (e) below. The Board may modify the following terms as it deems appropriate. 5 6 (2) Deferral Elections. (1) Before the beginning of each Plan Year, each Director shall have the right to defer the payment of the retainer fees, committee fees and Stock Awards to be earned by the Director for service as a member of the Board for the Plan Year. The election shall be effective for the Plan Year for which the election is made and all subsequent Plan Years until a new election form is filed with the Company. Any new election shall be effective as of the beginning of the Plan Year following the date on which the election is made. Elections shall be made by delivery of an executed election form to the Company. (2) Unless the Board determines otherwise, a Director may elect to defer 25%, 50%, 75% or 100% of the cash fees to be earned by the Director for the Plan Year and/or 100% of the Stock Awards to be earned by the Director for the Plan Year. (3) If a Director first becomes a Director at a date other than an annual shareholders meeting, the Director's deferral election may be effective as of the date of the Director's first Board meeting or such other date as the Board determines. (4) When a Director elects to defer fees or Stock Awards, the Company shall create an account on the books and records of the Company and shall credit to the account the Director's deferred fees, deferred Stock Awards and any interest equivalents and dividend equivalents credited with respect to the deferred amounts. A Director's deferred cash fees shall be credited to the Director's account as of the date on which the fees would otherwise have been paid to the Director. If a Director elects to have cash fees paid in Company Stock, the fees to be deferred shall be converted into hypothetical shares of Company Stock as of the date on which the fees would otherwise have been paid, based on the Fair Market Value of the Company Stock on that date. A Director's deferred Stock Awards shall be credited to the Director's account on the first day of the Plan Year as of which they are granted or such other date as the Board may determine. (3) Methods of Payment. (1) A Director who elects to defer fees or Stock Awards shall elect one of the following methods of payment of the deferred amounts, in his or her deferral election form: (x) Payment may be made in up to 10 substantially equal annual installments, commencing in January of the calendar year following the calendar year in which the Director resigns, retires or is removed from the Board and continuing annually until the total amount of all fees subject to the election shall have been paid. 6 7 (y) Payment may be made in one lump sum payment equal to the full amount of the fees subject to such election, payable in January of the calendar year following the calendar year in which the Director resigns, retires or is removed from the Board. (2) A Director's deferred Stock Awards shall be paid in the form of Company Stock. A Director's deferred cash fees shall be paid in cash or in shares of Company Stock, as the Director shall elect in his or her deferral election form. (3) The Company shall pay a Director's deferred amounts to the Director in the manner and at the times elected by the Director in his or her deferral election form, except that if, after a Director has become entitled to payment of deferred amounts, the remaining deferred amounts are less than $5,000 or 100 shares of Company Stock, payment of all remaining deferred amounts shall be accelerated and paid in January of the following calendar year. (4) If a Director dies before or after commencement of payment of his or her deferred amounts, the then remaining unpaid portion shall be paid to the Director's beneficiary designated in the designation of beneficiary form delivered by the Director to the Company. In the event no such beneficiary shall have been designated by the Director, the executor or administrator of the Director's estate shall be entitled to receive any remaining unpaid portion of his deferred amounts. Payment shall be made in a single payment as soon as practicable after the Director's death, in cash or shares of Company Stock according to the Director's initial election. (5) If, at the time of payment, the aggregate number of shares of Company Stock payable to a Director shall not be divisible into whole shares by the applicable number of remaining installments, each remaining installment, except the last, shall consist of the nearest number of whole shares into which such number shall be divisible by the number of installments, and the last installment shall consist of the remainder. Any fractional shares shall be paid in cash based on the Fair Market Value of Company Stock on the business day prior to the final payment date. (4) Dividend Equivalents. Dividend equivalents shall be credited on any deferred amounts that are payable in shares of Company Stock as and when a cash dividend is paid on shares of Company Stock, based on the Fair Market Value of Company Stock on the date on which the dividend is paid. Dividend equivalents shall be credited subsequently on the additional shares so credited. The additional shares shall be distributed at the times provided for payment of the deferred amounts. (5) Interest Equivalents. Interest equivalents shall be credited and compounded annually on any deferred fees which are payable in cash. Calculation of the interest equivalents shall be based on the average of the prime rate published in the Wall Street 7 8 Journal as of the end of each of the prior four quarters, unless the Board determines otherwise. Interest equivalents shall be paid to Directors at the times provided for payment of the deferred amounts. 8. Persons Subject to Taxation Outside the United States With respect to Directors who are subject to taxation in countries other than the United States, the Board may make Grants or allow deferrals on such terms and conditions as may in the judgment of the Board be necessary or desirable to foster and promote achievement of the purposes of the Plan, and, in furtherance of such purposes, the Board may make such modifications, amendments, procedures and subplans as may be necessary or advisable to comply with the laws of countries in which Directors are subject to taxation. 9. Withholding of Taxes Amounts payable under the Plan shall be subject to any applicable tax withholding requirements. Tax withholding requirements may be satisfied in any of the following ways: (i) the Company may deduct from any amounts payable in cash (under the Plan or otherwise) any taxes required by law to be withheld; (ii) the Director may elect to have shares withheld up to an amount that does not exceed the Director's minimum applicable withholding tax rate; (iii) the Director may tender shares of Company Stock owned by the Director; or (iv) the Director may satisfy the Company's withholding tax obligations by such other method as the Board may approve. 10. Transferability of Grants Only the Director may exercise rights under a Grant during the Director's lifetime, and a Director may not transfer rights with respect to Grants or deferrals except by will, by the laws of descent and distribution or pursuant to a written beneficiary designation filed with the Company. When a Director dies, the personal representative or other person entitled to succeed to the rights of the Director may exercise such rights. A successor must furnish proof satisfactory to the Company of his or her right to receive the Grant or deferrals under the Director's will, under the applicable laws of descent and distribution or under the applicable beneficiary designation. 11. Change of Control of the Company As used herein, a "Change of Control" shall mean: (1) The acquisition by any individual, entity or group ("Person"), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership, within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 33% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the 8 9 then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions of Outstanding Company Common Stock or Outstanding Company Voting Securities shall not constitute a Change in Control: (A) any acquisition by the Company, (B) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (C) any acquisition by any corporation pursuant to a reorganization, merger or consolidation involving the Company, if, immediately after such reorganization, merger or consolidation, each of the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section 11 shall be satisfied; and provided further that, for purposes of clause (A), if any Person (other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the beneficial owner of 33% or more of the Outstanding Company Common Stock or 33% or more of the Outstanding Company Voting Securities by reason of any acquisition of Outstanding Company Common Stock or Outstanding Company Voting Securities by the Company and such Person shall, after such acquisition by the Company, become the beneficial owner of any additional shares of the Outstanding Company Common Stock or any additional Outstanding Voting Securities and such beneficial ownership is publicly announced, such additional beneficial ownership shall constitute a Change of Control; (2) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of the Company subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least three-quarters of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed to have been a member of the Incumbent Board; (3) Approval by the stockholders of the Company of a reorganization, merger or consolidation involving the Company unless, in any such case, immediately after such reorganization, merger or consolidation, (i) more than 50% of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and more than 50% of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, directly or indirectly, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation and in substantially the same proportions relative to each 9 10 other as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or the corporation resulting from such reorganization, merger or consolidation (or any corporation controlled by the Company), or any Person which beneficially owned, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 33% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of the then outstanding shares of common stock of such corporation or 33% or more of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such reorganization, merger or consolidation; or (4) (i) Approval by the stockholders of the Company of a plan of complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company other than to a corporation with respect to which, immediately after such sale or other disposition, (A) more than 50% of the then outstanding shares of common stock thereof and more than 50% of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition and in substantially the same proportions relative to each other as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or such corporation (or any corporation controlled by the Company), or any Person which beneficially owned, immediately prior to such sale or other disposition, directly or indirectly, 33% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of the then outstanding shares of common stock thereof or 33% or more of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition (or were approved directly or indirectly by the Incumbent Board). 10 11 12. Consequences of a Change of Control (1) Notice and Acceleration. Upon a Change of Control, unless the Board determines otherwise, (i) all outstanding Options shall automatically accelerate and become fully exercisable and (ii) the restrictions and conditions on all outstanding Stock Awards shall immediately lapse. (2) Assumption of Grants. Upon a Change of Control where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), unless the Board determines otherwise, all outstanding Options that are not exercised shall be assumed by, or replaced with comparable options by, the surviving corporation. (3) Other Alternatives. Notwithstanding the foregoing, subject to subsection (d) below, in the event of a Change of Control, the Board may take one or both of the following actions: the Board may (i) require that Directors surrender their outstanding Options in exchange for a payment by the Company, in cash or Company Stock as determined by the Board, in an amount equal to the amount by which the then Fair Market Value of the shares of Company Stock subject to the Director's unexercised Options exceeds the Exercise Price of the Options, or (ii) after giving Directors an opportunity to exercise their outstanding Options, terminate any or all unexercised Options at such time as the Board deems appropriate. Such surrender or termination shall take place as of the date of the Change of Control or such other date as the Board may specify. (4) Limitations. Notwithstanding anything in the Plan to the contrary, in the event of a Change of Control, the Board shall not have the right to take any actions described in the Plan (including without limitation actions described in Subsection (c) above) that would make the Change of Control ineligible for pooling of interests accounting treatment or that would make the Change of Control ineligible for desired tax treatment if, in the absence of such right, the Change of Control would qualify for such treatment and the Company intends to use such treatment with respect to the Change of Control. 13. Requirements for Issuance or Transfer of Shares No Company Stock shall be issued or transferred hereunder unless and until all legal requirements applicable to the issuance or transfer of such Company Stock have been complied with to the satisfaction of the Board. The Board shall have the right to condition any Grant or deferral hereunder on the Director's undertaking in writing to comply with such restrictions on his or her subsequent disposition of such shares of Company Stock as the Board shall deem necessary or advisable, and certificates representing such shares may be legended to reflect any such restrictions. Certificates representing shares of Company Stock issued or transferred under the Plan will be subject to such stop-transfer orders and other restrictions as 11 12 may be required by applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon. 14. Amendment and Termination of the Plan (1) Amendment. The Board may amend or terminate the Plan at any time. (2) Termination of Plan. The Plan shall terminate on the day immediately preceding the tenth anniversary of its effective date, unless the Plan is terminated earlier by the Board or is extended by the Board. (3) Termination and Amendment of Outstanding Grants. A termination or amendment of the Plan shall not materially impair the rights of Directors under then outstanding Grants or deferrals unless the Director consents or unless the Board acts under Section 20(a). The termination of the Plan shall not impair the power and authority of the Board with respect to outstanding Grants or deferrals. Whether or not the Plan has terminated, an outstanding Grant or deferral may be terminated or amended under Section 20(a) or may be amended by agreement of the Company and the Director consistent with the Plan. (4) Governing Document. The Plan shall be the controlling document. No other statements, representations, explanatory materials or examples, oral or written, may amend the Plan in any manner. The Plan shall be binding upon and enforceable against the Company and its successors and assigns. 15. Funding of the Plan (1) This Plan shall be unfunded. The Company shall not be required to establish any special or separate fund with respect to the Plan or to make any segregation of assets to assure the payment of any Grants or deferrals under this Plan. The Directors shall in all respects be general creditors of the Company with respect to amounts not yet paid or distributed under the Plan. (2) The Company may establish a trust (the "Trust") and may make contributions to the Trust from time to time to provide itself with a source of funds to assist it in meeting its liabilities under this Plan. The assets held in the Trust shall be subject to the claims of the Company's creditors in the event the Company becomes insolvent. The Company may vote any shares of Company Stock held by the Trust as directed by the Directors in proportion to their deferred amounts which are payable in shares of Company Stock. (3) Grants, deferred amounts, interest equivalents and dividend equivalents hereunder shall not be subject to the debts or liabilities of any Director, nor shall 12 13 such amounts be subject to sale, transfer, assignment, pledge, levy, claim, garnishment, attachment or encumbrance of any kind by the Director, whether voluntary or involuntary. 16. Rights of Participants Nothing in this Plan shall entitle any Director or other person to any claim or right to be granted a Grant under this Plan. Neither this Plan nor any action taken hereunder shall be construed as giving any individual any rights to be retained by or in the service of the Company or any employment rights. 17. No Fractional Shares No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan or any Grant. The Board shall determine whether cash, other awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. 18. Headings Section headings are for reference only. In the event of a conflict between a title and the content of a Section, the content of the Section shall control. 19. Effective Date of the Plan The amended and restated Plan shall be effective as of April 18, 2000. 20. Miscellaneous (1) Compliance with Law. The Plan, the exercise of Options and the obligations of the Company to issue or transfer shares of Company Stock under the Plan be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required. It is the intent of the Company that the Plan and all transactions under the Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. To the extent that any legal requirement of section 16 of the Exchange Act as set forth in the Plan ceases to be required under section 16 of the Exchange Act, that Plan provision shall cease to apply. The Board may revoke any Grant or deferral if it is contrary to law or modify a Grant or deferral to bring it into compliance with any valid and mandatory government regulation. The Board may, in its sole discretion, agree to limit its authority under this Section. (2) Governing Law. The validity, construction, interpretation and effect of the Plan, Grant Instruments and election forms issued under the Plan shall be governed and construed by and determined in accordance with the laws of the State of Delaware, without giving effect to the conflict of laws provisions thereof. 13 EX-27.1 5 FINANCIAL DATA SCHEDULE - 3/31/2000
5 1,000,000 3-MOS DEC-31-2000 MAR-31-2000 1,175 0 5,153 267 2,782 10,837 11,873 5,033 26,997 7,744 5,175 0 267 2,934 8,016 26,997 4,293 4,293 1,405 1,405 700 0 97 59 19 40 58 0 0 98 0.07 0.07 Includes guarantee of ESOP debt. Only includes R&D expense. Restated for 03/31/00 merger accounted for as a pooling of interests.
EX-27.2 6 RESTATED FINANCIAL DATA SCHEDULES
5 YEAR 9-MOS 6-MOS 3-MOS DEC-31-1999 DEC-31-1999 DEC-31-1999 DEC-31-1999 DEC-31-1999 SEP-30-1999 JUN-30-1999 MAR-31-1999 1,600 1,329 1,019 1,145 0 0 0 0 4,402 4,462 4,974 4,539 271 251 243 242 2,905 2,716 2,485 2,546 10,682 10,308 10,425 10,266 11,757 11,495 11,305 11,097 4,932 4,969 4,900 4,866 27,194 26,406 26,864 26,665 7,174 6,791 7,274 7,144 6,235 6,330 6,458 6,779 0 0 0 0 270 273 274 275 2,931 2,930 2,927 2,929 7,710 7,565 7,330 6,998 27,194 26,406 26,864 26,665 16,425 12,197 8,459 4,100 16,425 12,197 8,459 4,100 5,320 3,979 2,735 1,377 5,320 3,979 2,735 1,377 2,815 2,121 1,389 710 0 0 0 0 408 314 223 105 1,897 1,543 1,319 512 592 499 470 180 1,305 1,044 849 332 92 69 30 12 0 0 0 0 (20) (20) (20) (20) 1,377 1,093 859 324 1.10 0.87 0.68 0.25 1.07 0.85 0.67 0.25 Includes guarantee of ESOP debt. Only includes R&D expense. Restated for 03/31/00 merger accounted for as a pooling of interests.
-----END PRIVACY-ENHANCED MESSAGE-----