SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
MONSANTO COMPANY
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(Name of Registrant as Specified in Its Charter)
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how it was determined.
[MONSANTO Logo]
MONSANTO COMPANY
800 NORTH LINDBERGH BOULEVARD
ST. LOUIS, MISSOURI 63167
PHONE (314) 694-1000
http://www.monsanto.com
March 25, 2002
Dear Shareowner:
You are cordially invited to attend the Company's Annual Meeting of
Shareowners on May 1, 2002. We will hold the meeting at 1:30 p.m. in the
K Building at the Company's Creve Coeur Campus, 800 North Lindbergh
Boulevard, St. Louis County, Missouri. A map with directions to the
Company's Creve Coeur Campus can be found near the back of the proxy
statement, which accompanies this letter.
In connection with the meeting, we enclose a notice of the meeting, a proxy
statement and a proxy card. Detailed information relating to the Company's
activities and operating performance is contained in our 2001 Annual Report
to Shareowners, which is also enclosed. Please note that if your shares are
held in the name of a broker or other nominee and you have elected to
receive shareowner communications and submit voting instructions via the
Internet, you will not receive a proxy card.
Whether or not you plan to attend the Annual Meeting of Shareowners, please
vote your shares in one of three ways: via Internet, telephone or mail.
Please note that you can attend the meeting and vote in person, even if you
have previously voted. If you plan on attending the meeting in person,
please provide advance notice to the Company either by checking the box on
your proxy card or by following the telephone or Internet instructions. In
addition, you may provide notice to the Company that you plan on attending
in person by delivering written notice to the Company's Secretary at
800 North Lindbergh Boulevard, St. Louis, Missouri 63167. If you hold your
shares in street name through a bank or broker, please bring identification
and proof of ownership, such as an account statement or letter from your
bank or broker, for admittance. An admission list containing the names of
all of those planning to attend will be placed at the registration desk at
the entrance to the meeting, where you must check in to gain admittance to
the meeting.
The Company will make available an alphabetical list of shareowners
entitled to vote at the meeting for examination by any shareowner during
ordinary business hours at the Company's Shareholder Services Department
located in E Building at the Creve Coeur Campus, from April 19, 2002, until
the meeting.
On behalf of the entire board, we look forward to seeing you at the
meeting.
Sincerely,
/s/ Frank V. AtLee III
Frank V. AtLee III
Chairman of the Board of Directors
TABLE OF CONTENTS TO THE PROXY STATEMENT
PAGE NO.
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Notice of Annual Meeting of Shareowners
Questions and Answers
Proxy Statement...................................................... 1
Information Regarding Board of Directors and Committees.............. 3
Election of Directors (Proxy Item No. 1)............................. 8
Ratification of Independent Auditors (Proxy Item No. 2).............. 8
Approval of the 2000 Management Incentive Plan (Proxy Item No. 3).... 9
Stock Ownership of Management and Certain Beneficial Owners.......... 13
Executive Compensation............................................... 14
Committee Reports.................................................... 17
Stock Price Performance Graph........................................ 21
Certain Agreements................................................... 22
Arrangements Between Monsanto and Pharmacia.......................... 24
Pharmacia's Announcement Regarding Spin Off of Ownership Interest.... 24
Certain Other Information Regarding Management....................... 24
General Information.................................................. 25
Appendices
2000 Management Incentive Plan....................................... A
Summary Description of Agreements Between Monsanto and Pharmacia..... B
[MONSANTO Logo]
MONSANTO COMPANY
800 NORTH LINDBERGH BOULEVARD
ST. LOUIS, MISSOURI 63167
PHONE (314) 694-1000
http://www.monsanto.com
NOTICE OF
ANNUAL MEETING OF SHAREOWNERS
MAY 1, 2002
The Annual Meeting of Shareowners of Monsanto Company will be held in
K Building at the Company's Creve Coeur Campus, 800 North Lindbergh
Boulevard, St. Louis County, Missouri, on Wednesday, May 1, 2002, at
1:30 p.m. for the following purposes:
1. to elect ten directors for terms expiring at the Annual Meeting of
Shareowners to be held in 2003;
2. to ratify the appointment of Deloitte & Touche LLP as principal
independent auditors for the year 2002;
3. to approve the 2000 Management Incentive Plan; and
4. to transact such other business as may properly come before the
meeting.
By Order of the Board of Directors,
MONSANTO COMPANY
/s/ Charles W. Burson
CHARLES W. BURSON
Secretary
St. Louis, Missouri
March 25, 2002
IMPORTANT NOTICE
PLEASE VOTE YOUR SHARES PROMPTLY
QUESTIONS AND ANSWERS
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Q. WHEN AND WHERE IS THE ANNUAL MEETING?
We will hold the annual meeting of shareowners on Wednesday, May 1, 2002,
at 1:30 p.m., local time, at K Building at the Company's Creve Coeur
Campus, 800 North Lindbergh Boulevard, St. Louis, Missouri 63167. A map
with directions to the meeting can be found near the back of the proxy
statement.
Q. WHO IS ENTITLED TO VOTE AT THE MEETING?
You are entitled to vote at the meeting if you owned shares as of the
closing of business on March 11, 2002, the record date for the meeting.
Q. WHAT AM I BEING ASKED TO VOTE ON AT THE MEETING?
We are asking our shareowners to elect directors, to ratify the appointment
of our independent auditors and to approve the 2000 Management Incentive
Plan.
Q. WHAT VOTE OF THE SHAREOWNERS IS NEEDED?
Each share of our common stock is entitled to one vote with respect to each
matter on which it is entitled to vote. Our directors are elected by a
plurality of votes, which means that the nominees who receive the greatest
number of votes will be elected. A majority of the shares present at the
meeting in person or by proxy is required for approval of all other items.
Q. CAN I VOTE BY TELEPHONE OR OVER THE INTERNET?
Most shareowners have a choice of voting in one of three ways: via
Internet, telephone, or mail. Please read the instructions attached to the
proxy card or the information sent by your broker or bank.
Q. WHAT DO I DO IF MY SHARES OF COMMON STOCK ARE HELD IN "STREET NAME" AT A
BANK OR BROKERAGE FIRM?
If your shares are held in street name by a bank or brokerage firm as your
nominee, your bank or broker will send you a separate package describing
the procedure for voting your shares. You should follow the instructions
provided by your bank or brokerage firm.
Q. WHAT HAPPENS IF I RETURN MY SIGNED PROXY CARD BUT FORGET TO INDICATE HOW
I WANT MY SHARES OF COMMON STOCK VOTED?
If you sign, date and return your proxy and do not mark how you want to
vote, your proxy will be counted as a vote "FOR" all of the nominees for
directors, and "FOR" all other items. In addition, your proxy will be voted
in the discretion of the proxies with respect to such other business as may
properly come before the meeting.
Q. WHAT HAPPENS IF I DO NOT INSTRUCT MY BROKER HOW TO VOTE OR IF I MARK
"ABSTAIN" ON THE PROXY?
If you mark your proxy "abstain," your vote will have the same effect as a
vote against the proposal or the election of the applicable director. If
you do not instruct your broker how to vote, your broker will vote your
shares for you at his or her discretion. Broker non-votes have the same
effect as votes cast against a particular proposal.
Q. CAN I CHANGE MY VOTING INSTRUCTIONS BEFORE THE MEETING?
Yes. You can revoke your proxy at any time before it is exercised by timely
delivery of a properly executed, later-dated proxy (including an Internet
or telephone vote), by a written revocation of your proxy sent to the
Secretary of Monsanto or by voting at the meeting. The method by which you
vote by a proxy will in no way limit your right to vote at the meeting if
you decide to attend in person. If your shares are held in the name of a
bank or brokerage firm, you must obtain a proxy, executed in your favor,
from the bank or broker, to be able to vote at the meeting.
Q. WILL I HAVE ACCESS TO THE PROXY STATEMENT OVER THE INTERNET?
Yes. In addition to receiving paper copies of the proxy statement and
annual report in the mail, you can view these documents over the Internet
by accessing our Internet World Wide Website at http://www.monsanto.com and
clicking on the "Investors" tab at the top of the page. These reports may
then be accessed by clicking on the "Financial Reports" tab on the left
side of the "Investors" page. You can choose to view future proxy
statements and annual reports over the Internet instead of receiving paper
copies by mail. Please read the instruction letter accompanying this proxy
statement for detailed information regarding these procedures.
Q. WHAT DO I NEED TO DO IF I PLAN ON ATTENDING THE MEETING IN PERSON?
If you plan on attending the meeting in person, please provide advance
notice to the Company either by checking the box on your proxy card or by
following the telephone or Internet instructions. In addition, you may
provide notice to the Company that you plan on attending in person by
delivering written notice to the Company's Secretary. If you hold your
shares in street name through a bank or broker, please bring identification
and proof of ownership, such as an account statement or letter from your
bank or broker, for admittance. An admission list containing the names of
all of those planning to attend will be placed at the registration desk at
the entrance to the meeting, where you must check in to gain admittance to
the meeting.
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[MONSANTO Logo]
MONSANTO COMPANY
800 NORTH LINDBERGH BOULEVARD
ST. LOUIS, MISSOURI 63167
PHONE (314) 694-1000
http://www.monsanto.com
PROXY STATEMENT
===========================================================================
The board of directors of Monsanto Company is soliciting proxies from its
shareowners in connection with the Company's Annual Meeting of Shareowners
on May 1, 2002, and at any and all adjournments thereof.
If you plan on attending the meeting in person, please provide advance
notice to the Company either by checking the box on your proxy card or by
following the telephone or Internet instructions. In addition, you may
provide notice to the Company that you plan on attending in person by
delivering written notice to the Company's Secretary at 800 North Lindbergh
Boulevard, St. Louis, Missouri 63167. If you hold your shares in street
name through a bank or broker, please bring identification and proof of
ownership, such as an account statement or letter from your bank or broker,
for admittance. An admission list containing the names of all of those
planning to attend will be placed at the registration desk at the entrance
to the meeting, where you must check in to gain admittance to the meeting.
We first began delivering to all shareowners of record this proxy
statement, the accompanying form of proxy and the Company's 2001 Annual
Report to Shareowners on March 25, 2002.
Information Regarding Our Formation
Our operations are comprised of the assets and liabilities of the
agricultural products business of the former Monsanto Company (we refer to
the former Monsanto Company as "former Monsanto"). The following table sets
forth the chronological events that resulted in our formation and the
ultimate transfer of former Monsanto's agricultural products business
to us.
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DATE OF EVENT DESCRIPTION OF EVENT
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December 19, 1999 * Former Monsanto entered into an agreement with Pharmacia &
Upjohn, Inc. ("Pharmacia & Upjohn") relating to a merger
(the "Merger").
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February 9, 2000 * We were incorporated in Delaware as a wholly owned
subsidiary of former Monsanto under the name "Monsanto Ag
Company."
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March 31, 2000 * Effective date of the Merger.
* In connection with the Merger, (1) Pharmacia & Upjohn
became a wholly owned subsidiary of former Monsanto; (2)
former Monsanto changed its name from "Monsanto Company" to
"Pharmacia Corporation" (we refer to former Monsanto after
its name change as "Pharmacia"); and (3) we changed our
name from "Monsanto Ag Company" to "Monsanto Company."
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September 1, 2000 * We entered into agreements with Pharmacia related to the
transfer of the assets and liabilities of the business
operations of the former agricultural products business of
former Monsanto from Pharmacia to us. A summary
description of some of the agreements with Pharmacia is
attached as Appendix B.
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October 17, 2000 * We completed an initial public offering in which we sold
approximately 15% of the shares of our common stock to the
public.
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Shareowners Entitled to Vote
You are entitled to vote (in person or by proxy) at the annual meeting if
you were a shareowner of record at the close of business on March 11, 2002.
On March 11, 2002, 258,176,274 shares of our common stock were outstanding
and entitled to vote and no shares of our preferred stock were outstanding.
There is no cumulative voting with respect to the election of directors.
Shareowners of record are entitled to one vote per share on all matters.
1
Proxies and Voting Procedures
Most shareowners have a choice of voting by completing a proxy card and
mailing it in the postage-paid envelope provided, by using a toll-free
telephone number, or over the Internet. Please refer to your proxy card or
the information sent by your broker or bank to see which options are
available to you. Please be aware that if you vote over the Internet, you
may incur costs such as telephone and Internet access charges for which you
will be responsible. The Internet and telephone voting facilities for
shareowners of record will close at 4:00 p.m. E.S.T. on April 30, 2002. The
Internet and telephone voting procedures are designed to authenticate
shareowners by use of a control number and to allow you to confirm that
your instructions have been properly recorded.
You can revoke your proxy at any time before it is exercised by timely
delivery of a properly executed, later-dated proxy (including an Internet
or telephone vote), by delivering a written revocation of your proxy to our
Secretary or by voting at the meeting. The method by which you vote will in
no way limit your right to vote at the meeting if you decide to attend in
person. If your shares are held in the name of a bank or brokerage firm,
you must obtain a proxy, executed in your favor, from the bank or broker,
to be able to vote at the meeting.
Your properly completed proxy will appoint Hendrik A. Verfaillie, Hugh
Grant and Charles W. Burson as proxy holders, or your representatives, to
vote your shares. Your proxy permits you to direct the proxy holders to:
(i) withhold your votes from particular nominees for director; (ii) vote
"for," "against," or "abstain" from the ratification of the appointment of
Deloitte & Touche LLP as the Company's principal independent auditors for
the year 2002; and (iii) vote "for," "against," or "abstain" from approval
of the 2000 Management Incentive Plan.
All shares entitled to vote and represented by properly completed proxies
received prior to the meeting and not revoked will be voted at the meeting
in accordance with your instructions. If you do not indicate how your
shares are to be voted on a matter, the shares represented by your properly
completed proxy will be voted as the board of directors recommends with
respect to such matter.
As far as the Company knows, the only matters to be brought before the
annual meeting are those referred to in this proxy statement. As to any
other matters presented at the annual meeting, the persons named as proxies
may vote your shares in their discretion.
Required Vote
No business can be conducted at the annual meeting unless a majority of all
outstanding shares entitled to vote are either present in person or
represented by proxy at the meeting. A plurality of the shares present at
the meeting in person or by proxy is required for the election of
directors. The affirmative vote of a majority of the shares present at the
meeting in person or by proxy is required for all other items. Abstentions
and votes withheld by brokers in the absence of instructions from
street-name holders (broker non-votes) have the same effect as votes cast
against a particular proposal.
Pharmacia's Vote
Pharmacia is the beneficial owner of approximately 85.2% of our outstanding
common stock. As a result, Pharmacia has the power to elect the nominees
for director, to ratify the appointment of the independent auditors, and to
approve the 2000 Management Incentive Plan. Pharmacia has indicated that it
will vote its shares in favor of the nominees, in favor of the ratification
of the independent auditors, and in favor of the 2000 Management Incentive
Plan.
Electronic Access to Proxy Materials and Annual Report
Shareowners may view this proxy statement and our 2001 Annual Report to
Shareowners over the Internet by accessing our Internet World Wide Website
at http://www.monsanto.com and clicking on the "Investors" tab at the top
of the page. From the "Investors" page, shareowners may access these
materials by clicking on the "Financial Reports" tab on the left side of
the "Investors" page.
In addition, most shareowners can elect to receive future proxy statements
and annual reports over the Internet instead of receiving paper copies in
the mail. If you are a registered shareowner, you can choose this option
and save the Company the cost of producing and mailing these documents by
marking the appropriate box on your proxy card or by following the
instructions provided if you vote over the Internet or by telephone. PLEASE
READ THE INSTRUCTION LETTER ACCOMPANYING THIS PROXY STATEMENT FOR DETAILED
INFORMATION REGARDING THESE PROCEDURES. If you hold your shares through a
bank or broker, please refer to the information provided by that entity for
instructions on how to elect to receive future proxy statements and annual
reports over the Internet.
2
INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES
COMPOSITION OF BOARD OF DIRECTORS
Under the Company's Amended and Restated Certificate of Incorporation,
generally the number of directors of the Company is fixed, and may be
increased or decreased from time to time, by resolution of the board of
directors. Currently, the board has fixed the number of directors at ten
members. Each board member serves a one year term, each to hold office
until the annual meeting to be held in 2003 or until a successor is
elected and has qualified or until his or her earlier death, resignation
or removal. Each nominee is currently a director of the Company.
The ages, principal occupations, directorships held and other information
as of March 1, 2002, with respect to the nominees and directors of Monsanto
are shown below.
TO BE ELECTED FOR TERMS EXPIRING IN 2003:
[photo] FRANK V. ATLEE III
PRINCIPAL OCCUPATION: CHAIRMAN OF THE BOARD, MONSANTO COMPANY
FIRST BECAME DIRECTOR: JUNE 2000
AGE: 61
Chairman of the board of directors, Monsanto Company, since
June 2000; President of American Cyanamid Company,
1993-January 1995; chairman of Cyanamid International,
1993-January 1995. Director: Nereus Pharmaceuticals, Inc.
[photo] HENDRIK A. VERFAILLIE
PRINCIPAL OCCUPATION: PRESIDENT AND CHIEF EXECUTIVE OFFICER,
MONSANTO COMPANY
FIRST BECAME DIRECTOR: FEBRUARY 2000
AGE: 56
President and Chief Executive Officer, Monsanto Company,
since February 2000; President of former Monsanto Company
(now Pharmacia Corporation), 1997-March 2000; Chief
Operating Officer of former Monsanto Company (now Pharmacia
Corporation), 1999-March 2000; Executive Vice President and
Advisory Director of former Monsanto Company (now Pharmacia
Corporation), 1995-1997.
[photo] CHRISTOPHER J. COUGHLIN
PRINCIPAL OCCUPATION: EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, PHARMACIA CORPORATION
FIRST BECAME DIRECTOR: MARCH 2000
AGE: 49
Executive Vice President and Chief Financial Officer,
Pharmacia Corporation, since March 2000; Executive Vice
President and Chief Financial Officer, Pharmacia & Upjohn,
Inc., 1998-March 2000; President, Nabisco International,
1997-1998; Executive Vice President, Nabisco Holdings Corp.,
1996 to 1998; Chief Financial Officer, Nabisco Holdings
Corp., 1996 to 1997. Director: Amersham BioSciences Limited.
[photo] MICHAEL KANTOR
PRINCIPAL OCCUPATION: PARTNER, MAYER, BROWN, ROWE & MAW
FIRST BECAME DIRECTOR: JUNE 2000
AGE: 62
Partner, Mayer, Brown, Rowe & Maw, a law firm, since 1997;
U.S. Secretary of Commerce, 1996-97; U.S. Trade Representative,
1993-96; National Chairman for the Clinton/Gore Presidential
Campaign, 1992; Partner, Manatt, Phelps, Phillips and Kantor,
a law firm, 1975-92. Director: former Monsanto Company (now
Pharmacia Corporation), since 1997.
3
[photo] GWENDOLYN S. KING
PRINCIPAL OCCUPATION: PRESIDENT, PODIUM PROSE
FIRST BECAME DIRECTOR: FEBRUARY 2001
AGE: 61
President, Podium Prose, a speaker's bureau and
speechwriting service founded in 2000; Senior Vice
President, Corporate and Public Affairs, PECO Energy Company
(formerly Philadelphia Electric Company), a diversified
utility company, 1992-98; Commissioner, Social Security
Administration, 1989-92. Director: former Monsanto Company
(now Pharmacia Corporation), since 1993; Lockheed Martin
Corp.; Marsh & McLennan Companies, Inc.; Countrywide Credit
Industries, Inc.
[photo] SHARON R. LONG, PH.D.
PRINCIPAL OCCUPATION: PROFESSOR OF BIOLOGICAL SCIENCES AND
DEAN OF THE SCHOOL OF HUMANITIES AND SCIENCES, STANFORD
UNIVERSITY
FIRST BECAME DIRECTOR: FEBRUARY 2002
AGE: 50
Professor of Biological Sciences, Stanford University, since
1992; Dean of the School of Humanities and Sciences,
Stanford University, since September 2001; Investigator of
the Howard Hughes Medical Institute, conducting research at
Stanford University, 1994-2001; Associate Professor,
Stanford University, 1987-1992; Assistant Professor,
Stanford University, 1982-1987. Director: Annual Reviews,
Inc.; Science Advisory Board of the LAM Foundation; Science
Advisory Board of Paradigm Genetics, Inc.
[photo] C. STEVEN MCMILLAN
PRINCIPAL OCCUPATION: CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, SARA LEE CORPORATION
FIRST BECAME DIRECTOR: JUNE 2000
AGE: 56
Chairman, President and Chief Executive Officer of Sara Lee
Corporation since October 2001; President and Chief
Executive Officer of Sara Lee Corporation, July 2000-October
2001; President of Sara Lee Corporation, March 1997-December
1997; Chief Operating Officer, Sara Lee Corporation,
December 1997-June 2000; Executive Vice President, Sara Lee
Corporation, 1993-1997. Director: Sara Lee Corporation;
Pharmacia & Upjohn, Inc., 1985-2000; Pharmacia Corporation
since March 2000; and Bank of America Corporation.
[photo] PHILIP NEEDLEMAN, PH.D.
PRINCIPAL OCCUPATION: SENIOR EXECUTIVE VICE PRESIDENT AND
CHIEF SCIENTIFIC OFFICER, PHARMACIA CORPORATION
FIRST BECAME DIRECTOR: FEBRUARY 2002
AGE: 63
Senior Executive Vice President and Chief Scientific
Officer, Pharmacia Corporation since March 2000; Senior Vice
President, Research and Development and Co-President of
G.D. Searle & Co., 1996 to March 2000; Chief Scientist of
Monsanto Company (now Pharmacia Corporation), 1996-March
2000.
[photo] WILLIAM U. PARFET
PRINCIPAL OCCUPATION: CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
MPI RESEARCH, INC.
FIRST BECAME DIRECTOR: JUNE 2000
AGE: 55
Chairman and Chief Executive Officer of MPI Research, Inc.,
since 1999; Co-Chairman of MPI Research, LLC, a pre-clinical
toxicology and clinical pharmaceutical testing laboratory,
1995-1999. Director: Apogent Technologies, Inc.; Parexel
International Corporation; Reptron Electronics, Inc.;
CMS Energy Corporation; Stryker Corporation; and Pharmacia
Corporation.
[photo] JOHN S. REED
PRINCIPAL OCCUPATION: RETIRED CHAIRMAN, CITIGROUP INC.
FIRST BECAME DIRECTOR: JUNE 2000
AGE: 63
Retired Chairman, Citigroup Inc., a global financial
services company; Chairman and Co-Chief Executive Officer of
Citigroup Inc., 1998-April 2000; Chairman and Chief
Executive Officer of Citicorp and Citibank, N.A., 1984-1998;
Director: Philip Morris Companies, Inc. Graduate Member: The
Business Council.
4
BOARD MEETINGS AND COMMITTEES
During 2001, the board of directors met five times and took two actions by
unanimous written consent. All incumbent directors attended 75% or more of
the aggregate meetings of the board and of the board committees on which
they served during the period they held office in 2001.
Our board of directors has the following seven committees: (1) executive,
(2) people, (3) audit and finance, (4) public policy, (5) science and
technology, (6) restricted stock grant and (7) special. The membership, as
of March 1, 2002, and function of each committee are described below. Our
entire board of directors acts on nominations for directors, and therefore
we do not have a nominating committee.
EXECUTIVE COMMITTEE
Members: Messrs. AtLee (Chair), Coughlin and Verfaillie
Our executive committee has the powers of our board of directors in
directing the management of our business and affairs in the intervals
between meetings of our board of directors (except for certain matters
otherwise delegated by our board of directors, or which by statute, our
certificate of incorporation or our bylaws are reserved for our entire
board of directors). Actions of the executive committee are reported at the
next regular meeting of our board of directors. The executive committee did
not meet but took four actions by unanimous written consent during 2001.
PEOPLE COMMITTEE
Members: Messrs. McMillan (Chair) and Parfet and Ms. King
Our people committee recommends to our board of directors the establishment
of our management incentive plans. Our people committee generally
administers and interprets our management incentive plans and approves the
modification and termination of our other compensation plans and
agreements. Our people committee has delegated authority to a committee
composed of senior management to administer and interpret our management
incentive plans, make grants and awards under the incentive plans and
approve and administer other compensation plans for all employees except
those employees subject to the reporting requirements of Section 16(a) of
the Securities Exchange Act of 1934 or any officer to whom compensation
paid by the Company is subject to the deduction limitations of Section
162(m) of the Internal Revenue Code (we refer to these officers and
employees collectively as "executive officers"). Our people committee
reviews plans for executive succession, determines the compensation of all
our executive officers and monitors our performance as it affects
employees, including issues such as diversity and morale. The people
committee met four times and took two actions by unanimous written consent
during 2001.
AUDIT AND FINANCE COMMITTEE
Members: Messrs. Reed (Chair), McMillan and Parfet
The audit and finance committee assists the Company's board of directors in
fulfilling its responsibility to oversee: (i) the Company's financial
reporting processes and systems of internal accounting and financial
controls, (ii) the selection of the Company's independent auditors, (iii)
the independence and performance of the Company's independent auditors and
internal audit staff, (iv) the scope and effectiveness of the annual
independent audit of the Company's financial statements, (v) the integrity
of the Company's financial statements and financial reports, and (vi) the
compliance by the Company with applicable legal, regulatory and corporate
requirements. The committee's oversight role is categorized in the
committee's charter as covering (1) financial reporting; (2) compliance
oversight; and (3) financial oversight. A complete description of the
committee's responsibilities with respect to each such category is set
forth in the audit and finance committee's written charter which was
approved by our board of directors on September 20, 2000. The audit and
finance committee met three times during 2001 and took one action by
unanimous written consent.
One of the requirements contained in the audit and finance committee
charter is that each committee member meet the standards set forth in the
listing requirements of the New York Stock Exchange ("NYSE") relating to
independence. Messrs. McMillan and Reed are independent as defined by the
NYSE listing requirements; in the case of Mr. Reed, based upon a
determination by our board that his business relationship with Citigroup,
Inc. and its affiliates did not interfere with his independent judgment.
Mr. Reed retired as Chairman of Citigroup, Inc. in April 2000. Mr. Parfet
does not technically qualify as independent under the NYSE listing
requirements. However, under the independence standards of the NYSE listing
requirements, Mr. Parfet may be appointed to the audit and finance
committee because our board of directors has determined that, under
exceptional and limited circumstances, in its business judgment, membership
of Mr. Parfet on the audit and finance committee is required by the best
interests of the Company and its shareowners despite his brother, Donald R.
Parfet, having been a senior vice president of Pharmacia until his
retirement in July 2000. In determining to permit Mr. Parfet to serve on
the audit and finance committee, the board of directors considered the
limited number of directors who are eligible to serve on the audit and
finance committee, Mr. Parfet's financial background and expertise, and his
past experience serving on the audit committee of Pharmacia & Upjohn. The
Company has certified, in writing, its determination regarding Mr. Parfet's
independence to the NYSE.
5
PUBLIC POLICY COMMITTEE
Members: Mr. Kantor (Chair), Ms. King, Dr. Long and Dr. Needleman
Our public policy committee reviews and monitors our performance as it
affects communities, customers and the environment. Our public policy
committee also identifies and investigates emerging issues related to the
impact of the Company's business on society, including issues relating to
public acceptance of biotechnology. The public policy committee met three
times during 2001 and did not take any actions by unanimous written consent
in 2001.
SCIENCE AND TECHNOLOGY COMMITTEE
Members: Messrs. Reed (Chair), Coughlin and Kantor, Dr. Long and
Dr. Needleman
Our science and technology committee reviews and monitors our science and
technology initiatives in areas such as information technology,
technological programs, research and agricultural biotechnology. Our
science and technology committee also identifies and investigates
significant emerging science and technology issues. The science and
technology committee met four times during 2001 and did not take any
actions by unanimous written consent.
RESTRICTED STOCK GRANT COMMITTEE
Member: Mr. McMillan
Our restricted stock grant committee has the authority to award grants of
restricted stock to all employees except executive officers. The committee
determines the awards based upon recommendations by management. The
restricted stock grant committee did not meet in 2001.
SPECIAL COMMITTEE
Members: Messrs. AtLee and Reed
Our special committee assists the Company's board of directors by reviewing
and making decisions on matters that relate to transactions between the
Company and Pharmacia that are referred to the special committee by the
board of directors. The special committee met once in 2001 and did not take
any actions by unanimous written consent.
GOVERNANCE PROVISIONS
On certain matters with significant financial or strategic consequences, a
supermajority approval by at least 80% of our directors is required. These
matters include:
* transactions, capital expenditures, additional debt or other non-ordinary
course financial commitments, including litigation settlements, valued at
$100 million or more, other than matters already approved as part of our
annual operating or capital budgets;
* any issuance or repurchase of equity securities or other equity
interests, except pursuant to employee stock options or stock
appreciation rights or under compensation plans approved by our board of
directors;
* approval of our annual operating and capital budgets and annual strategic
plan;
* selection, compensation and removal of our chief executive officer;
* any change in size of our board of directors; and
* any bylaw amendments.
No supermajority approval will be required for the items listed above if
Pharmacia were to own less than 50% of our common stock. See page 24 for a
brief discussion regarding Pharmacia's announcement to spin off its
ownership interest in the Company.
COMPENSATION OF DIRECTORS
MONSANTO 2000 MANAGEMENT INCENTIVE PLAN
At the time of the initial public offering, we granted to each of our then
standing non-employee directors (i.e., a director who is not an employee of
us or Pharmacia) a stock option under the Monsanto 2000 Management
Incentive Plan to purchase 10,000 shares of our common stock at the initial
public offering price that vests in 5,000 share increments during 2002 and
2003. The term of these options may not exceed 10 years and may be
exercisable for a shorter period as a result of a director's death or
termination of service. See footnote (1) to the "Option Grants in 2001"
table at page 15 for a description of the accelerated vesting of these
options upon a "change of control" (as defined in the plan).
6
We granted to Ms. King, upon her appointment as a director in February
2001, a 10,000 share stock option at the fair market value of our stock on
the date of the grant having the same terms and provisions as the grants to
the other non-employees directors.
We granted to Dr. Long, upon her appointment as a director in February
2002, a 10,000 share stock option at the fair market value of our stock on
the date of the grant having the same terms and provisions as the grants to
the other non-employees directors except that Dr. Long's options do not
vest until the third anniversary date of her grant.
NON-EMPLOYEE DIRECTOR EQUITY INCENTIVE COMPENSATION PLAN
In addition, each of our non-employee directors receives an annual retainer
pursuant to the Non-Employee Director Equity Incentive Compensation Plan
having a value of $110,000, with an additional $10,000 paid to each
committee chair and an additional $40,000 paid to the chairman of our board
of directors. Half of this compensation is payable in deferred common
stock, and the remainder is payable, at the election of each director, in
the form of non-qualified stock options, restricted common stock, deferred
common stock, current cash and/or deferred cash.
Deferred Common Stock. Deferred common stock means shares of our common
stock that are delivered at a specified time in the future. Under the plan,
half of the annual retainer for each non-employee director will
automatically be paid in the form of deferred common stock.
Non-Qualified Stock Options. Under the plan, the exercise price of any
non-qualified stock option will be the fair market value, as defined in the
plan, of our common stock on the grant date. The plan also provides that
the term of any options granted may not exceed ten years. Options may be
exercisable for a shorter period as a result of a director's death or
termination of service. Options granted under the plan are not transferable
except by will, the laws of descent and distribution, or upon the holder's
death pursuant to a beneficiary designation. Only the holder or the
holder's guardian or legal representative may exercise options during the
holder's lifetime.
Restricted Stock. Restricted stock means shares of our common stock that
vest in accordance with specified terms after they are granted. Dividends
and other distributions with respect to restricted stock will be held in
escrow to be delivered with the restricted stock as it vests.
Cash/Deferred Cash. Under the plan, any portion of a non-employee
director's annual retainer that is not paid in the form of deferred stock,
options or restricted stock will be paid in cash, either monthly during the
term or on a deferred basis, as elected by the director. Any deferred cash
will be credited to a cash account that will accrue interest at the average
Moody's Baa Bond Index Rate, as in effect from time to time.
Vesting of Options. Under the plan, the non-qualified options granted to a
non-employee director for the term to which the director was elected will
vest in installments on the last day of each plan year, but only if the
director remains a member of the board of directors on that day, based on
the percentage of the term that is included in the plan year. When a
director's service terminates before the last day of a plan year, a
pro-rata portion of the director's options that otherwise would have vested
on the last day of the plan year will vest on the termination date, based
on the percentage of the plan year that elapsed before the termination
date.
Vesting of Deferred Stock and Restricted Stock. Under the plan, the
deferred stock and any restricted stock granted to a non-employee director
for the term to which the director was elected will vest in installments on
the last day of each plan month, but only if the director remains a member
of the board of directors on that day, based on the percentage of the term
that is included in the plan month.
OTHER COMPENSATION ARRANGEMENTS
We have entered into a consulting agreement with Mr. AtLee covering the
period beginning on June 22, 2000 through the annual meeting of our
shareowners occurring in 2003. Under this agreement, Mr. AtLee has agreed
to provide us with consulting services as requested by our board or our
chief executive officer, including advice regarding policies, long-term
strategies and general business and industry issues.
Under this agreement, Mr. AtLee earns a consulting fee of $400,000 per
year, less the amount of his retainer fees that he receives as a member of
the board. We will pay this fee to him at the termination of the consulting
term, with interest at the Moody's Baa Bond Index Rate, except as noted
below. We also reimburse Mr. AtLee for expenses he incurs in providing his
consulting services.
If the consulting term is terminated before our 2003 annual meeting as a
result of Mr. AtLee's death or permanent disability, or by us other than as
a result of Mr. AtLee's breach of the agreement, we will pay Mr. AtLee the
fee he would have earned through the date of our 2003 annual meeting of
shareowners in a lump-sum payment.
7
Mr. Kantor is a partner at the law firm of Mayer, Brown, Rowe & Maw, which
provided services to us in 2001. See "Transactions and Relationships" at
page 24 for further details.
Prior to becoming a director, Dr. Long served as an advisor to the science
and technology committee of our board of directors. In exchange for
providing such advisory services, the Company paid Dr. Long a fee of
$67,283 in 2001.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the people committee is or has been an officer or
employee of the Company or any of its subsidiaries. In addition, none of
the members of the people committee had any relationships with the Company
or any other entity that require disclosure under the proxy rules and
regulations promulgated by the Securities and Exchange Commission ("SEC").
Mr. McMillan and Ms. King, who serve on the Company's people committee,
also serve as members of Pharmacia's compensation committee.
ELECTION OF DIRECTORS (PROXY ITEM NO. 1)
The shareowners are asked to elect Messrs. AtLee, Verfaillie, Coughlin,
Kantor, McMillan, Parfet and Reed, Ms. King, Dr. Long and Dr. Needleman to
one year terms as members of our board of directors ending with the annual
meeting to be held in 2003 or until a successor is elected and has
qualified or until his or her earlier death, resignation or removal. Each
nominee is currently a director of the Company. For more information
regarding the nominees for director, see "Information Regarding Board of
Directors and Committees" beginning at page 3 above.
The board does not contemplate that any of the nominees will be unable to
stand for election, but should any nominee become unavailable for election,
all proxies (except proxies marked to the contrary) will be voted for the
election of a substitute nominee nominated by the board.
--------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
ALL OF THE NOMINEES FOR DIRECTOR.
RATIFICATION OF INDEPENDENT AUDITORS (PROXY ITEM NO. 2)
The board of directors, with the concurrence of the audit and finance
committee, has appointed Deloitte & Touche LLP as the principal independent
auditors to examine the consolidated financial statements of the Company
and its subsidiaries for the year 2002.
Although we are not required to submit this appointment to a vote of the
shareowners, the board continues to believe it appropriate as a matter of
policy to request that the shareowners ratify the appointment of Deloitte &
Touche LLP as principal independent auditors. If the shareowners do not
ratify the appointment, the audit and finance committee will investigate
the reasons for shareowner rejection and the board will reconsider the
appointment. Even if the appointment is ratified, the board and the audit
and finance committee in their discretion may direct the appointment of a
different independent accounting firm at any time during the year if they
determine that such a change would be in the best interests of the Company
and its shareowners and Pharmacia consents in writing to such appointment.
A formal statement by representatives of Deloitte & Touche LLP is not
planned for the annual meeting. However, Deloitte & Touche LLP
representatives are expected to be present at the meeting and available to
respond to appropriate questions. For a detailed listing of the fees
expected to be billed to us by Deloitte & Touche LLP for professional
services in 2001, see "Committee Reports--Audit and Finance Committee
Report" at page 20.
--------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP
AS PRINCIPAL INDEPENDENT AUDITORS FOR THE YEAR 2002.
8
APPROVAL OF THE 2000 MANAGEMENT INCENTIVE PLAN (PROXY ITEM NO. 3)
The shareowners are asked to consider and approve the Monsanto 2000
Management Incentive Plan (the "Plan"), a summary description of which
follows. Such summary description is qualified in its entirety by the full
text of the Plan, a copy of which is included as Appendix A to this proxy
statement and is incorporated herein by reference.
REASONS FOR SEEKING APPROVAL
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the ability of the Company to deduct compensation paid to
those officers named in the Summary Compensation Table at page 14 whose
compensation for the taxable year is in excess of $1 million. Those
limitations generally do not apply to performance-based compensation. The
Plan was originally adopted and approved by the Company's Board of
Directors and its sole shareowner in 2000. In order to qualify stock
options and certain other awards under the Plan as performance-based, the
Code requires shareowner approval of the Plan no later than the first
annual meeting which occurs more than 12 months following our initial
public offering in October 2000. In addition, the shareowners of the
Company must approve the Plan no less often than every five years. Stock
option grants made by the Company prior to its 2002 Annual Meeting of
Shareowners are exempt from the deduction limitations of Section 162(m) of
the Code under a grandfather rule applicable to the Company in connection
with its initial public offering. The sole purpose of approval at this time
is, therefore, to secure for the Company certain tax deductions relating to
future awards under the Plan; outstanding awards under the Plan are not
conditioned upon, and will not be affected by, the approval the Company is
now seeking.
SUMMARY DESCRIPTION OF THE PLAN
Authorized Shares
The total number of shares that may be delivered pursuant to awards under
the Plan may not exceed 22,567,500 shares. For this purpose, awards made
under the Monsanto Company Non-Employee Director Equity Incentive
Compensation Plan will be considered to be granted under this Plan.
Generally, when any award is forfeited, terminates, expires or lapses, or
any stock appreciation rights ("SARs") are exercised for cash, the shares
subject to that award are again available under the Plan. If shares are
used to pay an exercise price (either by actual delivery or by
attestation), only those shares issued net of the shares delivered will be
deemed to have been issued under the Plan. Similarly, shares not delivered
to a participant because such shares are withheld to satisfy applicable tax
withholding obligations will not be deemed to have been delivered for
purposes of determining the number of shares available under the Plan.
Anti-dilution
In the event of any change in our capitalization as the result of a stock
split, merger, consolidation, separation, spin-off, or other distribution
of our stock or property, any reorganization (whether or not tax free), or
any partial or complete liquidation, then the people committee may make
such other equitable substitution or adjustments as it may determine to be
appropriate regarding the number and kind of shares available under the
Plan. However the people committee cannot make any adjustments that would
cause certain awards to fail to be tax deductible pursuant to the Section
162(m) exemption.
Types of Awards
The Plan authorizes the grant of several types of stock-based awards,
including incentive stock options ("ISOs"), non-qualified stock options
("NQSOs"), SARs and restricted stock awards.
ISOs and NQSOs. ISOs and NQSOs are both stock options allowing the
recipient to purchase a fixed number of shares of our common stock for a
fixed price. Our people committee has broad authority to establish the
terms and conditions of the options granted under the Plan, including the
ability to specify the employees and directors who will be granted options
and whether or not they will be ISOs eligible for special tax treatment. No
ISOs, however, have been granted under the Plan. Under the Plan, the
exercise price of any option must be no less than the fair market value, as
defined in the Plan, of our common stock on the grant date. The Plan
permits our people committee to include various terms in the options in
order to enhance the linkage between shareowner and management interests.
These include permitting participants to deliver shares of our common stock
in payment of the exercise price, offering participants the opportunity to
elect to receive a grant of options instead of a salary increase or bonus,
offering participants the opportunity to purchase options, and making the
exercise or vesting of options contingent upon the satisfaction of
performance criteria. The Plan also permits the granting of dividend
equivalent units in connection with option grants. The Plan provides that
the term of any option granted may not exceed ten years and that each
option may be exercised for such period as may be specified by our people
committee in the grant of the option. Options granted under the Plan are
not transferable except by will, the laws of descent and distribution, or
upon the holder's death pursuant to a beneficiary designation. All options
may be exercised during the holder's lifetime only by the holder or the
holder's guardian or legal representative.
9
Stock Appreciation Rights. An SAR is the right to receive stock, cash, or
other property equal in value to the difference between the base price of
the SAR and the market price of the Company's common stock on the exercise
date. SARs are granted primarily in lieu of options to employees who are
foreign nationals or are employed by us outside the United States, and who
are precluded from receiving stock options by virtue of local law, tax
policy or custom or other reasons as determined by our people committee.
Restricted Stock Awards. Recipients of restricted stock awards generally
receive dividends and have all the customary voting and other rights of a
shareowner during the restricted period, but may not sell, transfer, or
otherwise dispose of the restricted stock. Other than with respect to
executive officers, our restricted stock grant committee may set the terms
and conditions of restricted stock awards, including restrictions against
sale, transfer or other disposition, may make the lapse of such
restrictions contingent on the achievement of performance goals and may
grant an award of dividend equivalent units in connection with a restricted
stock award. Our people committee sets the terms and conditions of
restricted stock awards to executive officers.
Administration
The people committee of our board of directors generally administers the
Plan. For a more detailed description of the people committee, see
"Information Regarding Board of Directors and Committees" at page 5. In
addition, grants of restricted stock (other than grants to executive
officers) are made by the restricted stock grant committee of our board of
directors, see "Information Regarding Board of Directors and Committees" at
page 6. Additionally, the people committee delegated to a committee
composed of senior management, all of its powers to administer the Plan,
except those powers relating to matters affecting executive officers.
Determinations of our people committee or its delegate concerning any
matter arising in connection with the Plan are final, binding and
conclusive on all interested parties.
Persons Eligible for Grants
Our people committee may grant awards under the Plan to any of our
directors (including awards to non-employee directors under Monsanto's
Non-Employee Director Equity Incentive Compensation Plan) and employees and
to employees of Pharmacia or any affiliates of either company.
Approximately 1,800 people are eligible to participate under the Plan. In
any three-year period, the total number of shares for which awards may be
made to any one participant under the Plan cannot exceed 15% of the total
number of shares for which awards may be made under the Plan.
Amendment or Termination
Our people committee may amend or terminate the Plan or any outstanding
awards at any time, provided that no grants previously made under the Plan
are adversely affected without the consent of the affected participants,
except as a result of changes in law or other developments and, provided
further, that no amendments to the Plan will, without the prior approval of
shareowners, permit the Company to decrease the exercise price of any
outstanding award. Amendments to change the number of shares authorized for
use under the Plan must be approved by our board of directors, and for
certain purposes, our shareowners.
Non-U.S. Participants
To accommodate differences in local law, tax policy or custom, awards
granted to employees who are not U.S. nationals or who are employed outside
the United States may be subject to special terms, conditions and
documentation as provided by our people committee. Our people committee may
also grant substitutes for awards to non-U.S. employees.
Registration and Compliance with Applicable Law
If our people committee determines under U.S. federal, state or local or
foreign law or practice, that government approval or the registration,
qualification, or listing of shares of our common stock is desirable in
connection with the granting of awards or their exercise, or the purchase
or receipt of shares pursuant to awards, no shares pursuant to an affected
award may be purchased or received before our people committee is satisfied
that the desired actions have been completed. Our people committee will not
be required to issue any shares of our common stock pursuant to an award
before it has received all required information and determined that such
issuance is in compliance with all applicable laws and securities exchange
rules.
10
AWARDS GRANTED UNDER THE PLAN
As of February 28, 2002, 20,190,852 stock options were outstanding under
the Plan; 55,500 shares of restricted stock had been granted under the
Plan; and 87,134 SARs were outstanding under the Plan. No other types of
awards have been granted under the Plan.
The following table sets forth, as of February 28, 2002, the number of
securities underlying options, the number of shares of restricted stock and
the number of SARs that were held by each of the following persons and
groups pursuant to awards made by the Company under the Plan. The Company
is not able to predict the amounts, types, or recipients of future grants.
As of February 28, 2002, the closing price per share of the Company's
common stock was $30.96.
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES SHARES OF
UNDERLYING RESTRICTED
NAME & POSITION OPTIONS (#) (1) STOCK (#) (2) SAR'S (#) (3)
- -------------------------------------------------------------------------------------------------------------------------
Hendrik A. Verfaillie
President and CEO 1,066,670 0 0
- -------------------------------------------------------------------------------------------------------------------------
Charles W. Burson
Executive Vice President, Secretary and General Counsel 116,100 10,000 0
- -------------------------------------------------------------------------------------------------------------------------
Steven L. Engleberg
Senior Vice President Government Affairs 213,340 0 0
- -------------------------------------------------------------------------------------------------------------------------
Robert T. Fraley, Ph.D.
Executive Vice President and Chief Technology Officer 391,120 0 0
- -------------------------------------------------------------------------------------------------------------------------
Hugh Grant
Executive Vice President and Chief Operating Officer 480,000 0 0
- -------------------------------------------------------------------------------------------------------------------------
R. William Ide III
Former Senior Vice President, Secretary and General Counsel 0 0 0
- -------------------------------------------------------------------------------------------------------------------------
Executive Group 3,407,010 10,000 0
- -------------------------------------------------------------------------------------------------------------------------
Non-Executive Director Group 70,000 0 0
- -------------------------------------------------------------------------------------------------------------------------
Non-Executive Employee Group 16,713,842 45,500 87,134
- -------------------------------------------------------------------------------------------------------------------------
<FN>
- ----------
(1) Based on the February 28, 2002 closing price, the gross market value of the option awards was $33,024,103 for
Mr. Verfaillie, $3,594,456 for Mr. Burson, $6,605,006 for Mr. Engelberg, $12,109,075 for Dr. Fraley, $14,860,800
for Mr. Grant, $105,481,030 for the Executive Group, $2,167,200 for the Non-Executive Director Group and
$517,460,548 for the Non-Executive Employee Group. The weighted average per share exercise price of the option
awards is $21.77 for the Executive Group; $22.97 for the Non-Executive Director Group; and $20.83 for the
Non-Executive Employee Group.
(2) Based on the February 28, 2002 closing price, the gross market value of the restricted share awards was $309,600
for Mr. Burson and for the Executive Group and $1,408,680 for the Non-Executive Employee Group.
(3) Based on the February 28, 2002 closing price, the gross market value of the SARs was $2,697,669 for the
Non-Executive Employee Group.
FEDERAL INCOME TAX CONSIDERATIONS
ISOs
Recipients of ISOs generally do not recognize taxable income and the
Company is not entitled to a deduction on the grant or exercise of ISOs. If
a recipient holds the shares acquired for at least one year from the
exercise date and does not dispose of the shares for at least two years
from the grant date, the recipient's gain or loss upon a subsequent sale
will be long-term capital gain or loss equal to the difference between the
amount realized on the sale and the recipient's basis in the shares
acquired. The Company will not be entitled to a deduction. If a recipient
disposes of the shares acquired without satisfying the required minimum
holding period, such "disqualifying disposition" will give rise to ordinary
income equal to the excess of the fair market value of the shares acquired
on the exercise date (or, if less, the amount realized upon disqualifying
disposition) over the recipient's basis in the shares acquired. The Company
will ordinarily be entitled to a deduction equal to the amount of the
ordinary income resulting from a disqualifying disposition. A recipient
does recognize income for alternative minimum tax ("AMT") purposes upon the
exercise of ISOs; that amount is also included in the recipient's AMT basis
in the shares acquired. AMT gain or loss is equal to the excess of the
amount realized less the recipient's AMT basis. Income from a disqualifying
disposition generally is not income for AMT purposes.
11
NQSOs and SARs
A recipient generally does not recognize taxable income on the grant of
NQSOs or SARs, but does recognize ordinary income on the exercise date. The
amount of income in the case of an NQSO exercise is the amount by which the
fair market value of the shares received on the date of exercise exceeds
the option price. The amount of income in the case of an SAR exercise is
the amount of cash received plus the fair market value of any shares
received. The Company will ordinarily be entitled to a deduction on the
exercise date equal to the ordinary income recognized by the recipient from
the exercise of NQSOs and SARs.
Parachute Payments
The Plan provides that, unless our people committee determines otherwise at
the time of grant, generally all awards will vest, and any restrictions and
other conditions applicable to awards will lapse, if we undergo a change of
control (as defined in the Plan) immediately following which Pharmacia does
not own more than 50% of our common stock. Similarly, unless our people
committee determines otherwise at the time of grant, such vesting will
occur if a change of control (as defined in the Plan) of Pharmacia occurs
immediately following which it still owns more than 50% of our common
stock, and one of the following occurs within one year thereafter:
* the award holder's employment is terminated without cause or by the award
holder for good reason,
* the employment of a majority of the members of our leadership team is
terminated without cause or for good reason,
* our headquarters is relocated by more than 35 miles, or a decision to
effect such a relocation is publicly announced, or
* a decision is announced that Pharmacia will dispose of its majority
ownership of our stock or otherwise take steps that will result in a
change of control of our company and such steps have not been approved by
a majority of our leadership team.
Such accelerated vesting could result in a participant's being considered
to receive "excess parachute payments" (as defined in Section 280G of the
Code), which payments are subject to a 20% excise tax imposed on the
participant. If so, the participant would generally be entitled to be made
whole for such excise tax under our excess parachute tax indemnity plan,
and we would not be able to deduct the excess parachute payments or any
such indemnity payments.
$1 MILLION DEDUCTION LIMIT
The Company is not allowed a deduction for compensation paid to certain
executive officers in excess of $1 million each in any taxable year, except
to the extent such excess constitutes performance-based compensation under
the provisions of Section 162(m) of the Code. Compensation from certain
awards under the Plan will constitute performance-based compensation if the
Plan is approved by the Company's shareowners.
--------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE 2000 MANAGEMENT INCENTIVE PLAN.
12
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Information is set forth below regarding beneficial ownership of our common
stock and the common stock of Pharmacia, to the extent known to the
Company, by (i) each beneficial owner of more than 5% of the outstanding
shares of common stock of the Company; (ii) each person who is a director
or nominee; (iii) each executive officer named in the Summary Compensation
Table on page 14, and (iv) all directors and executive officers as a group.
Except as otherwise noted, each person has sole voting and investment power
as to his or her shares. All information is as of December 31, 2001, except
as otherwise noted.
- -----------------------------------------------------------------------------------------------------------------------------
MONSANTO PHARMACIA
-----------------------------------------------------------------------------------------
SHARES SHARES
SHARES OF UNDERLYING SHARES OF UNDERLYING
COMMON STOCK OPTIONS COMMON STOCK OPTIONS
OWNED EXERCISABLE OWNED EXERCISABLE
DIRECTLY OR WITHIN DIRECTLY OR WITHIN
NAME INDIRECTLY(1) 60 DAYS(3) TOTAL INDIRECTLY(2)(4) 60 DAYS(3) TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
Pharmacia Corporation(5) 220,000,000 -- 220,000,000 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Frank V. AtLee III (8)16,892 5,000 21,892 1,213 -- 1,213
- -----------------------------------------------------------------------------------------------------------------------------
Hendrik A. Verfaillie(6) 300,100 533,335 833,435 222,134 1,057,032 1,279,166
- -----------------------------------------------------------------------------------------------------------------------------
Hakan Astrom(9) 5,000 -- 5,000 14,526 343,180 357,706
- -----------------------------------------------------------------------------------------------------------------------------
Christopher J. Coughlin 10,000 -- 10,000 37,106 481,967 519,073
- -----------------------------------------------------------------------------------------------------------------------------
Michael Kantor 4,459 5,000 9,459 5,200 21,818 27,018
- -----------------------------------------------------------------------------------------------------------------------------
Gwendolyn S. King 3,012 5,000 8,012 8,378 11,818 20,196
- -----------------------------------------------------------------------------------------------------------------------------
Sharon R. Long, Ph.D. -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
C. Steven McMillan 11,959 5,000 16,959 8,200 -- 8,200
- -----------------------------------------------------------------------------------------------------------------------------
Philip Needleman, Ph.D. 2,000 -- 2,000 208,435 861,792 1,070,227
- -----------------------------------------------------------------------------------------------------------------------------
William U. Parfet 24,087 5,000 29,087 (7)1,604,799 16,770 1,621,569
- -----------------------------------------------------------------------------------------------------------------------------
John S. Reed 147,316 5,000 152,316 1,345 29,630 30,975
- -----------------------------------------------------------------------------------------------------------------------------
Charles W. Burson 10,000 58,050 68,050 135 -- 135
- -----------------------------------------------------------------------------------------------------------------------------
Steven L. Engelberg(6) 5,000 106,670 111,670 15,500 603,608 619,108
- -----------------------------------------------------------------------------------------------------------------------------
Robert T. Fraley, Ph.D.(6) 100,000 195,560 295,560 33,618 295,353 328,971
- -----------------------------------------------------------------------------------------------------------------------------
Hugh Grant(6) 55,000 240,000 295,000 1,633 196,277 197,910
- -----------------------------------------------------------------------------------------------------------------------------
R. William Ide III(6) 2,500 -- 2,500 51,667 274,407 326,074
- -----------------------------------------------------------------------------------------------------------------------------
All directors and executive
officers as a group (24 persons) 747,031 1,674,200 2,421,231 2,255,318 4,667,161 6,922,479
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
- ----------
(1) Includes the following shares of deferred common stock each non-employee director of Monsanto is entitled to as
compensation payable under our Non-Employee Director Equity Incentive Compensation Plan as described beginning on page 7:
Mr. AtLee, 11,958; Mr. Kantor, 4,484; Ms. King, 2,019; Mr. McMillan, 4,484; Mr. Parfet, 4,110; Mr. Reed, 9,337; and
directors and executive officers as a group, 36,392. As of December 31, 2001, the following shares of deferred
common stock for each non-employee director were vested and each such director had sole voting and investment power
over such vested shares: Mr. AtLee, 10,455; Mr. Kantor, 3,920; Ms. King, 1,502; Mr. McMillan, 3,920; Mr. Parfet,
3,593; Mr. Reed, 8,115; and directors and executive officers as a group, 31,505.
(2) With respect to Pharmacia's equity incentive compensation plan for non-employee directors, includes: (1) 4,452
shares of deferred common stock Ms. King elected to receive as a stock fee; and (2) 1,345 stock equivalent units
Mr. Reed elected to receive in lieu of a cash fee.
(3) The SEC deems a person to have beneficial ownership of all shares which that person has the right to acquire within
60 days. For purposes of this table, the Company has used April 30, 2002 as the cut-off date, which is 60 days
after March 1, 2002. The shares indicated represent shares underlying stock options granted under incentive plans.
The shares underlying options cannot be voted.
(4) For the following individuals, includes the indicated number of shares of Pharmacia common stock held under our
Savings and Investment Plan: Mr. Verfaillie, 17,081; Mr. Engelberg, 1,344; Dr. Fraley, 9,526; Mr. Grant, 1,770;
Mr. Burson 135; Mr. Ide, 3,534; and directors and executive officers as a group, 65,418. For the following individuals,
includes the indicated number of shares of Pharmacia common stock held under the Pharmacia & Upjohn Savings Plan:
Mr. Astrom, 682; Mr. Coughlin, 14,901; Dr. Needleman, 3,713; Mr. Parfet, 8,735; and directors and executive
officers as a group, 24,318. With respect to shares held under both of these savings plans, the participants have
sole discretion as to voting and, within limitations provided by each respective plan, investment of shares.
13
(5) Pharmacia exercises sole voting and investment power over the shares of Monsanto common stock held by it. The
address of Pharmacia is 100 Route 206 North, Peapack, New Jersey 07977. Messrs. Astrom and Coughlin and Dr.
Needleman are also executive officers of Pharmacia. Messrs. Kantor, Parfet and McMillan and Ms. King are directors
of Pharmacia. These individuals disclaim beneficial ownership of the shares of Monsanto common stock beneficially
owned by Pharmacia.
(6) Includes shares underlying options granted under former Monsanto's 1999 Premium Option Purchase Program, which is
currently administered by Pharmacia. Under this program, the officers were granted an opportunity to purchase
premium stock options from former Monsanto at $7.77 per share paid through base salary or bonus reductions over a
four-year period. Participating officers also received an additional premium stock option grant in 1999. Both stock
option grants have a $75 exercise price per share of Pharmacia common stock, became exercisable as of the effective
date of the merger between former Monsanto and Pharmacia & Upjohn and will expire if Pharmacia's common stock does
not reach a price of $75 per share within five years from the date of grant. The total number of premium priced
options under contract are: Mr. Verfaillie, 139,768; Mr. Engelberg, 56,860; Dr. Fraley, 51,161; Mr. Grant, 49,874;
Mr. Ide, 44,003; Dr. Needleman, 75,418; and directors and executive officers as a group, 417,084. The shares of
Pharmacia common stock underlying these options cannot be voted.
(7) Includes 803,294 shares of Pharmacia common stock held in trusts over which Mr. Parfet shares voting and/or
dispositive power.
(8) Includes 1,000 shares of Monsanto common stock held by Mr. AtLee's sons. Mr. AtLee disclaims beneficial ownership
of such shares.
(9) Mr. Astrom resigned from the board of directors effective February 21, 2002.
The percentage of shares of outstanding common stock of each of the Company
and Pharmacia, including options exercisable within 60 days after March 1,
2002, beneficially owned by any director or executive officer or by all
directors and executive officers as a group does not exceed 1%. The
percentage of such shares of Monsanto common stock beneficially owned by
Pharmacia is approximately 85.2%.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the compensation
received for services rendered to the Company for the periods indicated by:
(i) the chief executive officer; (ii) each of the other four most highly
compensated executive officers of the Company; and (iii) a former executive
officer who terminated his employment with the Company in June 2001 (we
refer to these six individuals as the "Named Executive Officers").
- ---------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------------------------------------
AWARDS PAYOUTS
----------------------------------
SECURITIES ALL
OTHER RESTRICTED UNDER- OTHER
NAME AND ANNUAL STOCK LYING LTIP COMPEN-
PRINCIPAL COMPEN- AWARDS OPTIONS PAYOUTS SATION
POSITION YEAR SALARY($) BONUS($)(1) SATION($)(2) ($) (#) ($) ($)(3)
- ---------------------------------------------------------------------------------------------------------------------------------
HENDRIK A. VERFAILLIE 2001 867,312 357,000 82,425 0 0 0 231,330
President and CEO 9/00-12/00(7) 283,333 925,000 -- 0 1,066,670 0 78,796
- ---------------------------------------------------------------------------------------------------------------------------------
CHARLES W. BURSON(4) 2001 305,962 76,000 -- 361,300(5) 116,100 0 6,098
Executive V.P., Secretary 9/00-12/00(7) -- -- -- -- -- -- --
and General Counsel
- ---------------------------------------------------------------------------------------------------------------------------------
STEVEN L. ENGELBERG 2001 400,000 73,000 -- 0 0 0 84,374
Senior V.P. 9/00-12/00(7) 133,333 463,000 -- 0 213,430 0 16,014
Government Affairs
- ---------------------------------------------------------------------------------------------------------------------------------
ROBERT T. FRALEY, PH.D. 2001 461,539 140,000 -- 0 0 0 90,501
Executive V.P. and 9/00-12/00(7) 150,000 460,000 -- 0 391,120 0 15,644
Chief Technology Officer
- ---------------------------------------------------------------------------------------------------------------------------------
HUGH GRANT 2001 561,539 198,000 -- 0 0 0 85,151
Executive V.P. and 9/00-12/00(7) 183,333 635,000 -- 0 480,000 0 8,518
Chief Operating Officer
- ---------------------------------------------------------------------------------------------------------------------------------
R. WILLIAM IDE III(6) 2001 215,385 700,000(8) -- 0 0 0 4,878,470
Former Senior V.P., 9/00-12/00(7) 133,333 484,250 -- 0 0 0 5,864
Secretary and General
Counsel
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
- ----------
(1) Amounts reflect bonuses for services rendered during the fiscal year but paid in the subsequent year. In the case
of Mr. Engelberg for 2000, and Mr. Ide for 2000 and 2001, the bonuses were paid pursuant to contractual
arrangements.
(2) Applicable regulations set reporting thresholds for certain non-cash compensation if the aggregate amount is in
excess of the lesser of $50,000 or 10% of the total annual salary and bonus reported for the Named Executive
Officers. In the case of Mr. Verfaillie, such amount represents membership dues and fees for a private club
membership paid for by the Company in 2001. The dollar value of such non-cash compensation for each of the other
Named Executive Officers was less than the established reporting thresholds.
14
(3) Amounts for our fiscal year 2001 include contributions to thrift/savings plans as follows: Mr. Verfaillie,
$129,777; Mr. Burson, $6,098; Mr. Engelberg, $32,801; Dr. Fraley, $64,813; Mr. Grant, $85,151; and Mr. Ide,
$51,367; split dollar life insurance premiums paid as follows: Mr. Verfaillie, $15,093; Mr. Engelberg, $21,725;
Dr. Fraley, $8,863; and Mr. Ide, $30,231 the employee portion of cash surrender value of split dollar life insurance
as follows: Mr. Verfaillie, $86,460; Mr. Engelberg, $29,848; Dr. Fraley, $16,825; Mr. Ide, $4,039; and a change of
control payment to Mr. Ide of $4,792,833. Amounts for the period from September 1, 2000 through December 31, 2000
include contributions to thrift/savings plans as follows: Mr. Verfaillie, $13,812; Mr. Engelberg, $5,800;
Dr. Fraley, $6,575; Mr. Grant, $8,469; and Mr. Ide, $5,815; split dollar life insurance premiums paid as follows:
Mr. Verfaillie, $5,303; Mr. Engelberg, $7,676; and Dr. Fraley, $2,955; the employee portion of cash surrender value
of split dollar life insurance as follows: Mr. Verfaillie, $59,632; Mr. Engelberg, $2,489; and Dr. Fraley, $6,065;
and costs for travel accident plans for each of the Named Executive Officers of $49.
(4) Mr. Burson's employment with the Company commenced on April 9, 2001.
(5) Mr. Burson was granted 10,000 restricted shares under the 2000 Management Incentive Plan on April 9, 2001. The
closing per share price of the Company's common stock on such date was $36.13. As of December 31, 2001, Mr.
Burson's 10,000 restricted shares had a value of $338,000 using the closing per share price of the Company's common
stock on such date of $33.80. Dividends on these restricted shares are held in escrow and delivered with the
restricted shares as they vest.
(6) Mr. Ide's employment with the Company terminated in June 2001.
(7) Compensation information for our fiscal year 2000 is for the four months beginning September 1, 2000 (the date of
our separation from Pharmacia). For more detailed information regarding the date and description of events
resulting in our separation from Pharmacia, see "Information Regarding Our Formation" at page 1. The approximate
annualized salaries for the Named Executives in 2000 had the Company operated for a full 12 months are as follows:
Mr. Verfaillie, $850,000; Mr. Engleberg, 400,000; Dr. Fraley, $450,000; Mr. Grant, $550,000; and Mr. Ide, $400,000.
(8) See "Certain Agreements--Change-of-Control Employment Agreements" on page 22 for a description of the bonus
payments made to Mr. Ide.
OPTION GRANTS IN 2001
The following table sets forth certain information regarding awards of
Monsanto stock options to the Named Executive Officers in 2001. No stock
appreciation rights were granted to such persons during 2001.
- -------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS(1)
- ----------------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED RATES
SECURITIES OPTIONS EXERCISE OF STOCK PRICE
UNDERLYING GRANTED TO OR BASE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES IN PRICE EXPIRATION TERM(3)
NAME/DATE OF GRANT GRANTED(#) FISCAL YEAR ($/SHARE)(2) DATE 5% ($) 10% ($)
- -------------------------------------------------------------------------------------------------------------------------------
Charles W. Burson 116,100 7.5% $34.67 April 14, 2011 $2,531,418 $6,415,111
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
- ----------
(1) The options were granted under the Monsanto 2000 Management Incentive Plan. Options were granted at 100% of the
market price on the date of grant and vest in 50% increments on March 15th of 2002 and 2003. The term of these
options may not exceed ten years and may be exercisable for a shorter period as a result of a participant's death
or termination of service. The options will vest in full if we undergo a change of control (as defined) immediately
following which Pharmacia does not own more than 50% of our common stock. Similarly, such vesting will occur if a
change of control of Pharmacia occurs immediately following which it still owns more than 50% of our common stock
and one of the following occurs within one year thereafter: (i) the participant's employment is terminated without
cause or by the participant for good reason, (ii) the employment of a majority of the members of our leadership
team is terminated without cause or for good reason, (iii) our headquarters is relocated by more than 35 miles, or
a decision to effect such a relocation is publicly announced, or (iv) a decision is announced that Pharmacia will
dispose of its majority ownership of our stock or otherwise take steps that will result in a change of control of
our company and such steps have not been approved by a majority of our leadership team. Such accelerated vesting
could result in a participant being considered to receive "excess parachute payments" (as defined in Section 280G
of the Code), which payments are subject to a 20% excise tax imposed on the participant. If so, the participant
would generally be entitled to be made whole for such excise tax under our excess parachute tax indemnity plan, and
we would not be able to deduct the excess parachute payments or any such indemnity payments.
(2) The participant is allowed to pay the exercise price in cash, by delivering shares of our common stock or by any
other method designated by the people committee.
(3) The dollar amounts under these columns are the result of calculations at the 5% and 10% rates set by the SEC and
therefore are not intended to forecast possible future appreciation, if any, of our stock price. The dollar amounts
reflect an assumed annualized growth rate, as indicated, in the market value of our common stock from the date of
grant to the end of the option term. We did not use an alternative formula for a grant date valuation, as we are
not aware of any formula that will determine with reasonable accuracy a present value based on future unknown or
volatile factors.
15
AGGREGATED OPTION EXERCISES IN 2001 AND OPTION VALUES ON DECEMBER 31, 2001
The following table presents (i) the unexercised Monsanto stock options
held by each Named Executive Officer and (ii) the value of such
in-the-money options as of December 31, 2001, as if such in-the-money
options were vested and exercisable as of December 31, 2001. None of these
individuals exercised any Monsanto stock options held by such persons
during 2001.
- ---------------------------------------------------------------------------------------------------------------------------------
VALUE OF
NUMBER OF UNEXERCISED-IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
VALUE DECEMBER 31, 2001 DECEMBER 31, 2001
SHARES ACQUIRED REALIZED (#) ($)
NAME ON EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---------------------------------------------------------------------------------------------------------------------------------
Hendrik A. Verfaillie 0 $0 0/1,066,670 $0/$14,954,713
- ---------------------------------------------------------------------------------------------------------------------------------
Charles W. Burson 0 $0 0/116,100 $0/$0
- ---------------------------------------------------------------------------------------------------------------------------------
Steven L. Engelberg 0 $0 0/213,340 $0/$2,533,243
- ---------------------------------------------------------------------------------------------------------------------------------
Robert T. Fraley, Ph.D. 0 $0 0/391,120 $0/$5,483,502
- ---------------------------------------------------------------------------------------------------------------------------------
Hugh Grant 0 $0 0/480,000 $0/$6,729,600
- ---------------------------------------------------------------------------------------------------------------------------------
R. William Ide III 0 $0 0/0 $0/$0
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
- -----------
(1) Calculated by (A) determining the difference between (1) the average of the high and low trading prices per share
of the Company's common stock on December 31, 2001 and (2) the exercise price of the option and (B) multiplying
such difference by the total number of shares under option, net of the aggregate value of all option exercise
proceeds.
PENSION PLANS
The Named Executive Officers (as well as other of our employees) are
eligible for retirement benefits payable under our tax-qualified and
non-qualified defined benefit pension plans. The former Monsanto
tax-qualified defined benefit pension plan had been sponsored by Pharmacia
through December 31, 2001, and we were a participating employer in the plan
through that date. Effective as of January 1, 2002, pursuant to the
Employee Benefits and Compensation Allocation Agreement between us and
Pharmacia, as amended (the "Allocation Agreement") (see Appendix B for a
more detailed description of the Allocation Agreement), the former Monsanto
tax-qualified defined benefit pension plan was split into two tax-qualified
defined benefit pension plans: one covering our employees and certain
former employees allocated to us, and one covering those Pharmacia
employees and former employees who had been covered under the former
Monsanto defined benefit pension plan prior to January 1, 2002. Also
effective as of January 1, 2002, sponsorship of the former Monsanto defined
benefit pension plan was transferred to and assumed by us, and the trust
under the former Monsanto plan was converted into a master trust that
currently holds the assets of both our plan and Pharmacia's plan. Also
effective as of January 1, 2002, we established our own non-qualified
defined benefit pension plans and all liabilities under the non-qualified
defined benefit pension plans sponsored by Pharmacia relating to the Named
Executive Officers (as well as other of our employees) through that date
were transferred to our plans. The disclosure that follows reflects the
status of the former Monsanto defined benefit pension plans as of the end
of our fiscal year 2001.
Effective January 1, 1997, the former Monsanto defined benefit pension plan
was amended. The former Monsanto non-qualified pension plans providing
benefits to executives that cannot be provided under the former Monsanto
qualified plan because of limitations under federal tax law were similarly
amended. The amended former Monsanto defined benefit pension plans each
consists of two accounts: a "prior plan account" and a "cash balance
account."
The opening balance of the prior plan account was the lump sum value of the
executive's December 31, 1996 monthly retirement benefit earned at former
Monsanto prior to January 1, 1997 under the old defined benefit pension
plan described below, calculated using the assumption that the monthly
benefit would be payable at age 55 with no reduction for early payment. The
formula used to calculate the opening balance for employment with former
Monsanto was the greater of 1.4% (1.2% for employees hired by former
Monsanto on or after April 1, 1986) of average final compensation
multiplied by years of service, without reduction for Social Security or
other offset amounts, or 1.5% of average final compensation multiplied by
years of service, less a 50% Social Security offset. Average final
compensation for purposes of determining the opening balance was the
greater of (1) average compensation received during the 36 months of
employment prior to 1997 or (2) average compensation received during the
highest three of the five calendar years of employment prior to 1997.
For each year of the executive's continued employment with former Monsanto,
Pharmacia or us, the executive's prior plan account will be increased by 4%
to recognize that prior plan benefits would have grown as a result of pay
increases.
16
For each year that the executive is employed by former Monsanto, Pharmacia
or us after 1996, 3% of annual compensation in excess of the Social
Security wage base and a percentage (based on age) of annual compensation
(salary and annual bonus) will be credited to the cash balance account. The
applicable percentages and age ranges are: 3% before age 30, 4% for ages 30
to 39, 5% for ages 40 to 44, 6% for ages 45 to 49, and 7% for age 50 and
over. In addition, the cash balance account of executives who earned
benefits under former Monsanto's old defined benefit pension plan will be
credited each year (for up to 10 years based on prior years of service with
former Monsanto or Pharmacia), during which the executive is employed after
1996, with an amount equal to a percentage (based on age) of annual
compensation. The applicable percentages and age ranges are: 2% before age
30, 3% for ages 30 to 39, 4% for ages 40 to 44, 5% for ages 45 to 49, and
6% for age 50 and over.
In addition to the retirement benefits for Messrs. Verfaillie and Grant
based on their years of service as our employee in the United States,
Messrs. Verfaillie and Grant are also eligible for regular retirement
benefits based on their respective years of service as our employee outside
the United States. In addition, Messrs. Verfaillie and Grant participate in
our regular, non-qualified pension plan designed to protect retirement
benefits for employees serving in more than one country. However, their
total retirement benefits from the combined plans, when considering their
total service, are expected to be generally comparable to the benefits
described in this section.
Mr. Engelberg previously entered into an individual supplemental retirement
arrangement with Pharmacia under which Mr. Engelberg is entitled to a
supplemental retirement benefit, subject to certain conditions, which is
designed to produce an annual retirement benefit at age 65 equal to 45% of
his average total earnings, reduced by the amount of any benefit received
under our pension and parity pension plans and by other of his retirement
arrangements. We assumed all liabilities under this agreement.
Mr. Burson has an individual supplemental retirement arrangement with us
under which he is entitled to a supplemental retirement benefit, subject to
certain conditions. The amount of the benefit is credited to a notational
bookkeeping account and is equal to two and one-half times the sum of the
contribution credits to his accounts under our tax-qualified and
non-qualified defined benefit pension plans, plus interest credits on the
balance of the account credited in the same manner as are interest credits
under our tax-qualified defined benefit plan.
The estimated annual benefits payable under our tax-qualified and
non-qualified defined benefit pension plans to the Named Executive Officers
as a single life annuity beginning at age 65 (assuming that each Named
Executive Officer remains employed by us until age 65 and receives 4%
annual compensation increases) are as follows: Mr. Verfaillie, $757,227;
Mr. Burson, $227,776; Mr. Engelberg, $305,387; Dr. Fraley, $614,711; and
Mr. Grant, $666,672.
Mr. Ide also entered into an individual supplemental retirement arrangement
with Pharmacia under which Mr. Ide is entitled to a supplemental retirement
benefit, subject to certain conditions, which is designed to produce a
total retirement benefit at age 65 comparable to that which an employee
with 30 years of service would receive (taking into account the value of
any vested pension benefits earned as an active employee of Pharmacia and
of Monsanto and pension benefits received from prior employers). We assumed
all liabilities under this agreement. At the time of his termination of
employment, Mr. Ide did not have a vested benefit under our or Pharmacia's
defined benefit pension plans. As of December 31, 2001, the present value
of Mr. Ide's supplemental retirement benefit was $1,415,498.51. The value
of the benefit, plus interest accrued thereon, will be paid to him in
substantially equal monthly payments over three years, beginning
January 1, 2003.
COMMITTEE REPORTS
REPORT OF THE PEOPLE COMMITTEE ON EXECUTIVE COMPENSATION
The people committee is responsible for the establishment and oversight of
executive compensation policies and programs for the Company's executive
officers. It also approves, reviews and monitors the Company's executive
succession plan, and reviews and monitors the Company's performance as it
affects its people and the overall compensation policies for its people.
Under the terms of its charter, the committee is required to consist of two
or more members of the board of directors who, in the opinion of the board,
are independent of management and have no relationship to the Company that
may interfere with the exercise of their independence from the Company and
its management.
Compensation Policies
The overall objectives of the committee are to develop compensation
policies and practices that:
* align management's interests with the long-term interests of
shareowners;
* encourage people to behave like owners of the business and reward
them when shareowner value is created;
* provide reward systems that are simple, credible and common across
the organization;
* promote creativity, innovation and calculated risk taking to achieve
outstanding business results;
17
* encourage people to continually improve their capabilities to deliver
business results;
* reward for results rather than on the basis of seniority, tenure, or
other entitlement;
* make the Company a great place to work in order to attract world
class people at all levels around the globe.
Components of Executive Compensation
In furtherance of these objectives, the compensation programs for all
Company executives include three components: (1) base pay, (2) an annual
incentive program, and (3) a long-term incentive program.
The levels of compensation at competitive companies were used for
comparison in establishing the Company's current executive compensation
policies, compensation programs and awards, and were derived from
compensation surveys provided by an outside consultant. The primary
comparator group consisted of companies in general industry with revenues
equivalent to that of the Company. The Committee also considered data from
the biotechnology and specialty chemicals industries as well as a broader
general industry group in making its decisions. The philosophy underlying
each element of executive compensation is discussed below.
The annual and long-term compensation components of the program have been
designed to encourage executives to significantly increase shareowner
value. Annual incentive compensation for 2001 was based on results versus
goals for sales growth, earnings per share and cash flow, all of which
affect shareowner value. Long-term compensation is closely tied to
providing outstanding returns for shareowners.
Base Pay. Base pay reflects the external market value of a particular role
as well as the experiences and qualifications that an individual brings to
the role. Base pay is generally targeted to the median of the base pay paid
by companies in our primary comparator group for a particular role.
Annual Incentive Program. The Annual Incentive Program for all regular
employees, including executives, provides for cash awards that are
determined shortly after the end of the year being measured. These annual
awards depend upon the Company's achievement of goals set at the beginning
of each year; the individual's level of responsibility and, where
applicable, performance of his or her business or staff group; and the
individual's personal performance.
The Annual Incentive Program for 2001 was designed to focus on the
achievement of the following key goals for the Company: sales growth,
earnings per share and cash flow. Each employee's annual incentive
opportunity for 2001 was communicated in terms of "target" Company and
individual performance as measured against goals set for the year with
award opportunities at "outstanding" performance equal to two times that at
"target" performance. The annual incentive award pool was determined based
on actual results measured against these goals and other performance
factors. Neither the incentive pool nor individual awards are capped.
For 2002, the Annual Incentive Program continues to apply to all employees,
including executives. Goals with respect to the funding of the incentive
pool have again been set for sales growth, earnings per share, and cash
flow although no funding will occur if the threshold earnings per share
performance is not attained. Funding will continue to be determined by the
Company's attainment of the financial objectives and other subjective
performance criteria determined by the committee. Individual incentive
opportunities have been communicated at a "target" level of performance as
measured against goals, with award opportunities at "outstanding"
performance equal to two times that at target performance. Neither the
incentive pool nor individual awards are capped. Annual incentives are
generally targeted at the median of the market for target performance as
measured against goals with upside opportunity for above target
performance. However, for the chief executive officer and other executive
officers target annual incentives will be below the market median if target
performance is achieved.
Long-term Incentive Program. Long-term incentive opportunity is delivered
in the form of stock options. Long-term compensation for executives is
generally targeted to be at or above the 75th percentile of the market.
In determining grants at the initial public offering, the Company utilized
competitive data from other companies that had undergone an initial public
offering. The long-term incentive opportunity for each individual was
established (based on the individual's role) by converting a percentage of
base pay to stock options using an estimated Black-Scholes value. Stock
options for management (approximately 1,800 people) were granted on October
17, 2000 (the date of the initial public offering) and vest over a 30-month
period: 50% in March 2002 and 50% in March 2003. The stock option grants
are for a two-year period: 2001 and 2002. Stock options for all other
non-management employees were also granted on the initial public offering
date with the same vesting provisions; provided, however, that no options
vest before they have been held for at least one year. New hires receive
stock option grants upon the same terms and conditions of the Company's
2000 Management Incentive Plan, pro-rated over the two-year period. Mr.
Burson received a pro-rated stock option grant when he joined the Company
in April 2001.
18
Other Grants. The committee may also make infrequent grants of restricted
stock to individual executives to hire or retain those individuals or
motivate achievement of particular business objectives. Additional stock
option grants may be made to hire or retain certain individuals, reflect
increased responsibility, or motivate the achievement of a particular
business objective. Mr. Burson received a grant of restricted shares as
part of his employment offer.
Chief Executive Officer Compensation
Mr. Verfaillie's 2001 salary was increased by 3.5% to $880,000 in June 2001
to reflect changes in the market. The committee recommended an annual
incentive award of $357,000 for Mr. Verfaillie for 2001. The award was
determined based on the same criteria used for all employees eligible to
participate in the Annual Incentive Program. The annual incentive
opportunity for Mr. Verfaillie has been reduced in exchange for the higher
risk, stock option grant (made at the time of our initial public offering)
that will more closely align his interests with those of shareowners. Mr.
Verfaillie (along with Messrs. Grant and Fraley and one other executive) is
also a party to a Phantom Share Agreement as described at "Certain
Agreements--Phantom Share Agreements" at page 23.
2001 Compensation for Other Executives
The payment of cash awards for the other Named Executive Officers was based
on the same factors as for Mr. Verfaillie. The number of options granted to
executives at the initial public offering was calculated based on
competitive long-term incentive opportunities utilizing data from other
companies that had undergone an initial public offering. Company executive
plans are designed to achieve a long-term compensation opportunity at or
above the 75th percentile for senior executives in comparable positions in
other companies. When the Company performs at an outstanding level, total
compensation may be at or above the 90th percentile of the market.
Deductibility of Compensation
The goal of the committee is to comply with the requirements of Section
162(m) of the Code, to the extent deemed practicable, with respect to
options and annual and long-term incentive programs, as well as the limits
approved by the Company's shareowners, in order to avoid losing the
deduction for compensation in excess of $1 million paid to one or more of
the Named Executive Officers. We have generally structured our compensation
plans with the objective that amounts paid under those plans and
arrangements are tax deductible. However, the committee may elect to
provide compensation outside those requirements when it deems appropriate
to achieve its compensation objectives.
Management Stock Ownership Requirements
The committee and management also believe that an important adjunct to an
incentive program is significant stock ownership by the senior executives.
Accordingly, the committee has implemented stock ownership requirements for
approximately 25 executives. Stock ownership requirements are five times
base salary for the Company's chief executive officer; four times base
salary for the chief operating officer; three times base salary for five
other senior executives and one times base salary for an additional 19
executives. Unexercised stock options or restricted shares are not counted
in satisfying these requirements. The committee has established target
dates when each executive must meet stock ownership requirements.
PEOPLE COMMITTEE
C. Steven McMillan, Chair
Gwendolyn S. King
William U. Parfet
February 20, 2002
19
REPORT OF THE AUDIT AND FINANCE COMMITTEE
In fulfilling its responsibilities, the audit and finance committee, among
other things, has reviewed and discussed the audited financial statements
contained in the 2001 Annual Report on SEC Form 10-K with the Company's
management and its independent auditors.
Management advised the audit and finance committee that all financial
statements were prepared in accordance with accounting principles generally
accepted in the United States. Management is responsible for the financial
statements and the reporting process, including the system of internal
control. The independent auditors are responsible for expressing an opinion
on the conformity of those audited financial statements with accounting
principles generally accepted in the United States. Members of the audit
and finance committee rely, without independent verification, on the
information provided to them by management and on the representations made
to them by the independent auditors. Accordingly, the oversight provided by
the audit and finance committee should not be considered as providing an
independent basis for determining that management has established and
maintained appropriate internal financial controls, that the financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States, or that the audit of the Company's
financial statements by the independent auditors has been carried out in
accordance with auditing standards generally accepted in the United States.
In addition, the audit and finance committee discussed with the independent
auditors the matters required to be discussed by Statement on Auditing
Standards, AU Section 380 (SAS No. 61), Communication with Audit
Committees, as amended, as well as the auditors' independence from Monsanto
and its management including the matters in the written disclosures and
letter required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees.
The Company expects to be billed an aggregate amount of $10.2 million by
Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and
their respective affiliates (which we collectively refer to as "Deloitte")
for professional services in 2001. The table below sets forth the
components of this aggregate amount.
- ----------------------------------------------------------------------------------
DESCRIPTION OF PROFESSIONAL SERVICE AMOUNT BILLED
- ----------------------------------------------------------------------------------
AUDIT FEES - professional services rendered for the audit of
our annual financial statements for 2001 and for the reviews
of the financial statements included in our Form 10-Qs. $1.9 million
- ----------------------------------------------------------------------------------
FINANCIAL INFORMATION SYSTEMS AND IMPLEMENTATION FEES -
professional services in connection with a euro
implementation rendered by Deloitte Consulting in 2001. $0.7 million
- ----------------------------------------------------------------------------------
ALL OTHER FEES - fees billed for audit-related services in
the amount of $1.6 million (including foreign statutory
audits, due diligence and related services on acquisitions,
accounting consultations and work on SEC filings) and fees
for non-audit related services in the amount of $6.0 million
(including $3.1 million for corporate and expatriate tax and
assignment services and $2.9 million for non-financial
information systems). $7.6 million
- ----------------------------------------------------------------------------------
The audit and finance committee of the board of directors considers
Deloitte's provision of non-audit services compatible with it maintaining
its independence.
In reliance on the reviews and discussions referred to above, and
exercising our business judgment, the audit and finance committee
recommended to the board of directors (and the board of directors has
approved) that the audited financial statements be included in the
Company's Annual Report on SEC Form 10-K for the year ended December 31,
2001, for filing with the SEC.
In accordance with the rules of the SEC, the foregoing information, which
is required by paragraphs (a) and (b) of Regulation S-K Item 306, shall not
be deemed to be "soliciting material," or to be "filed" with the SEC or
subject to the SEC's Regulation 14A, other than as provided in that Item,
or to the liabilities of Section 18 of the Securities Exchange Act of 1934,
as amended, except to the extent that the Company specifically requests
that the information be treated as soliciting material or specifically
incorporates it by reference into a document filed under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
AUDIT AND FINANCE COMMITTEE
John S. Reed, Chair
C. Steven McMillan
William U. Parfet
February 26, 2002
20
STOCK PRICE PERFORMANCE GRAPH
The graph below compares total shareowner return on the Company's common
stock (assuming reinvestment of dividends) for the period beginning on the
date of our initial public offering and ending on December 31, 2001 with
the cumulative total return of the Standard & Poor's 500 Stock Index (a
broad-based market index) and the cumulative total return of a peer group
index over the same period.
Because we are involved in the agricultural products and seeds and genomics
businesses, no published peer group accurately mirrors our portfolio of
businesses. Accordingly, we created a peer group index that includes
Bayer AG ADR, Dow Chemical Company, DuPont (E.I.) de Nemours and Company,
BASF AG, Aventis S.A. and Syngenta AG. These indices are included for
comparative purposes only and do not necessarily reflect management's
opinion that such indices are an appropriate measure of the relative
performance of the stock involved, and are not intended to forecast or be
indicative of possible future performance of our common stock.
TOTAL RETURN TO SHAREOWNERS
[Graph]
- -----------------------------------------------------------------------------------------------------------------------------
17-OCT-00 29-DEC-00 31-MAR-01 30-JUN-01 30-SEPT-01 31-DEC-01
- -----------------------------------------------------------------------------------------------------------------------------
MONSANTO CO. (MON) 100 135 178 186 170 171
- -----------------------------------------------------------------------------------------------------------------------------
S&P 500 (SPX) 100 98 87 92 78 86
- -----------------------------------------------------------------------------------------------------------------------------
PEER GROUP INDEX (INDEX) 100 124 113 121 107 113
- -----------------------------------------------------------------------------------------------------------------------------
21
CERTAIN AGREEMENTS
CHANGE-OF-CONTROL EMPLOYMENT AGREEMENTS
We have entered into change-of-control employment agreements with a number
of key executives including our Named Executive Officers except for Messrs.
Engelberg and Ide. These agreements have terms that currently end on June
30, 2002 and are automatically extended one year at a time, unless we give
the executive a notice that no extension will occur. If a change of control
of Monsanto occurs during the term of an agreement, or if a change of
control of Pharmacia occurs during the term at a time when Pharmacia owns
more than 50 percent of our common stock, then the agreement becomes
operative for a fixed period.
The agreements provide generally that the executive's terms and conditions
of employment, including position, location, compensation and benefits,
will not be adversely changed during the three-year period after such a
change of control. If, during this three-year period, we terminate the
executive's employment other than for cause, death or disability, or the
executive terminates for good reason, or if we terminate the executive's
employment without cause in connection with or in anticipation of a change
of control, the executive is generally entitled to receive:
* a specified multiple of the executive's annual base salary plus an annual
bonus amount and an amount to reflect our employer matching contributions
under various savings plans,
* accrued but unpaid compensation,
* continued welfare benefits for a specified number of years,
* a lump sum payment having an actuarial present value equal to the
additional retirement plan benefits the executive would have received if
he or she had continued to be employed by us for a specified number of
years,
* if the executive has reached age 50 at the conclusion of a specified
number of years following employment termination, receipt of lifetime
retiree medical benefits, and
* outplacement benefits.
The specified multiple and the specified number of years is three for
Messrs. Verfaillie, Burson and Grant, Dr. Fraley and two other executives
and two years for all other executives covered by such agreements. In
addition, the executive is generally entitled to receive a payment in an
amount sufficient to make him or her whole for any federal excise tax on
excess parachute payments.
Messrs. Engelberg and Ide are parties to change-of-control employment
agreements with Pharmacia, which provide similar benefits to those
described above. These agreements became effective on March 31, 2000, when
the merger involving former Monsanto and Pharmacia & Upjohn took place.
Accordingly, if either of the executive's employment is terminated by us
other than for cause, death or disability, or if he terminates for good
reason, on or before March 31, 2003, he will be entitled to severance
benefits similar to those described above. As a result of Mr. Ide
terminating his employment with the Company, Mr. Ide was paid a severance
benefit under this agreement of $4,792,833 by Pharmacia and will continue
to be eligible for certain other benefits provided by us. We estimate that
the cash severance benefits payable under Mr. Engleberg's agreement would
be approximately $3,100,000. Pharmacia has retained all severance
liabilities under this agreement and we have assumed responsibility for
providing continued welfare and certain other benefits from the date of
Mr. Engleberg's termination of employment.
In addition to the severance benefits paid to Mr. Ide discussed above,
Pharmacia paid Mr. Ide a cash bonus in the amount of $400,000 because Mr.
Ide remained on as the Company's general counsel through at least
March 30, 2001 and executed an appropriate waiver. Moreover, Pharmacia has
offered to pay Mr. Ide an additional $400,000 in exchange for his services
as a consultant to the Company for a one-year period following his
resignation, payable in quarterly installments. Furthermore, pursuant to a
December 7, 2000 resolution of the Company's board of directors, acting on
behalf of its people committee, the Company paid a retention payment to
Mr. Ide in the amount of $150,000 in recognition of Mr. Ide continuing to serve
as general counsel until Mr. Burson, his successor, was hired and an
additional $150,000 based on Mr. Ide's performance during his transition
from the general counsel position. Mr Ide executed an appropriate release
in favor of the Company in connection with such payments.
22
PHANTOM SHARE AGREEMENTS
We have entered into Phantom Share Agreements with Pharmacia and each of
Mr. Verfaillie, Mr. Grant, and Dr. Fraley and one other executive, pursuant
to which each of these executives agreed to the termination of his
change-of-control employment agreement with Pharmacia as of the closing of
the initial public offering. Under the change-of-control employment
agreements, which were triggered upon former Monsanto's merger with
Pharmacia & Upjohn, each of these executives would have been entitled to
substantial severance benefits from Pharmacia if his employment was
terminated by his employer without cause or by him for "good reason" during
the three years following the merger. A termination for "good reason" would
have included a termination by the executive as a result of adverse changes
in the terms and conditions of his employment or for any reason during the
30-day period beginning on the first anniversary of the merger. In
connection with the initial public offering, we replaced these
change-of-control employment agreements with Phantom Share Agreements to
provide these key executives with a more powerful incentive to remain with
us for the long term and to build the value of our stock after the initial
public offering. The Phantom Share Agreements were designed to achieve
these goals by providing incentive pay tied to the performance of our
common stock, generally conditioned upon the executives' remaining employed
by us or our affiliates through October 1, 2002.
Each of the new Phantom Share Agreements became effective upon the close of
the initial public offering, at which time the executive's then current
change-of-control employment agreement was superseded.
At the time of the initial public offering, we credited to a phantom share
account for each executive a number of phantom shares of our common stock
equal to the cash severance and value of benefits continuation he would
have received as a result of the termination of his employment under his
change-of-control employment agreement, divided by the offering price.
Payment of the value of the phantom shares held in the account will be made
to the executive within 30 days after the last to occur of: (i) vesting of
the account; (ii) the date our people committee certifies achievement of
the performance goal (which goal was certified by the people committee in
February 2002 as having been attained); and (iii) the date of shareowner
approval (which was obtained at our annual meeting held in 2001).
When the phantom shares are paid, each phantom share holder will be
entitled to receive cash in the amount of the number of phantom shares
allocated to that person's account multiplied by the share value (as
defined) as of the date of vesting, however, the amount of such payment
will not be less than the initial value of that person's phantom share
account.
The following table sets forth the number of shares of our common stock
represented by the Phantom Share Agreements as of December 31, 2001,
payable to the person listed.
- ---------------------------------------------------------------------------------
PHANTOM
NAME AND POSITION SHARES(1)
- ---------------------------------------------------------------------------------
Hendrik A. Verfaillie
President and CEO 366,596
- ---------------------------------------------------------------------------------
Hugh Grant
Executive Vice President and Chief Operating Officer 174,451
- ---------------------------------------------------------------------------------
Robert T. Fraley, Ph.D.
Executive Vice President and Chief Technology Officer 179,115
- ---------------------------------------------------------------------------------
Executive Group 720,162
- ---------------------------------------------------------------------------------
Non-Executive Director Group 0
- ---------------------------------------------------------------------------------
Non-Executive Employee Group 92,980
- ---------------------------------------------------------------------------------
<FN>
- ----------
(1) As of December 31, 2001, the closing price per share of Monsanto's
shares was $33.80. Based on this value, the value of the Phantom Share
accounts was $12,390,944, $5,896,444 and $6,054,087 for Messrs.
Verfaillie and Grant and Dr. Fraley, respectively, $24,341,475 for the
Executive Group and $3,142,724 for the Non-Executive Employee Group. The
Phantom Share accounts have been adjusted to reflect quarterly dividends
declared and paid by the Company through November 1, 2001.
The phantom share accounts will generally vest on October 1, 2002,
generally subject to: (i) achievement of the performance goal specified in
the Phantom Share Agreements that we have positive net income for 2001
(which goal was certified by the people committee in February 2002 as
having been attained); and (ii) the executive remaining employed by us or
our affiliates through October 1, 2002.
23
EXCESS PARACHUTE TAX INDEMNITY PLAN
We have adopted the Excess Parachute Tax Indemnity Plan, which provides
that if any of our non-employee directors or any of our employees who is
not a party to a change of control employment agreement described above is
subject to the federal tax on excess parachute payments received in
connection with a change of control, we generally will pay him or her an
amount to make him or her whole for the tax, and will pay any legal fees he
or she may incur to enforce his or her rights under the plan or in
connection with any Internal Revenue Service audit related to the excise
tax.
ARRANGEMENTS BETWEEN MONSANTO AND PHARMACIA
Prior to our initial public offering, we entered into arrangements with
Pharmacia, as of September 1, 2000, providing for, among other things, the
separation of our businesses from those of Pharmacia. A summary description
of the material terms of these arrangements, which include a separation
agreement and other key related agreements between us and Pharmacia can be
found at Appendix B (which is incorporated herein by reference). The full
texts of these agreements were filed with the SEC as exhibits to the
registration statement relating to our initial public offering or as
exhibits to other SEC filings with respect to agreements finalized after
the date of our initial public offering.
PHARMACIA'S ANNOUNCEMENT REGARDING SPIN OFF OF OWNERSHIP INTEREST
Pharmacia is the beneficial owner of approximately 85.2% of our outstanding
common stock. On November 28, 2001, Pharmacia announced that its board of
directors authorized Pharmacia to spin off its entire ownership interest in
the Company. Under the plan, Pharmacia will distribute its entire ownership
of the Company to Pharmacia shareowners by means of a tax-free dividend.
Pharmacia has stated that it anticipates that the planned spin off of its
ownership interest in the Company will take place later in 2002.
CERTAIN OTHER INFORMATION REGARDING MANAGEMENT
TRANSACTIONS AND RELATIONSHIPS
Mr. Kantor is a partner at the law firm of Mayer, Brown, Rowe & Maw, which
provided services to us in 2001 and has been retained to provide services
to us in 2002. The amount of legal fees paid by us to Mayer, Brown, Rowe &
Maw during 2001 were approximately $1.l million. Such fees did not exceed
five percent (5%) of such firm's gross revenues for its applicable fiscal
year.
We have entered into a consulting agreement with Mr. AtLee that is
described above beginning at page 6 under "Information Regarding Board of
Directors and Committees--Compensation of Directors".
We also entered into a consulting agreement with Mr. Ide in August of 2001.
The term of this agreement expired on December 31, 2001. Under this
agreement, Mr. Ide provided us with consulting services to promote public
acceptance of agricultural biotechnology in Africa in exchange for a
monthly retainer of $10,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires all Company
executive officers, directors, and persons owning more than 10% of any
registered class of our capital stock to file reports of ownership and
changes in ownership with the SEC. Based solely on the reports received by
us and on written representations from reporting persons, we believe that
all such persons complied with all applicable filing requirements during
2001.
INDEBTEDNESS
The following executive officers received full-recourse, interest bearing
loans for the purchase price of former Monsanto common stock purchased
pursuant to former Monsanto's Executive Stock Purchase Plan. This plan has
been terminated. Following the merger these executive officers received
cash awards under the plan that were required to be used to repay the
loans. However, these cash awards did not cover the full amount due. The
balance of the loans must be repaid in three annual installments commencing
March 31, 2001. The loans may also be prepaid at any time at the executive
officer's election.
- ------------------------------------------------------------------------------------------------------------------------------
AGREGATE AMOUNT LARGEST AGGREGATE
OF INDEBTEDNESS AMOUNT OF INDEBTEDNESS
YEAR OF INTEREST AS OF OUTSTANDING AT
NAME LOAN RATE DECEMBER 31, 2001 ANY TIME DURING 2001
- ------------------------------------------------------------------------------------------------------------------------------
Hendrik A. Verfaillie 1996 6.36% $0 $2,510,493
- ------------------------------------------------------------------------------------------------------------------------------
Steven L. Engelberg 1996 6.36% $609,849 $1,062,126
- ------------------------------------------------------------------------------------------------------------------------------
Steven L. Engelberg 1997 6.80% $0 $ 292,594
- ------------------------------------------------------------------------------------------------------------------------------
Robert T. Fraley, Ph.D. 1996 6.36% $0 $ 772,455
- ------------------------------------------------------------------------------------------------------------------------------
R. William Ide III 1996 6.60% $581,679 $1,130,470
- ------------------------------------------------------------------------------------------------------------------------------
24
GENERAL INFORMATION
SHAREOWNER PROPOSALS
Proposals Included in Proxy Statement
Proposals of shareowners of the Company that are intended to be presented
by such shareowners at the Company's 2003 annual meeting and that
shareowners desire to have included in the Company's proxy materials
relating to such meeting must be received by the Company at its principal
executive offices no later than November 25, 2002, which is 120 calendar
days prior to the anniversary of this year's mailing date. Upon timely
receipt of any such proposal, the Company will determine whether or not to
include such proposal in the proxy statement and proxy in accordance with
applicable regulations governing the solicitation of proxies.
Proposals Not Included in Proxy Statement
If a shareowner wishes to present a proposal at the Company's annual
meeting in the year 2003 or to nominate one or more directors and the
proposal is not intended to be included in the Company's proxy statement
relating to that meeting, the shareowner must give advance written notice
to the Company prior to the deadline for such meeting determined in
accordance with the Company's by-laws. In general, the Company's by-laws
provide that such notice should be addressed to the Secretary and be
received at the Company's Creve Coeur Campus no less than 90 days nor more
than 120 days prior to the first anniversary of the preceding year's annual
meeting. For purposes of the Company's 2003 annual meeting, such notice
must be received not later than January 31, 2003 and not earlier than
January 1, 2003. These time limits also apply in determining whether notice
is timely for purposes of rules adopted by the SEC relating to the exercise
of discretionary voting authority. The Company's by-laws set out specific
requirements that such written notices must satisfy. Any shareowner filing
a written notice of nomination for director must describe various matters
regarding the nominee and the shareowner, including such information as
name, address, occupation and shares held. Any shareowner filing a notice
to bring other business before a shareowner meeting must include in such
notice, among other things, a brief description of the proposed business
and the reasons therefor, and other specified matters. Copies of those
requirements will be forwarded to any shareowner upon written request.
OTHER INFORMATION
The board of directors knows of no matter, other than those referred to in
this proxy statement, which will be presented at the meeting. However, if
any other matters, including a shareowner proposal excluded from this proxy
statement pursuant to the rules of the SEC, properly come before the
meeting or any of its adjournments, the person or persons voting the
proxies will vote in accordance with their best judgment on such matters.
Should any nominee for director be unwilling or unable to serve at the time
of the meeting or any adjournments thereof, the persons named in the proxy
will vote for the election of such other person for such directorship as
the board of directors may recommend, unless, prior to the meeting, the
board has eliminated that directorship by reducing the size of the board.
The board is not aware that any nominee herein will be unwilling or unable
to serve as a director.
The Company will bear the expense of preparing, printing, and mailing this
proxy material, as well as the cost of any required solicitation.
Directors, officers or employees of the Company may solicit proxies on
behalf of the Company. The Company will reimburse banks, brokerage firms,
and other custodians, nominees, and fiduciaries for reasonable expenses
incurred in forwarding proxy materials to beneficial owners of the
Company's stock and obtaining their proxies.
You are urged to vote promptly by marking, signing, dating, and returning
your proxy card or by voting by telephone or over the Internet. You may
revoke your proxy at any time before it is voted; and if you attend the
meeting, as we hope you will, you may vote your shares in person.
By Order of the Board Directors,
MONSANTO COMPANY
/s/ Charles W. Burson
CHARLES W. BURSON
Secretary
March 25, 2002
25
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APPENDIX A
MONSANTO 2000 MANAGEMENT INCENTIVE PLAN
===========================================================================
1. PURPOSES
The Monsanto 2000 Management Incentive Plan is designed to:
* focus management on business performance that creates stockholder value;
* encourage innovative approaches to the business of the Company;
* reward for results;
* encourage ownership of Monsanto common stock by management; and
* encourage taking higher risks with an opportunity for higher reward.
2. DEFINITIONS
2.1. "1933 Act" shall have the meaning set forth in Section 12.14(a).
2.2. "Adjustment Notice" shall have the meaning set forth in Section 6.2.
2.3. "Affiliate" means (i) any entity that is an Associated Company of the
Company or a Subsidiary of the Company, and (ii) at a time when Pharmacia
beneficially owns a majority of the then-outstanding Shares, Pharmacia and
any entity that is an Associated Company of Pharmacia or a Subsidiary of
Pharmacia.
2.4. "Associated Company" of the Company or Pharmacia means any
corporation, partnership, joint venture, limited liability company, or
other entity or enterprise, of which the Company or Pharmacia, as
applicable, owns or controls, directly or indirectly, 10% or more of the
outstanding shares of stock normally entitled to vote for the election of
directors, or of comparable equity participation and voting power, other
than a Subsidiary of the Company or Pharmacia, as applicable.
2.5. "Award" means any Option, Stock Appreciation Right, Restricted Share,
unrestricted Share, dividend equivalent unit or other award granted under
this Incentive Plan.
2.6. "Award Certificate" means a written document, in such form as the
Committee may from time to time prescribe, setting forth the terms and
conditions of an Award.
2.7. "Board" means the board of directors of the Company.
2.8. "Board People Committee" means the People Committee of the Board or
such other committee consisting of two or more members of the Board as may
be appointed by the Board to administer this Incentive Plan pursuant to
Section 4.1.
2.9. "Change of Control" means a Monsanto Change of Control or a Pharmacia
Change of Control.
2.10. "Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
2.11. "Committee" means the Board People Committee, or its permitted
delegate.
2.12. "Company" means Monsanto Company, a Delaware corporation incorporated
February 9, 2000 (originally under the name Monsanto Ag Company), and any
successors thereto.
2.13. "Covered Employee" means a Participant designated prior to or at the
time of the grant of an Award by the Committee as an individual who is or
may be a "covered employee" of the Company within the meaning of Section
162(m)(3) of the Code, in the year in which the Company is expected to be
entitled to a federal income tax deduction with respect to the Award.
2.14. "Director Plan" means the Monsanto Company Non-Employee Director
Equity Incentive Compensation Plan.
2.15. "Disability" means a physical or mental disability that causes a
Participant to be considered disabled under the terms of the disability
income plan applicable to such Participant, whether or not such Participant
actually receives such disability benefits, or, in the event that there is
no disability income plan applicable to such Participant, as determined by
the Committee.
2.16. "Effective Date" has the meaning set forth in Section 3.
2.17. "Eligible Participant" means any member of the Board and any employee
of the Company or an Affiliate.
2.18. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
2.19. "Exercise Price" means the price at which a Participant may purchase
a Share covered by an Option, or the price with respect to which the Stock
Appreciation Right Fair Market Value of a Stock Appreciation Right is
determined, as applicable.
APPENDIX A -- Page 1
2.20. "Fair Market Value" means, with respect to any given date on or
before the date of the initial public offering of the Shares, the fair
market value of a Share as determined by the Committee, and with respect to
any given date after the date of the initial public offering of the Shares,
the average of the highest and lowest per-share sales prices for the Shares
during normal business hours on the New York Stock Exchange for the
immediately preceding date, or if the Shares were not traded on the New
York Stock Exchange on such date, then on the next preceding date on which
the Shares were traded, all as reported by such source as the Committee may
select.
2.21. "Grant Date" means the date as of which the Committee determines that
a grant of an Award shall be effective.
2.22. "Incentive Option" means an Option that is designated as an Incentive
Option and that meets the requirements of Section 422 of the Code for
"incentive stock options."
2.23. "Incentive Plan" means the Monsanto 2000 Management Incentive Plan
set forth herein.
2.24. "Monsanto Change of Control" means the happening of any of the events
described in subsections (a) through (d) below, if immediately following
such event, Pharmacia does not beneficially own a majority of the
then-outstanding Shares:
(a) the acquisition by any Person of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of either
(i) the Requisite Common Percentage (as defined herein) of the
then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the Requisite Voting
Percentage (as defined herein) of the combined voting power of the
then-outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, that for purposes of this subsection
(a), the following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Company; (B) any
acquisition by the Company or a Subsidiary of the Company; (C) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or a Subsidiary of the Company; or (D)
any acquisition by any corporation pursuant to a transaction that
complies with clauses (i), (ii) and (iii) of subsection (c) of this
definition;
(b) individuals who, as of the date of the initial public offering of the
common stock of the Company, constitute the Board (the "Incumbent
Board"), cease for any reason to constitute at least a majority of
the Board; provided, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for
election by the Company's shareowners, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal
of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board;
(c) consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially
all of the assets of the Company or the acquisition of assets or
stock of another corporation (a "Business Combination"), in each
case, unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly,
more than 60% of, respectively, the then-outstanding shares of common
stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business
Combination (including without limitation a corporation that as a
result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding the
Company, a Subsidiary of the Company, any corporation resulting from
a Business Combination or any employee benefit plan (or related
trust) thereof) beneficially owns, directly or indirectly, the
Requisite Common Percentage of the then-outstanding shares of common
stock of the corporation resulting from such Business Combination or
the Requisite Voting Percentage of the combined voting power of the
then-outstanding voting securities entitled to vote generally in the
election of directors of such corporation, except to the extent that
such ownership existed prior to the Business Combination and (iii) at
least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) approval by the shareowners of the Company of a complete liquidation
or dissolution of the Company.
2.25. "Monsanto Leadership Team" means those individuals who are,
immediately before a Pharmacia Change of Control, members of the Monsanto
Leadership Team or any successor group thereto.
APPENDIX A -- Page 2
2.26. "Non-Qualified Option" means an Option that is not intended to be
treated as an Incentive Option or an Option that does not meet the
requirements of Section 422 of the Code for "incentive stock options."
2.27. "Option" means a right granted under this Incentive Plan to a
Participant to purchase a Share at a specified price for a specified period
of time.
2.28. "Participant" means an Eligible Participant to whom an Award has been
granted pursuant to this Incentive Plan; provided, that in the case of the
death or legal incapacity of a Participant, the term "Participant" shall
refer to a beneficiary designated pursuant to Section 10.4 or Section 12.1
or the guardian or legal representative of the Participant acting in a
fiduciary capacity on behalf of such Participant under state law and court
supervision or comparable office and supervision under applicable foreign
law.
2.29. "Performance Objective" means a performance objective adopted by the
Committee pursuant to this Incentive Plan for Participants who have
received Awards. If the Committee determines that a change in the business,
operations, corporate structure or capital structure of the Company, or the
manner in which it conducts its business, or other events or circumstances
render the Performance Objectives to be unsuitable, the Committee may
modify such Performance Objectives or the related minimum acceptable level
of achievement, in whole or in part, as the Committee deems appropriate.
2.30. "Pharmacia" means Pharmacia Corporation, a Delaware corporation, and
any successor thereto.
2.31. "Pharmacia Change of Control" means the happening of any of the
events described in subsections (a) through (d) below, if immediately
following such event, Pharmacia beneficially owns a majority of the
then-outstanding Shares:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20 percent or more of either
(i) the then-outstanding shares of common stock of Pharmacia (the
"Outstanding Pharmacia Common Stock") or (ii) the combined voting
power of the then-outstanding voting securities of Pharmacia entitled
to vote generally in the election of directors (the "Outstanding
Pharmacia Voting Securities"); provided, that for purposes of this
subsection (a), the following acquisitions shall not constitute a
Change of Control: (A) any acquisition directly from Pharmacia; (B)
any acquisition by the Company, Pharmacia, or a Subsidiary of either
of them; (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company, Pharmacia, or a
Subsidiary of either of them; or (D) any acquisition by any
corporation pursuant to a transaction that complies with clauses (i),
(ii) and (iii) of subsection (c) of this definition;
(b) individuals who, as of the date of the initial public offering of the
Shares, constitute the Board of Directors of Pharmacia (the
"Incumbent Pharmacia Board"), cease for any reason to constitute at
least a majority of the Pharmacia Board; provided, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by Pharmacia's shareowners, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Pharmacia Board shall be considered as
though such individual were a member of the Incumbent Pharmacia
Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal
of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of
Directors of Pharmacia;
(c) consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of
Pharmacia or the acquisition of assets or stock of another
corporation (a "Pharmacia Business Combination"), in each case,
unless, following such Pharmacia Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Pharmacia Common
Stock and Outstanding Pharmacia Voting Securities immediately prior
to such Pharmacia Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then-outstanding
shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Pharmacia Business Combination (including without
limitation a corporation that as a result of such transaction owns
Pharmacia or all or substantially all of Pharmacia's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such
Pharmacia Business Combination of the Outstanding Pharmacia Common
Stock and Outstanding Pharmacia Voting Securities, as the case may
be, (ii) no Person (excluding the Company, Pharmacia, a Subsidiary of
either of them, any corporation resulting from such Pharmacia
Business Combination or any employee benefit plan (or related trust)
thereof) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the
corporation resulting from such Pharmacia Business Combination or the
combined voting power of the then-outstanding voting securities of
such corporation except to the extent that such ownership existed
prior to the Pharmacia Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such Pharmacia Business Combination were members of
the Incumbent Pharmacia Board at the time of the execution of the
initial agreement, or of the action of the Board of Directors of
Pharmacia, providing for such Pharmacia Business Combination; or
APPENDIX A -- Page 3
(d) approval by the shareowners of Pharmacia of a complete liquidation or
dissolution of Pharmacia.
2.32. "Qualified Performance-Based Award" means an Award designated as such
by the Committee at the time of grant, based upon a determination that
(i) the recipient is a Covered Employee and (ii) the Committee wishes such
Award to qualify for the Section 162(m) Exemption, and made subject to
performance goals satisfying the requirements for the Section 162(m)
Exemption.
2.33. "Reporting Person" means a person subject to the reporting
requirements of Section 16(a) of the Exchange Act with respect to Shares.
2.34. "Requisite Common Percentage" means, as of any given time, a
percentage equal to or greater than the higher of (i) 20 percent and
(ii) the percentage of the then-outstanding Shares then beneficially owned
by Pharmacia.
2.35. "Requisite Voting Percentage" means, as of any given time, a
percentage equal to or greater than the higher of (i) 20 percent and
(ii) the percentage of the voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the election of
directors then beneficially owned by Pharmacia.
2.36. "Restricted Shares" means Shares that are granted or delivered
subject to restrictions in accordance with Section 10.3.
2.37. "Retirement" means a Participant's Termination of Service on or after
the date on which the Participant attains age 50.
2.38. "Second Trigger" shall be considered to have occurred (i) with
respect to all Participants if, during the one-year period immediately
following a Pharmacia Change of Control, one of the following occurs:
(A) more than half of the members of the Monsanto Leadership Team experience
a Termination without Cause or a Termination for Good Reason; (B) the
headquarters of the Company is relocated by more than 35 miles from its
location immediately before the Pharmacia Change of Control, or a plan to
effect such a relocation is publicly announced; (C) it is publicly
announced that Pharmacia intends to take steps that will result in its
ceasing to beneficially own a majority of the then-outstanding Shares or
that would otherwise result in a Monsanto Change of Control, and such steps
have not previously been approved by a majority of the members of the
Monsanto Leadership Team; and (ii) with respect to a given Participant if,
during the period of one year immediately following a Pharmacia Change of
Control, or the Participant experiences a Termination without Cause, or a
Termination for Good Reason.
2.39. "Section." Unless otherwise indicated, all "Section" references are
to sections of this Incentive Plan.
2.40. "Section 162(m) Exemption" means the exemption from the limitation on
deductibility imposed by Section 162(m) of the Code that is set forth in
Section 162(m)(4)(C) of the Code.
2.41. "Shares" means shares of Company common stock. If there has been an
adjustment or substitution pursuant to Section 6, the term "Shares" shall
also include any shares of stock or other securities that are substituted
for Shares or into which the Shares are adjusted pursuant thereto.
2.42. "Stock Appreciation Right" means a right described in Section 9.
2.43. "Stock Appreciation Right Fair Market Value" means the excess of
(i) the Fair Market Value of a Share on the date of exercise of a Stock
Appreciation Right, over (ii) the Exercise Price of the Stock Appreciation
Right.
2.44. "Subsidiary" of the Company or Pharmacia means any corporation,
partnership, joint venture, limited liability company, or other entity or
enterprise of which the Company or Pharmacia, as applicable, owns or
controls, directly or indirectly, 50% or more of the outstanding shares of
stock normally entitled to vote for the election of directors, or of
comparable equity participation and voting power.
2.45. "Termination for Cause" of a Participant or any other individual
means a Termination of Service for "cause," "just cause," "misbehavior," or
any similar term, as defined in any unexpired employment agreement between
the Participant or other individual and the Company or an Affiliate, as the
case may be (including without limitation any employment agreement the
effectiveness of which has been triggered by a change of control as defined
therein), or, in the absence of such an agreement, or if such agreement
exists but does not define any such term, an involuntary Termination of
Service of the Participant or other individual on account of the
Participant's or other individual's engaging in (i) any willful or
intentional neglect in performing his duties, including, but not limited
to, fraud, misappropriation or embezzlement involving property of the
Company or an Affiliate, or (ii) any other intentional wrongful act that
may impair the goodwill or business of the Company or an Affiliate, or that
may cause damage to any of their businesses.
2.46. "Termination without Cause" of a Participant or any other individual
means a Termination of Service that is involuntary on the part of the
Participant or other individual, other than a Termination for Cause or as a
result of the Participant's death or Disability.
2.47. "Termination for Good Reason" with respect to a Participant means the
Participant's Termination of Service for "good reason," "just cause,"
"material breach by the employer" or any similar term, as defined in any
unexpired employment agreement
APPENDIX A -- Page 4
between the Participant and the Company or an Affiliate, as the case may be
(including without limitation any employment agreement the effectiveness of
which has been triggered by a change of control as defined therein), or, in
the absence of such an agreement, or if such agreement exists but does not
define any such term, the Participant's Termination of Service by action of
the Participant following: (i) any change affecting the position of the
Participant (whether resulting from a transfer of the Participant to
another position, a change in the Company's business, or any other event)
such that the Participant no longer has a position substantially equivalent
to the Participant's position immediately before the Pharmacia Change of
Control for which the Participant is qualified by education, training and
experience; (ii) a decrease in the Participant's salary; (iii) a material
decrease in the Participant's opportunity to earn annual and long-term
incentive compensation as compared to the opportunities provided to the
Participant before the Pharmacia Change of Control; (iv) a material
decrease in the aggregate value of the Participant's employee benefits and
fringe benefits as compared to those provided to the Participant before the
Pharmacia Change of Control; or (v) a requirement that the Participant
relocate his or her place of employment by more than 35 miles.
2.48. "Termination of Service" of a Participant or any other individual
occurs when the Participant or other individual is no longer either an
employee of the Company or any of the Affiliates (including without
limitation because the entity that employs the Participant or other
individual has ceased to be an Affiliate), or a member of the Board.
3. EFFECTIVE DATE OF THIS INCENTIVE PLAN
The effective date (the "Effective Date") of this Incentive Plan is August
29, 2000, the first date as of which this Incentive Plan had been both
adopted by the Board and approved by Pharmacia as the Company's sole
shareowner.
4. ADMINISTRATION
4.1. Delegation. This Incentive Plan shall be administered by the Board
People Committee except to the extent the Board People Committee delegates
administration pursuant to this paragraph. The Board People Committee may
delegate all or a portion of the administration of this Incentive Plan to
one or more committees, and may authorize further delegation by the
committees to senior managers of the Company, its Subsidiaries, or
Pharmacia; provided, that determinations regarding the timing, pricing,
amount and terms of any Award to a Reporting Person shall be made only by
the Board People Committee; and provided, further, that no such delegation
may be made that would cause Awards or other transactions under this
Incentive Plan to cease to be exempt from Section 16(b) of the Exchange Act
or cause an Award designated as a Qualified Performance-Based Award not to
qualify for, or to cease to qualify for, the Section 162(m) Exemption; and
provided, finally, that no delegation may be made of the powers granted to
the Board People Committee under Section 12.16. Any such delegation may be
revoked by the Committee at any time.
4.2. Scope of Authority. The Committee shall have full power and authority
to administer and interpret this Incentive Plan and to adopt such rules,
regulations, agreements, guidelines and instruments for the administration
of this Incentive Plan as the Committee deems necessary or advisable. The
Committee's powers include, but are not limited to (subject to the specific
limitations described herein), the authority to determine the employees to
be granted Awards under this Incentive Plan; to determine the size and
applicable terms and conditions of grants to be made to such employees; to
determine the time when Awards will be granted; to determine the terms and
conditions of any grant, including, without limitation, the Exercise Price,
any vesting condition, restriction or limitation (which may contain
Performance Objectives relating to the performance of the Participant, the
Company or an Affiliate) and any acceleration of vesting or waiver of
forfeiture regarding any grant and the Shares relating thereto; to
determine whether a resignation was voluntary and whether a Termination of
Service was a Termination for Cause; and to modify, amend or adjust the
terms and conditions of any grant made to a Participant, at any time,
provided, that the Committee may not reduce the Exercise Price of, or
cancel and regrant, any outstanding Option or Stock Appreciation Right.
4.3. Actions and Interpretations. The Committee's interpretations of this
Incentive Plan and of Award Certificates, and all actions taken and
determinations made by the Committee concerning any matter arising under or
with respect to this Incentive Plan or any Awards granted hereunder, shall
be in its sole discretion and final, binding and conclusive on all
interested parties, including the Company, an Affiliate, shareowners of any
of those entities, and all former, present and future employees thereof.
The Committee may, with respect to all questions of accounting, rely
conclusively upon any determination made by the internal accountants of the
Company.
4.4. Board Authority. Any authority granted to the Committee may also be
exercised by the Board, except to the extent that the grant or exercise of
such authority would cause any Qualified Performance-Based Award to cease
to qualify for the Section 162(m) Exemption. To the extent that any
permitted action taken by the Board conflicts with action taken by the
Committee, the Board action shall control.
4.5. Award Certificates. Each Award shall be evidenced by an Award
Certificate.
APPENDIX A -- Page 5
5. SHARES AUTHORIZED
5.1. Total Number. The total number of Shares that may be delivered
pursuant to Awards under this Incentive Plan shall not exceed the number of
Shares that equals 8.85% of the outstanding Shares immediately after the
initial public offering of the Shares. Awards of Options, Restricted Stock
and Deferred Stock under the Director Plan shall automatically be granted
under this Incentive Plan as and when provided for in the Director Plan.
5.2. Individual Limit. The total number of Shares for which Awards may be
granted under this Incentive Plan to any one Eligible Participant shall not
exceed, in any three-year period, 15% of the total number of Shares for
which Awards may be made under this Incentive Plan.
5.3. Source of Shares. The Shares that may be delivered pursuant to Awards
granted under this Incentive Plan may be authorized but unissued Shares not
reserved for any other purposes or Shares held in or acquired for the
treasury of the Company, or both.
5.4. Forfeitures, Etc. If any Award is forfeited, any Option (and the
related Stock Appreciation Right, if any) or any Stock Appreciation Right
not related to an Option terminates, expires or lapses without being
exercised, or any Stock Appreciation Right is exercised for cash, the
Shares subject to such Awards that are, as a result, not delivered to the
Participant shall again be available for delivery in connection with
Awards. If the Exercise Price of any Option is satisfied by delivering
Shares to the Company (by either actual delivery or by attestation), only
the number of Shares issued net of the Shares delivered or attested to
shall be deemed delivered for purposes of determining the maximum number of
Shares available for delivery pursuant to Awards other than Incentive
Options under this Incentive Plan. To the extent any Shares subject to an
Award are not delivered to a Participant because such Shares are used to
satisfy an applicable tax withholding obligation, such Shares shall not be
deemed to have been delivered for purposes of determining the maximum
number of Shares available for delivery under this Incentive Plan.
6. SHARE ADJUSTMENTS
6.1. Adjustments. In the event of any change in corporate capitalization
such as a stock split, any corporate transaction such as a merger,
consolidation, separation, spin-off, or other distribution of stock or
property of the Company, any reorganization (whether or not such
reorganization comes within the definition of reorganization in Section 368
of the Code), or any partial or complete liquidation of the Company, then
notwithstanding any other provision of this Incentive Plan, the Committee
or Board may make such substitution or adjustments in the aggregate number
and kind of shares reserved for delivery pursuant to Awards under this
Incentive Plan, in the limitations set forth in Section 5, in the number
and kind of shares subject to outstanding Awards, in the Exercise Price of
outstanding Options and Stock Appreciation Rights, and/or such other
equitable substitution or adjustments as it may determine to be
appropriate; provided, that the number of shares subject to any Award shall
always be a whole number and that no adjustment will be permissible
hereunder to the extent it would cause any Qualified Performance-Based
Award to fail to qualify for the Section 162(m) Exemption.
6.2. Adjustment Notices. Notice of any adjustment or substitution pursuant
to this Section 6 (the "Adjustment Notice") shall be given by the Company
to each Participant holding an affected Award; provided, that such
adjustment or substitution shall be effective and binding for all purposes
of this Incentive Plan whether or not an Adjustment Notice is given. An
Adjustment Notice may be given by making it generally available to
Participants via a newsletter or other written employee communication,
whether such communication is made available on paper or electronically.
Adjustment Notices, when given, shall be considered to be part of the Award
Certificate for each affected Award.
7. AWARDS OF OPTIONS AND STOCK APPRECIATION RIGHTS
7.1. Grants. Options and Stock Appreciation Rights may be granted at such
time or times determined by the Committee following the Effective Date to
any Eligible Participant, except that Incentive Options may not be granted
to Eligible Participants who are not employees of a parent or subsidiary
corporation, as defined in Sections 424(e) and (f), respectively, of the
Code, with respect to the Company. Each Option and each Stock Appreciation
Right shall be granted subject to such terms and conditions, if any, not
inconsistent with this Incentive Plan, as shall be determined by the
Committee and set forth in the applicable Award Certificate, including any
provisions as to continued employment or continued service as consideration
for the grant or exercise of such Option or Stock Appreciation Right,
provisions as to performance conditions, and any provisions that may be
advisable to comply with applicable laws, regulations or the rulings of any
governmental authority.
7.2. Consideration. The Committee may offer Eligible Participants the
opportunity to elect to receive an Option or Stock Appreciation Right in
lieu of a salary increase or a bonus, or may offer Eligible Participants
the opportunity to purchase Options or Stock Appreciation Rights for cash
or such other consideration as the Committee determines.
APPENDIX A -- Page 6
7.3. Exercise of Options or Stock Appreciation Rights. An Option or Stock
Appreciation Right, or portion thereof, may be exercised during the period
beginning on the date when it first becomes exercisable in accordance with
its terms, and ending upon the expiration of its term or, if sooner, when
it is forfeited as a result of a Termination of Service or otherwise in
accordance with the terms and conditions of the Option or Stock
Appreciation Right. The term of an Option or Stock Appreciation Right shall
expire on such date, not later than the tenth anniversary of the Grant
Date, as set forth in the applicable Award Certificate. The exercise of all
or a portion of a Stock Appreciation Right granted with a related Option
shall result in the forfeiture of all or a corresponding portion of the
related Option and vice versa. To exercise an Option or Stock Appreciation
Right, a Participant shall give notice to the Company or its agent,
specifying the number of Shares with respect to which the Option or Stock
Appreciation Right is being exercised, and otherwise complying with such
procedures as the Committee may from time to time establish.
7.4. Effect of Termination of Service. Unless otherwise set forth in the
applicable Award Certificate, the effect of a Participant's Termination of
Service on any Option or Stock Appreciation Right then held by the
Participant, to the extent it has not previously expired or been exercised,
shall be as follows:
(a) Before Vesting has Commenced. If such Termination of Service occurs
before any portion of the Option or Stock Appreciation Right has
become exercisable, the Participant shall forfeit such Option or
Stock Appreciation Right;
(b) After Vesting has Commenced. If such Termination of Service occurs
after the Option or Stock Appreciation Right has become exercisable
in whole or in part:
(i) Voluntary Resignation. As a result of the Participant's
voluntary resignation, such Option or Stock Appreciation Right
shall be exercisable for a period of 90 days following such
Termination of Service, to the extent it is exercisable
immediately before such Termination of Service, and shall then be
forfeited to the extent not exercised;
(ii) Termination for Cause. In a Termination for Cause, the
Participant shall forfeit such Option or Stock Appreciation
Right;
(iii) Retirement. By reason of the Participant's Retirement, such
Option or Stock Appreciation Right shall be exercisable for a
period of five years following such Termination of Service, to
the extent it is exercisable immediately before such Termination
of Service, and shall then be forfeited to the extent not
exercised; and
(iv) Other Involuntary Termination. In the case of any other
Termination of Service (including by reason of death or
Disability), such Option or Stock Appreciation Right shall be
exercisable for a period of one year following such Termination
of Service, to the extent it is exercisable immediately before
such Termination of Service, and shall then be forfeited to the
extent not exercised.
(c) Limitation. Notwithstanding the foregoing, in no event shall an
Option or Stock Appreciation Right be exercisable after the
expiration of its term.
7.5. No Obligation to Exercise Option or Stock Appreciation Right. The
granting of an Option or Stock Appreciation Right shall impose no
obligation upon the Participant or upon a beneficiary of a Participant to
exercise such Option or Stock Appreciation Right.
8. OPTIONS
8.1. Exercise Price. The per-Share Exercise Price of an Option shall be
established by the Committee in connection with the grant thereof, but
shall not be less than 100% of the Fair Market Value of a Share on the
Grant Date. No exercise of an Option shall be effective before payment of
the Exercise Price therefor.
8.2. Method of Payment. The Exercise Price for Shares purchased upon
exercise of an Option shall be paid upon such terms as shall be set forth
in the applicable Award Certificate. Without limiting the foregoing, the
Committee may establish payment terms for the exercise of Options that
permit the Participant to deliver Shares (or other evidence of ownership of
Shares satisfactory to the Company), including, at the Committee's option,
Restricted Shares, with a Fair Market Value equal to the Exercise Price as
payment; provided, that any such Shares have been owned by the Participant
for at least six months free of any restrictions and without being subject
to forfeiture. The payment terms for an Incentive Option must be
established in connection with the grant thereof.
9. STOCK APPRECIATION RIGHTS
9.1. Nature of Right. A Stock Appreciation Right shall entitle its holder
to receive, upon exercise, a payment in cash or Shares having an aggregate
value equal to the Stock Appreciation Right Fair Market Value. A Stock
Appreciation Right may be granted either (i) with a related Option at the
time the Option is originally granted or, in the case of a Non-Qualified
Option, thereafter, or (ii) without a related Option.
APPENDIX A -- Page 7
9.2. Exercise Price. The Exercise Price per Share of a Stock Appreciation
Right that has a related Option shall equal the Exercise Price per Share of
the related Option. The Exercise Price per Share of a Stock Appreciation
Right that does not have a related Option shall be established in
connection with the grant thereof, but shall not be less than 100% of the
Fair Market Value of a Share on the Grant Date.
9.3. Terms and Conditions. Except as expressly provided herein, each Stock
Appreciation Right that is granted hereunder shall be subject to the terms
and conditions specified in the applicable Award Certificate. A Stock
Appreciation Right that is granted with a related Option shall be subject
to the same terms and conditions as the Option, shall be exercisable only
to the extent its related Option is exercisable, and shall terminate or be
forfeited and cease to be exercisable when the term of the related Option
expires or the related Option is forfeited.
9.4. Form of Payment. The Committee shall determine, in each case, whether
the payment to a Participant upon exercise of a Stock Appreciation Right
will be in the form of all cash, all Shares (which may be Restricted
Shares) or any combination thereof. If payment is to be made in Shares, the
number of Shares shall be equal to the value of the Stock Appreciation
Right, divided by the Stock Appreciation Right Fair Market Value of Shares
on the date of exercise.
9.5. Proceeds. The Committee shall determine the timing of any payment
made in cash, Shares or a combination thereof upon exercise of a Stock
Appreciation Right hereunder, whether in a lump sum, in annual installments
or otherwise deferred, and the Committee shall determine whether such
payments may bear interest or dividend equivalents pursuant to Section 11.
10. BONUS SHARES AND RESTRICTED SHARES
10.1. Awards. An Award of Shares or Restricted Shares may be made at such
time or times determined by the Committee following the Effective Date to
any person who is an Eligible Participant. The terms and conditions of
payment of any Award, including, without limitation, what part of such
Award shall be paid in unrestricted Shares or Restricted Shares, the time
or times of payment of any Award, and the time or times of the lapse of the
restrictions on Restricted Shares shall be set forth in the applicable
Award Certificate.
10.2. Shares. For the purpose of determining the number of Shares to be
used in payment of an Award denominated in cash but payable in whole or in
part in Shares or Restricted Shares, the cash value of the Award to be so
paid shall be divided by the Fair Market Value of a Share on the date of
the determination of the amount of the Award by the Committee, or, if the
Committee so directs, the date immediately preceding the date the Award is
paid.
10.3. Restricted Shares. An Award of Restricted Shares shall be delivered
to the Participant at the time of grant either by book-entry registration
or by delivering to the Participant, or a custodian or escrow agent
(including without limitation the Company or one or more of its employees)
designated by the Committee, a certificate or certificates for such
Restricted Shares, registered in the name of such Participant. Except to
the extent otherwise provided in the applicable Award Certificate, the
Participant shall have all of the rights of a shareowner with respect to
such Restricted Shares.
10.4. Terms and Conditions. Restricted Shares shall be subject to such
terms and conditions, and to such restrictions against sale, transfer or
other disposition, as may be set forth in the applicable Award Certificate.
Unless otherwise set forth in the applicable Award Certificate, new,
additional or different Shares or other securities resulting from any
adjustment to or substitution for Restricted Shares pursuant to Section 6
shall be subject to the same terms, conditions, and restrictions as the
Restricted Shares prior to such adjustment or substitution. The Committee
may remove, modify or accelerate the removal of forfeiture conditions and
other restrictions on any Restricted Shares in the event of hardship or
Disability of the Participant while employed (or while providing services
as a director), in connection with the Participant's Termination of Service
or relocation to another country, or for such other reasons as the
Committee may deem appropriate, except to the extent that such action would
cause a Qualified Performance-Based Award to cease to qualify for the
Section 162(m) Exemption. In the event of the death of a Participant
following the transfer of Restricted Shares to him or her, the legal
representative of the Participant, the beneficiary designated in writing by
the Participant during his or her lifetime, or the person receiving such
Shares under the Participant's will or under the laws of descent and
distribution shall take such Shares subject to the same restrictions,
conditions and provisions in effect at the time of the Participant's death,
to the extent applicable, unless otherwise set forth in the applicable
Award Certificate.
11. DIVIDENDS, DIVIDEND EQUIVALENTS AND INTEREST EQUIVALENTS
11.1. No Cash Dividends. No cash dividends shall be paid on Shares that
have been awarded but not registered or delivered. The applicable Award
Certificate may provide for the payment of dividend equivalents with
respect to any Option, Stock Appreciation Right or other Award pursuant to
which Shares are or may become deliverable in the future, equal in value to
the cash dividends that would have been paid with respect to each Share
subject to such Award, if it had been outstanding during the period between
the date of the Award and the time each such Share is delivered or the
Award is forfeited as to such Share. "Dividend equivalents" may be:
(a) paid in cash or Shares, either from time to time prior to or at the
time of the delivery of such Shares, or upon expiration of the Option
or Stock Appreciation Right, if it shall not have been fully
exercised (except that payment of the dividend equivalents on
Incentive Options may not be made prior to exercise); or
APPENDIX A -- Page 8
(b) converted into contingently credited Shares (with respect to which
dividend equivalents shall accrue) in such manner, at such value, and
deliverable at such time or times as may be set forth in the
applicable Award Certificate.
11.2. Interest Equivalents. The applicable Award Certificate may provide
for payment of interest equivalents (i) on any portion of any Award payable
at a future time in cash, and (ii) on dividend equivalents that are payable
at a future time in cash.
11.3. Restricted Shares. The applicable Award Certificate may provide that
dividends paid on Restricted Shares shall, during the applicable restricted
period, be held by the Company to be paid upon the lapse of restrictions or
to be forfeited upon forfeiture of the Shares.
12. MISCELLANEOUS PROVISIONS
12.1. Non-Transferability. During a Participant's lifetime, his or her
Options and Stock Appreciation Rights shall be exercisable only by the
Participant. No Awards shall be transferable other than by will or the laws
of descent and distribution; no Awards shall be subject, in whole or in
part, to attachment, execution or levy of any kind; and any purported
transfer in violation hereof shall be null and void. Without limiting the
generality of the foregoing, no domestic relations order purporting to
authorize a transfer of an Award shall be recognized as valid. The
Committee may establish such procedures as it deems appropriate for a
Participant to designate a beneficiary to whom any amounts payable or
Shares deliverable in the event of, or following, the Participant's death,
may be provided.
12.2. No Right to Continued Employment or Service. Nothing contained in
this Incentive Plan, any Award Certificate or any booklet or document
describing or referring to this Incentive Plan shall be deemed to confer on
any Eligible Participant the right to continue as an employee or director
of the Company or an Affiliate, whether for the duration of a Participant's
Award vesting schedule or otherwise, or affect the right of the Company or
an Affiliate to terminate the employment or service of any such person for
any reason.
12.3. Governing Law; Construction. This Incentive Plan and any actions
taken hereunder shall be governed by, and construed in accordance with, the
laws of the State of Delaware, without regard to the application of the
conflicts of laws provisions thereof. Titles and headings to Sections are
for purposes of reference only, and shall in no way limit, define or
otherwise affect the meaning or interpretation of this Incentive Plan.
12.4. Certain Tax Matters. Notwithstanding any other provision of this
Incentive Plan, the Committee may make such provisions and take such steps
as it may deem necessary or appropriate for the withholding of any taxes
that the Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to
withhold in connection with the grant or exercise of any Option or
otherwise in connection with any Option, any Stock Appreciation Right or
the exercise thereof, or otherwise in connection with any Award, including
without limitation the withholding of cash or Shares that would be paid or
delivered pursuant to such exercise or Award or any other exercise or Award
under this Incentive Plan until the Participant reimburses the Company for
the amount the Company is required to withhold with respect to such taxes,
or cancelling any portion of such Award or any other Award under this
Incentive Plan in an amount sufficient to reimburse the Company for the
minimum amount it is required to so withhold, or selling any property
contingently credited by the Company for the purpose of paying such Award
or any other Award under this Incentive Plan, in order to withhold or
reimburse the Company for the minimum amount it is required to so withhold.
In addition, the Committee may establish appropriate procedures to ensure
that it receives prompt notice of any event that may make available to the
Company or any Affiliate any tax deduction in connection with an Award.
12.5. Foreign Participants. In order to facilitate the granting of Awards
to Eligible Participants who are foreign nationals or who are employed
outside of the United States of America, the Committee may provide for such
special terms and conditions, including without limitation substitutes for
Awards, as the Committee may consider necessary or appropriate to
accommodate differences in local law, tax policy or custom. The Committee
may approve any supplements to, or amendments, restatements or alternative
versions of this Incentive Plan as it may consider necessary or appropriate
for the purposes of this Section 12.5 without thereby affecting the terms
of this Incentive Plan as in effect for any other purpose, and the
Secretary or other appropriate officer of the Company may certify any such
documents as having been approved and adopted pursuant to properly
delegated authority; provided, that no such supplements, amendments,
restatements or alternative versions shall include any provisions that are
inconsistent with the spirit of this Incentive Plan, as then in effect.
Participants subject to the laws of a foreign jurisdiction may request
copies of, or the right to view, any materials that are required to be
provided by the Company pursuant to the laws of such jurisdiction.
12.6. No Rights as a Shareowner. No Participant shall have any rights as a
shareowner with respect to any Shares to be delivered pursuant to an Award
prior to the date that the Participant is recorded as the holder of such
Shares on the records of the Company and such Shares are delivered to such
Participant by book-entry registration or delivery of a certificate or
certificates therefor to the Participant, or to a custodian or escrow agent
designated by the Committee (which may include, without limitation, the
Company or one or more of its employees).
APPENDIX A -- Page 9
12.7. No Right to Award. No employee or other person shall have any claim
or right to be granted an Award under this Incentive Plan. Having received
an Award under this Incentive Plan shall not give a Participant or other
person any right to receive any other Award under this Incentive Plan. A
Participant shall have no rights or interests in any Award, except as set
forth herein and in the applicable Award Certificate.
12.8. Unfunded Plan. It is presently intended that this Incentive Plan
shall be unfunded. Except for reserving a sufficient number of authorized
Shares, to the extent required by law to meet the requirements of this
Incentive Plan, the Company shall not be required to establish any special
or separate fund or to make any other segregation of assets to assure the
delivery of Shares relating to Awards granted pursuant to this Incentive
Plan.
12.9. Exclusion from Pension and other Benefit Plan Computation. Except to
the extent otherwise required by applicable law, by exercise of an Option
or Stock Appreciation Right or receipt of another type of Award, (i) each
Participant shall be deemed to have agreed that such Award is special
incentive compensation that will not be taken into account, in any manner,
as salary, compensation or bonus in determining the amount of any payment
under any pension, retirement or other employee benefit plan of the Company
or an Affiliate, and (ii) each beneficiary of a deceased Participant shall
be deemed to have agreed that such Award will not affect the amount of any
life insurance coverage, if any, provided by the Company or an Affiliate on
the life of the Participant that is payable to the beneficiary under any
life insurance plan covering employees or directors of the Company or an
Affiliate.
12.10. Notice. Except as otherwise provided in this Incentive Plan, all
notices or other communications required or permitted to be given under
this Incentive Plan to the Company shall be in writing and shall be deemed
to have been duly given if delivered personally or mailed, postage
pre-paid, as follows: (i) if to the Company, at its principal business
address to the attention of the Secretary; and (ii) if to any Participant,
at the last address of the Participant known to the sender at the time the
notice or other communication is sent.
12.11. Inurement of Rights and Obligations. The rights and obligations
under this Incentive Plan and any related documents shall inure to the
benefit of, and shall be binding upon, the Company, its successors and
assigns, and the Participants and their beneficiaries.
12.12. Costs and Expenses of This Incentive Plan. Except as otherwise
provided herein, the costs and expenses of administering this Incentive
Plan shall be borne by the Company, and shall not be charged to any Award
nor to any Participant receiving an Award. Costs and expenses associated
with the redemption or exercise of any Award under this Incentive Plan,
including, but not limited to, commissions charged by any agent of the
Company, may be charged to the Participant.
12.13. No Limitation on Rights of the Company
(a) The grant of any Award shall not in any way affect the right or power
of the Company to make adjustments, reclassifications, or changes in
its capital or business structure or to merge, consolidate, dissolve,
liquidate, sell or transfer all or any part of its business or
assets. Further, this Incentive Plan shall not restrict the authority
of the Company, for proper corporate purposes, to grant or assume
Awards, other than under this Incentive Plan, to or with respect to
any other person.
(b) If the Committee so directs, the Company may issue or transfer Shares
to an Affiliate, for such lawful consideration as the Committee may
specify, upon the condition or understanding that the Affiliate will
transfer such Shares to a Participant in accordance with the terms of
an Award granted to such Participant and specified by the Committee
pursuant to the provisions of this Incentive Plan. All Shares issued
pursuant to Awards that are forfeited shall revert to the Company
upon such forfeiture.
12.14. Legal Requirements
(a) Restrictions on Resale. Notwithstanding any other provision of this
Incentive Plan, no Participant who acquires Shares pursuant to this
Incentive Plan may, during any period of time that such Participant
is an affiliate of the Company (within the meaning of the rules and
regulations of the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act")), sell such
Shares, unless such offer and sale is made (i) pursuant to an
effective registration statement under the 1933 Act, which
is current and includes the Shares to be sold, or (ii) pursuant to an
appropriate exemption from the registration requirement of the 1933
Act, such as that set forth in Rule 144 promulgated under the
1933 Act.
(b) Registration, Listing and Qualification of Shares. Notwithstanding
any other provision of this Incentive Plan, if at any time the
Committee shall determine that the registration, listing or
qualification of the Shares covered by an Award upon any securities
exchange or under any foreign, federal, state or local law or
practice, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection
with, the granting of such Award or the purchase or receipt of Shares
thereunder, no Shares may be purchased, delivered or received
pursuant to such Award unless and until such registration, listing,
qualification, consent or approval shall have been effected or
obtained free of any
APPENDIX A -- Page 10
condition not acceptable to the Committee. Any Participant
receiving or purchasing Shares pursuant to an Award shall make such
representations and agreements and furnish such information as the
Committee may request to assure compliance with the foregoing or any
other applicable legal requirements. The Company shall not be
required to issue or deliver any certificate or certificates for
Shares under this Incentive Plan prior to the Committee's
determination that all related requirements have been fulfilled. The
Company shall in no event be obligated to register any securities
pursuant to the 1933 Act or applicable state or foreign law or to
take any other action in order to cause the issuance and delivery of
such certificates to comply with any such law, regulation or
requirement.
12.15. Fractional Shares. The Company shall not be required to issue any
fractional Shares pursuant to this Incentive Plan. The Committee may
provide for the elimination of fractions or for the settlement thereof in
cash.
12.16. Amendment or Termination
(a) The Board People Committee may, from time to time, amend or modify
this Incentive Plan or any outstanding Awards, including, without
limitation, to authorize the Committee to make Awards payable in
other securities or other forms of property of a kind to be
determined by the Committee, and such other amendments as may be
necessary or desirable to implement such Awards, or terminate this
Incentive Plan or any provision thereof; provided, that no amendments
or modifications to this Incentive Plan shall, without the prior
approval of the shareowners normally entitled to vote for the
election of directors of the Company, permit the Company to decrease
the Exercise Price of any outstanding Option or Stock Appreciation
Right; and provided, further, that amendments to Section 5.1 shall
require the approval of the Board.
(b) No amendment to or termination of this Incentive Plan or any
provision hereof, and no amendment to or cancellation of any
outstanding Award shall, without the written consent of the affected
Participant, adversely affect any outstanding Award.
(c) Notwithstanding the above provisions, the Board People Committee
shall have authority to amend outstanding Awards and this Incentive
Plan to take into account changes in law and tax and accounting rules
as well as other developments, and to grant Awards that qualify for
beneficial treatment under such rules, without shareowner approval
and without the consent of affected Participants.
12.17. Change of Control
(a) The provisions of this Section 12.17(a) shall apply notwithstanding
any provision of this Incentive Plan other than Sections 12.4, 12.14,
and 12.17(b), unless the Committee determines otherwise at the time
of grant. Upon the occurrence of a Monsanto Change of Control,
(i) any Awards outstanding as of the date of such Change of Control,
and that are not then vested, shall become fully vested, (ii) all
then-outstanding Options and Stock Appreciation Rights shall be
exercisable, and (iii) any restrictions or other conditions
applicable to any outstanding Awards shall lapse, and such Awards
shall become free of all restrictions and conditions. In addition,
upon the occurrence of a Second Trigger after a Pharmacia Change of
Control with respect to a Participant, (i) any Awards held by such
Participant that are outstanding as of the date of such Second
Trigger, and that are not then vested, shall become fully vested,
(ii) all then-outstanding Options and Stock Appreciation Rights held
by such Participant shall be exercisable, and (iii) any restrictions
or other conditions applicable to any outstanding Awards held by such
Participant shall lapse, and such Awards shall become free of all
restrictions and conditions.
(b) With respect to Awards held by a Participant who is also a
Participant in the Monsanto Company Excess Parachute Tax Indemnity
Plan (the "Indemnity Plan") or any comparable or successor plan at
the time of a Change of Control, the vesting and lapse of
restrictions and conditions provided for in Section 12.17(a) shall
not occur as a result of that Change of Control, to the extent that
the provisions of Section 4(b) of the Indemnity Plan (or any
comparable provision of such comparable or successor plan) require
that such vesting and lapse not occur.
APPENDIX A -- Page 11
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APPENDIX B
SUMMARY DESCRIPTION OF AGREEMENTS BETWEEN MONSANTO AND PHARMACIA
===========================================================================
SEPARATION AGREEMENT
The separation agreement contains the key provisions relating to the
separation of our businesses from those of Pharmacia. The separation
agreement identifies the assets transferred to us by Pharmacia and the
liabilities assumed by us from Pharmacia. The separation agreement also
describes when and how these transfers and assumptions occurred. In
addition, we have entered into additional agreements with Pharmacia
governing various interim and ongoing relationships between Pharmacia and
us following the separation date. These other agreements include:
* a corporate agreement;
* a tax sharing agreement;
* an intellectual property transfer agreement;
* an employee benefits and compensation allocation agreement;
* a services agreement; and
* a campus lease.
Asset Transfer
Effective on September 1, 2000, which we refer to as the separation date,
Pharmacia transferred the following assets to us, except as provided in one
of the ancillary agreements:
* all assets reflected on our balance sheet as of June 30, 2000 or the
accounting records supporting our balance sheet, as adjusted by certain
pro forma adjustments, and all assets acquired by Pharmacia between June
30, 2000 and the separation date that would have been included on our
balance sheet as of June 30, 2000 had they been owned on June 30, 2000;
* all other assets primarily related to our business or the former
agriculture or chemical businesses of former Monsanto;
* the corporate offices in St. Louis, Missouri (Creve Coeur campus) and
other real property primarily used by our business;
* the subsidiaries, partnerships, joint ventures and other equity interests
primarily related to our business;
* all computers, desks, furniture, equipment and other assets used
primarily by Pharmacia employees who became our employees;
* any contingent gains that are primarily related to our business or the
former agriculture or chemical businesses of former Monsanto, or
otherwise specifically allocated to us;
* 57% of unknown contingent gains arising as of or prior to the separation
date that are not primarily related to our business, the former
agriculture or chemical businesses of former Monsanto, Pharmacia's
business or former Pharmacia businesses, which we expect would generally
consist of unknown corporate-level gains not primarily related to any of
these businesses; and
* other assets agreed upon by Pharmacia and us.
Assumption Of Liabilities
Effective on the separation date, we assumed the following liabilities from
Pharmacia, except as provided in one of the ancillary agreements:
* all liabilities reflected on our balance sheet as of June 30, 2000 or the
accounting records supporting our balance sheet, as adjusted by certain
pro forma adjustments, and all liabilities of Pharmacia incurred or
arising between June 30, 2000 and the separation date that would have
been included on our balance sheet as of June 30, 2000 had they arisen or
been incurred on or prior to June 30, 2000;
* all other liabilities primarily related or arising primarily from (1) any
asset that is transferred to us pursuant to the separation, (2) our
business, (3) the former agriculture or chemical businesses of former
Monsanto or (4) the disposition of any of these former agriculture or
chemical businesses;
APPENDIX B -- Page 1
* liabilities for worker's compensation or third party claims incurred
prior to the separation date at a site transferred to us pursuant to the
separation;
* all liabilities for environmental remediation or other environmental
responsibilities related to our business and the former agriculture or
chemical businesses of former Monsanto, and all real property transferred
to us as part of our assets;
* all liabilities for products of our business or the former agriculture or
chemical businesses of former Monsanto sold to third parties;
* all liabilities relating to the approximately $500 million of medium-term
bank notes issued by former Monsanto do Brasil Ltda., and all liabilities
relating to the approximately $50 million of non-intercompany debt for
which our subsidiaries organized or operating outside the United States
are the obligors;
* all of our liabilities relating to a $1 billion, 364-day credit agreement
and a $500 million, five-year credit agreement;
* all liabilities of former Monsanto that were assumed by Solutia or any of
its subsidiaries on September 1, 1997 in connection with its spinoff from
former Monsanto, to the extent that Solutia fails to pay, perform or
discharge these liabilities;
* any contingent liabilities that are primarily related to our business or
the former agriculture or chemical businesses of former Monsanto, or
otherwise specifically allocated to us;
* 57% of unknown contingent liabilities arising as of or prior to the
separation date that are not primarily related to our business, the
former agriculture or chemical businesses of former Monsanto, Pharmacia's
business or former Pharmacia businesses, which we expect would generally
consist of unknown corporate-level liabilities not primarily related to
any of these businesses; and
* other liabilities agreed upon by Pharmacia and us.
Shared Contingent Gains And Liabilities
The separation agreement provides for the division of "shared" contingent
gains and liabilities, which are those contingent gains and liabilities
arising as of or prior to the separation date that are not primarily
related to our business, the former agriculture or chemical businesses of
former Monsanto, Pharmacia's business or former Pharmacia businesses.
Shared contingent gains and liabilities are allocated as follows:
* any benefit that may be received from any shared contingent gain will be
allocated 43% to Pharmacia and 57% to us. Pharmacia has the authority to
prosecute, settle or waive any shared contingent gain;
* any responsibility for any shared contingent liability, except for
environmental remediation, will be allocated 43% to Pharmacia and 57% to
us, adjusted for insurance proceeds and other offsetting amounts received
by either company. Pharmacia will assume the defense of, and may seek to
settle or compromise, any third party claim that is a shared contingent
liability, and any costs and expenses incurred will be included in the
total amount of the shared contingent liability;
* any shared contingent liability for environmental remediation or other
environmental responsibility will be borne by each company in proportion
to its respective contribution to the site giving rise to the shared
contingent liability; and
* Pharmacia and we will form a committee for the purpose of resolving
issues regarding shared contingent gains and liabilities.
Financing Arrangements
We and Pharmacia arranged a commercial paper facility prior to the closing
of the initial public offering, under which Pharmacia issued assumable
commercial paper in the amount equal to the sum of approximately $1.8
billion plus the net proceeds we received from the initial public offering
assuming no exercise of the overallotment option, or $665 million. The
proceeds of such commercial paper obligations were used by Pharmacia to
repay Pharmacia indebtedness, a substantial portion of which was incurred
in connection with our acquisitions of seed companies, and for Pharmacia's
general corporate purposes. Pursuant to the separation agreement, we
assumed all liabilities under the commercial paper facility on the closing
of the initial public offering. We also assumed from Pharmacia on the
separation date the obligations relating to variable-rate, medium-term bank
notes in the aggregate principal amount of approximately $500 million,
which mature in 2003. In addition, on the separation date, we indirectly
assumed approximately $50 million of debt owed by our subsidiaries.
The Ex-U.S. Plan and Delayed Transfers
The transfer of international assets and the assumption of international
liabilities were accomplished through agreements between international
subsidiaries. The separation agreement acknowledges that circumstances in
some jurisdictions outside of the United States may require the timing of
part of the international separation to be delayed past the separation
date.
APPENDIX B -- Page 2
Indemnification
In general, under the separation agreement, we will indemnify Pharmacia and
its representatives and affiliates from all liabilities that we assumed
under the separation agreement, including, as of the closing of the initial
public offering, the indebtedness under the assumable commercial paper
facility, and any and all losses by Pharmacia or its representatives or
affiliates arising out of or due to our failure to pay, perform or
discharge in due course these liabilities. In general, Pharmacia will
indemnify us and our representatives and affiliates from all liabilities
that Pharmacia retains under the separation agreement and any and all
losses by us or our representatives or affiliates arising out of or due to
Pharmacia's failure to pay, perform or discharge in due course these
liabilities. All indemnification amounts would be reduced by any insurance
proceeds and other offsetting amounts recovered by the indemnitee.
Access to Information
Under the separation agreement, the following terms govern access to
information:
* prior to or as promptly as practicable after the separation date,
Pharmacia will deliver to us all corporate books and records related to
our business;
* from and after the separation date, subject to applicable confidentiality
provisions or restrictions, we and Pharmacia will each give the other
reasonable access and the ability to duplicate information developed or
obtained prior to the separation date within each company's possession
relating to the other's businesses, or for audit, accounting, claims,
intellectual property protection, litigation and tax purposes, as well as
for purposes of fulfilling disclosure and reporting obligations;
* after the separation date, we and Pharmacia will each use reasonable
efforts to provide assistance to the other for litigation and to make
available to the other employees for the purpose of consultation, or
directors, officers, other employees and agents as witnesses, in legal,
administrative or other proceedings;
* the company providing information, consultant or witness services under
the separation agreement will be entitled to reimbursement from the other
for reasonable expenses;
* we and Pharmacia will each retain all proprietary information in its
possession relating to the other's business for a period of time and if
the information is to be destroyed, the destroying company will give the
other company the opportunity to receive the information at the other
company's expense;
* we and Pharmacia will each agree not to disclose or otherwise waive any
privilege relating to it or to the other without consent, unless the
privilege relates solely to its own business, assets or liabilities; and
* from and after the separation date, Pharmacia and we will agree to hold
in strict confidence all information concerning or belonging to the other
obtained prior to the separation date or furnished pursuant to the
separation agreement, subject to applicable law.
Arbitration and Dispute Resolution
Under the separation agreement, if disputes arise between Pharmacia and us,
the following will occur:
* the parties will first attempt to resolve the dispute by direct
discussions and negotiation, including, if either party elects, among
senior executives;
* if the parties cannot resolve their dispute within 30 days after notice
calling for negotiation among senior executives, the parties will attempt
to settle the dispute through mediation;
* if the dispute is not resolved within 60 days after initiation of
mediation, either party may demand that the dispute be resolved by
binding arbitration; and
* the parties will bear their own expenses and attorneys' fees in resolving
the dispute and will share equally the costs and expenses of any
mediation or arbitration.
No Representations and Warranties
Pursuant to the separation agreement, we understand and agree that
Pharmacia did not represent or warrant to us as to the assets to be
transferred to us, the liabilities to be assumed by us, our business, the
former agriculture or chemical businesses of former Monsanto, our balance
sheet or as to any consents or approvals required in connection with the
consummation of the transactions contemplated by the separation agreement.
We took all assets "as is, where is" and bear the economic and legal risk
relating to conveyance of, and title to, the assets.
APPENDIX B -- Page 3
Insurance
Under the terms of the separation agreement, our assets will include any
and all rights of an insured party, including rights of indemnity and the
right to be defended by or at the expense of the insurer and to receive
insurance proceeds with respect to all of our insured claims under
insurance policies held by either us or Pharmacia. Each company is
responsible for its own deductibles, self-insured retentions, retrospective
premiums, claims handling and other charges owed under the insurance
policies.
Non-Competition Provisions
For a two-year period following the separation date, we will be obligated
to refrain from commercializing, by selling or transferring for sale or use
by the end user, products in the businesses retained by Pharmacia. For a
two-year period following the separation date, Pharmacia will be obligated
to refrain from commercializing products in the businesses transferred to us.
Expenses
Pharmacia will pay all reasonable and customary out-of-pocket costs and
expenses directly related to the preparation, execution and delivery of the
separation agreement and other agreements related to the separation, and
the consummation of the separation and our initial public offering. These
costs and expenses consist of fees and expenses of external advisors
(including independent public accountants, consultants and attorneys),
expenses directly related to our initial public offering (other than
underwriting discounts and commissions), transfer and other costs,
registration and filing fees, printing and mailing costs, and any other
costs, fees or charges imposed by a governmental entity.
Other Agreements
If there is a conflict or inconsistency between the provisions of the
separation agreement and the provisions of any other agreement related to
the separation, the provisions of the separation agreement will control
over the inconsistent provisions of the other agreement as to matters
within the scope of the separation agreement.
CORPORATE AGREEMENT
The corporate agreement provides Pharmacia with continuing shareowner
rights with respect to us following the initial public offering, including
preemptive rights, registration rights and rights associated with
Pharmacia's auditing obligations.
Preemptive Rights
Under the terms of the corporate agreement, Pharmacia has a continuing
preemptive right to purchase common stock from us in order to allow
Pharmacia to own at least 80.1% of our outstanding equity and voting power
on a fully diluted basis. The exercise price for these shares would be at
prevailing market prices measured by the volume-weighted average for the 20
consecutive trading days prior to notice of exercise or, in the case of a
public offering of our common stock for cash, a price per share equal to
the initial public offering price less underwriters' discounts and
commissions. The preemptive right would terminate in the event Pharmacia
sells or disposes of its shares to reduce its ownership interest of our
outstanding equity and voting power to less than 80.1% on a fully diluted
basis.
Registration Rights
Under the corporate agreement, Pharmacia has the right to require us to
register for offer and sale all or a portion of our common stock held by
Pharmacia, so long as the common stock Pharmacia requires us to register in
each case represents at least 5% of the aggregate shares of common stock
then issued and outstanding. Pharmacia's registration rights terminate on
the first date on which Pharmacia ceases to hold at least 5% of our
outstanding shares on a fully diluted basis.
Piggy-Back Registration Rights
If we at any time intend to file on our behalf or on behalf of any of our
security holders a registration statement in connection with a public
offering of any of our securities on a form and in a manner that would
permit the registration for offer and sale of common stock held by
Pharmacia, Pharmacia has the right to include its shares of our common
stock in such offering.
Unregistered Offerings
Under the terms of the corporate agreement, Pharmacia has the right to
require us to prepare an offering memorandum in connection with the offer
and sale in an unregistered offering of all or a portion of our common
stock, but not less than 5% of our outstanding shares in any one offering,
held by Pharmacia. Pharmacia's rights and limitations with respect to such
unregistered offerings are comparable to those rights and limitations
applicable to Pharmacia in registered offerings. In addition, we have
agreed to grant customary registration rights to third parties who purchase
our stock from Pharmacia in such an unregistered offering.
APPENDIX B -- Page 4
Registration Expenses
We are responsible for the registration expenses in connection with the
performance of our obligations under the corporate agreement. Pharmacia is
responsible for all of the fees and expenses of counsel to Pharmacia, any
applicable underwriting discounts or commissions, and any transfer taxes.
Indemnification
Pursuant to the corporate agreement, we will indemnify Pharmacia against
any liabilities that may result from untrue statements or omissions in the
registration statement. Pharmacia will indemnify us against liabilities
that arise out of untrue statements or omissions in the registration
statement based on written information furnished by Pharmacia.
Auditing Practices
So long as Pharmacia is required or permitted to consolidate our results of
operations and financial position in Pharmacia's financial statements, the
companies agree to the following terms relating to auditing practices:
* we will not select a different independent accounting firm than Deloitte
& Touche LLP to serve as our independent certified public accountants
without Pharmacia's prior written consent;
* we will use reasonable best efforts to enable our auditors to (1)
complete their audit such that they will date their opinion on our
audited annual financial statements on the same date that Pharmacia's
auditors date their opinion on Pharmacia's audited annual financial
statements, and (2) complete their quarterly review procedures on our
quarterly financial statements on the same date that Pharmacia's auditors
complete their quarterly review procedures on Pharmacia's quarterly
financial statements;
* we will provide to Pharmacia on a timely basis all information that
Pharmacia reasonably requires to meet its schedule for the preparation,
printing, filing and public dissemination of its annual and quarterly
financial statements;
* we will authorize our auditors to make available to Pharmacia's auditors
both (1) the personnel who performed or will perform the annual audits
and quarterly reviews of our financial statements, and (2) work papers
related to the annual audits and quarterly reviews of our financial
statements;
* we will provide Pharmacia's internal auditors with access to our books
and records; and
* we will give Pharmacia notice of any proposed significant changes in
accounting estimates or principles from those in effect on the separation
date.
No Discrimination
Under the terms of the corporate agreement, we agree that, for so long as
Pharmacia owns at least 50% of our outstanding common stock, we will not,
without the prior written consent of Pharmacia, take any action which has
the effect of restricting or limiting the ability of Pharmacia freely to
sell, transfer, assign, pledge or otherwise dispose of shares of our common
stock or would restrict or limit the rights of any transferee of Pharmacia
as a holder of our common stock. In addition, we agree that we will not,
without the prior written consent of Pharmacia, limit the legal rights of,
or deny any benefit to, Pharmacia as our shareowner in a manner not
applicable to our shareowners generally.
Accounting Treatment
Pursuant to the corporate agreement, we agree to refrain from taking any
actions that could adversely affect Pharmacia's ability to account for the
recent merger transaction involving former Monsanto and Pharmacia & Upjohn
as a pooling of interests.
TAX SHARING AGREEMENT
Following our initial public offering, the Company and some of our
subsidiaries will be included in Pharmacia's consolidated group for U.S.
federal income tax purposes (the "Pharmacia Federal Group") as well as in
consolidated, combined, unitary or other similar consolidated returns that
include Pharmacia and its subsidiaries for state and local income tax
purposes (a "Pharmacia State Group"). As of the separation date, Pharmacia
and we entered into a tax sharing agreement.
Pursuant to the tax sharing agreement, with respect to tax returns for any
taxable period in which we and any of our subsidiaries (collectively, the
"Monsanto Group") are included in the Pharmacia Federal Group or any
Pharmacia State Group, we generally will be obligated to pay to Pharmacia
the amount of taxes (including estimated taxes) that would be due and
payable by us determined, subject to adjustment by Pharmacia, as if the
Monsanto Group filed its own tax returns that did not include Pharmacia or
other members of the Pharmacia Federal Group or the Pharmacia State Group,
as the case may be. If, for any taxable period in which the Monsanto Group
is included in the Pharmacia Federal Group or any Pharmacia State Group,
the Monsanto Group has a
APPENDIX B -- Page 5
net operating loss or tax credit that reduces the taxes of the Pharmacia
Federal Group or any Pharmacia State Group, as the case may be, below the
amount that would have been payable if the Monsanto Group had not incurred
such loss or tax credit, Pharmacia must pay to us the amount of the
reduction in taxes attributable to the loss or tax credit. We will be
responsible for any taxes with respect to tax returns that include only the
Monsanto Group.
Pharmacia will be responsible for the preparation and filing of all tax
returns for any taxable period in which the Monsanto Group is included in
the Pharmacia Federal Group or any Pharmacia State Group. Pharmacia may
elect at its discretion to include the Monsanto Group in any Pharmacia
State Group when inclusion is not required by law. We will be responsible
for the preparation and filing of all tax returns that include only the
Monsanto Group.
Pharmacia generally will have sole responsibility for, and control over,
all audits with respect to any tax return for the Pharmacia Federal Group
and any Pharmacia State Group and we generally will have sole
responsibility for, and control over, all audits with respect to all tax
returns that include only the Monsanto Group.
With respect to tax periods beginning on or after the separation date, in
the event of any adjustments to the tax returns of the Pharmacia Federal
Group, any Pharmacia State Group or the Monsanto Group, the liability of
Pharmacia or us, as the case may be, under the tax sharing agreement will
be redetermined by giving effect to such adjustment, and Pharmacia or we,
as the case may be, will be obligated to pay to the other party any
differences between the original liability and the redetermined liability.
With respect to tax periods beginning before the separation date, we are
responsible for tax liabilities attributable to DEKALB Genetics Corporation
and its subsidiaries. We will also be responsible for the tax liability
arising from transactions pursuant to which the Monsanto Group's
pharmaceutical assets in foreign jurisdictions are separated from the
Monsanto Group's agricultural assets in foreign jurisdictions ("Separation
Transactions"). This liability will be reduced by the present value of any
tax asset created as a result of such transactions. Except for the DEKALB
tax liabilities, taxes attributable to Separation Transactions and property
and sales and use taxes attributable to our assets or businesses, Pharmacia
will be responsible for and will indemnify and hold us harmless from all
taxes incurred by any member of the Monsanto Group prior to the separation
date.
Pharmacia and we will provide each other all information and other
assistance reasonably requested by the other party in connection with the
preparation and filing of any tax return pursuant to the tax sharing
agreement. Disputes arising between Pharmacia and us relating to matters
covered by the tax sharing agreement are subject to resolution through
third-party dispute resolution provisions.
We will be included in the Pharmacia Federal Group for all taxable periods
during which Pharmacia beneficially owns at least 80% of the total voting
power and value of our outstanding common stock. Each member of a
consolidated group for U.S. federal income tax purposes is jointly and
severally liable for the U.S. federal income tax liability of each other
member of the consolidated group. As such, although the tax sharing
agreement provides for the sharing of liabilities between Pharmacia and us,
during the period in which we are included in the Pharmacia Federal Group,
we could be liable for any U.S. federal income tax liability that is
incurred, but not discharged, by any other member of the Pharmacia Federal
Group.
EMPLOYEE BENEFITS AND COMPENSATION ALLOCATION AGREEMENT
The employee benefits and compensation allocation agreement sets forth the
agreement between Pharmacia and us as to the allocation of employees and
their compensation and benefits following the separation date.
In general, employees who work exclusively in the businesses being
transferred to us were transferred to us and our subsidiaries as of the
separation date, and employees who work exclusively in the businesses being
retained by Pharmacia remained with Pharmacia and its other subsidiaries.
Outside the United States, employees who work as staff employees supporting
all of the businesses generally were allocated to the primary businesses in
each country, unless factors dictated otherwise. In the United States,
staff employees working in St. Louis, Missouri generally were allocated to
us and staff employees working in Chicago, Illinois generally were assigned
to Pharmacia, unless certain factors dictated otherwise. In some cases,
staff employees of Pharmacia working in St. Louis will provide services to
both Pharmacia and us under the services agreement. In some cases, the
staff employees assigned to one company will provide support services to
the other company under the services agreement. See "Services Agreement" in
this Appendix. For example, in the United States, the staff employees
transferred to us may continue to provide services to Pharmacia. Former
employees of former Monsanto who had been employed in the United States
were generally allocated to us if they retired before 1995. Former
employees of former Monsanto who had been employed outside the United
States were generally assigned to us if they either had been working
primarily in the agricultural business at the time they retired or were
members of the corporate staff in countries where the agricultural business
was the primary business of former Monsanto unless local law or other
factors dictate otherwise.
We assumed responsibility for all obligations under any individual
employment letters or similar agreements between Pharmacia and employees
who transferred to us other than the severance liabilities under
change-of-control employment agreements between Pharmacia and each of
Messrs. Engelberg and Ide and two other executives. See "Certain
Agreements--Change-of-
APPENDIX B -- Page 6
Control Employment Agreements" beginning at page 22 of the body of the
proxy statement. The employee benefits and compensation allocation
agreement provides that the severance benefits for staff employees who are
terminated within two years after our initial public offering will be borne
by Pharmacia.
In the United States, employees and former employees allocated to us
continued to participate in the former Monsanto Company Pension Plan, the
related ERISA Parity Pension Plan and the former Monsanto Company
Supplemental Retirement Plan through December 31, 2001, each of which was
sponsored by Pharmacia through that date. We have borne the costs of their
participation. In December 2001 the employee benefits and compensation
allocation agreement was amended to provide that effective as of January 1,
2002, the former Monsanto Company Pension Plan be split into two plans: the
Monsanto Company Pension Plan (the "Monsanto Plan), which covers our
employees and certain former employees allocated to us, and the Pharmacia
Cash Balance Pension Plan (the "Pharmacia Plan"), which covers those
Pharmacia employees and former employees who were covered under the former
Monsanto plan prior to January 1, 2002 ("Pharmacia Plan Participants").
Also effective January 1, 2002, sponsorship of the Monsanto Plan was
transferred to and assumed by us, and the trust under the Monsanto Plan was
converted into a master trust, which currently holds the assets of both the
Monsanto Plan and the Pharmacia Plan.
In connection with the spin-off of the Pharmacia Plan from the Monsanto
Plan, the liabilities of the Monsanto Plan with respect to benefits accrued
by Pharmacia Plan Participants have been transferred to the Pharmacia Plan.
The assets of the Monsanto Plan as of January 1, 2002 that are attributable
to Pharmacia Plan Participants will be allocated to the Pharmacia Plan on
the books of the master trust on a pro-rata basis. The assets to be
transferred to the Pharmacia Plan will be determined employing the plan
termination methodology prescribed by Section 4044 of The Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and using
prescribed actuarial assumptions prescribed by the Pension Benefit Guaranty
Corporation.
Also pursuant to the employee benefits and compensation allocation
agreement, as amended, effective as of January 1, 2002, Pharmacia
transferred all liabilities relating to benefits accrued through January 1,
2002 by or with respect to our participants in the Pharmacia Corporation
ERISA Parity Pension Plan and the Pharmacia Corporation Supplemental
Retirement Plan to the Monsanto Company ERISA Parity Pension Plan and the
Monsanto Corporation Supplemental Retirement Plan, respectively (each
established as of that date), and we assumed sole responsibility for all
such liabilities.
In accordance with the terms of the employee benefits and compensation
allocation agreement, effective as of July 1, 2001, we established a
qualified savings and investment plan, which is a qualified defined
contribution plan similar to the former Monsanto Company Savings and
Investment Plan, and a related nonqualified plan, which is similar to the
former Monsanto Company ERISA Parity Savings and Investment Plan, to
provide benefits to our employees. The accounts of our employees under the
former Monsanto Company Savings and Investment Plan were transferred to our
new plan. In connection therewith, a portion of the employee stock
ownership plan component of the former Monsanto Company Savings and
Investment Plan also was transferred to our plan. Our qualified savings and
investment plan assumed a percentage of the debt obligations of the former
Monsanto Company Savings and Investment Plan, and received the same
percentage of the employer securities financed by that debt, based upon the
relative eligible pay of our employees participating in the plan as
compared to the Pharmacia employees participating in the plan.
Pension plans maintained outside the United States in which both our
employees and those of Pharmacia participate have generally been divided
between the two companies. If such plans are funded, the assets were
generally split in proportion to the relative projected benefit obligations
of the two separate plans, except to the extent otherwise required by law.
We assumed sponsorship of all of former Monsanto's U.S. medical, life,
disability and other welfare benefit plans effective September 1, 2000, and
Pharmacia was a participating employer in those plans through December 31,
2001. Outside of the United States, the company has assumed sponsorship of
the benefit plans in which both Pharmacia and our employees participate and
has generally been designated as the host company. Pharmacia has borne the
cost of the continued participation in the plans assumed by us by Pharmacia
employees and by former employees allocated to Pharmacia, and we have borne
the costs of the continued participation plans by our employees and by
former employees allocated to us in plans assumed by Pharmacia. There may
be some deviations from these general rules where appropriate because of
local law or other local considerations.
Cost-sharing for the benefits provided to one company's employees by plans
sponsored by the other company generally has been based upon actual cost of
providing the benefits to each company's employees and former employees. In
addition, the employee benefits and compensation allocation agreement
provides that we and Pharmacia will share any costs or liabilities
involving the former Monsanto employee benefit plans and relating to
compliance issues arising before our initial public offering or, after such
offering, if such issues involve the plans in which we and Pharmacia both
participate.
APPENDIX B -- Page 7
INTELLECTUAL PROPERTY TRANSFER AGREEMENT
The intellectual property transfer agreement, referred to as the "IPTA," is
a master agreement encompassing several agreements which allocates between
Pharmacia and us rights relating to patents, patent applications, invention
disclosures, unpatented technology (such as know-how), technology
agreements, trademarks, copyrights and other forms of intellectual
property. The IPTA generally provides that both parties agree not to
disclose confidential information of the other party. Further, each party
agrees not to use the information except when such use has been agreed to
by the other party.
Patent Rights
Under the terms of the IPTA, Pharmacia assigned to us ownership of patents,
patent applications and invention disclosures directed to technology
related exclusively to the businesses transferred to us. If the technology
is used by both Pharmacia and us, but primarily by Pharmacia, such patents,
patent applications and invention disclosures were retained by Pharmacia
and licensed to us for use in our business field. If the technology is used
by both Pharmacia and us, but primarily by us, such patents, patent
applications and invention disclosures were assigned to us and a license
provided to Pharmacia for use in Pharmacia's business field.
The IPTA provides that both parties will assist each other in (1) the
filing of patent applications, (2) the prosecution of the patent
applications and (3) any patent litigation. Pharmacia shall bear the costs
of transferring and securing Monsanto's intellectual property rights under
the IPTA. Either party may prosecute certain patents and patent
applications. If the party prosecuting the patent or application is not the
party that allowed the patent or application to lapse, then the party that
allowed the lapse will pay for the assignment and transfer of the patent or
patent application to the prosecuting party. Further, the IPTA specifies
that for a period of three years both parties will be obligated to correct
any bona fide error made in allocating the rights between the parties.
We believe that all material patent rights necessary to conduct our
business will be either assigned or licensed to us by Pharmacia under the
IPTA.
Unpatented Technology
Unpatented technology that relates exclusively to our business as of the
separation date was assigned to us. Unpatented technology used by both
Pharmacia and us, but primarily by Pharmacia, was retained by Pharmacia and
licensed royalty-free to us. Unpatented technology used by Pharmacia and
us, but primarily by us, was assigned to us and licensed royalty-free to
Pharmacia.
Technology Agreements
Pharmacia has entered into numerous agreements with third parties relating
to patents, patent applications and/or technology. To the extent such
agreements can be identified as relating exclusively to us, and to the
extent assignment is allowed to be made, Pharmacia assigned to us such
agreements relating exclusively to our business. If the subject technology
is used by both Pharmacia and us, but primarily by us, such agreements were
assigned to us and a license provided to Pharmacia for use in Pharmacia's
business field. In any case and to the extent that the agreement is used by
both businesses, we and Pharmacia will continue to permit the agreement to
be used by both businesses to the extent the agreement allows. Royalty
payments under these technology agreements will be allocated between
Pharmacia and us on a prorated basis, based on the use of the technology.
Trademarks
Pharmacia assigned to us at the separation date trademarks used exclusively
by us. Pharmacia also assigned to us all marks relating to the Monsanto
name, as well as the block M and the Food, Health and Hope logo. We will
provide a license to Pharmacia, limited to six months, for Pharmacia to
utilize trademarks, including the Monsanto name, the block M and the Food,
Health and Hope logo. After six months, Pharmacia will no longer have the
right to use those trademarks.
Copyrights
Pharmacia assigned to us all copyrights that are primarily used in our
business as of the separation date.
First Right To Negotiate
Also, for two years after the separation date, we and Pharmacia will each
be obligated to offer the other a first right to negotiate a license for
technology developed after the separation date that has a use in the
other's business field. The term for initiating such negotiation will
expire three years from the separation date. Such negotiation will be
conducted in good faith and will reflect commercially reasonable license
terms. Further, the financial terms of such license will be no less
favorable than financial terms granted to any third party for the subject
technology in a similar field of use.
APPENDIX B -- Page 8
SERVICES AGREEMENT
The services agreement governs the provision by Pharmacia to us and by us
to Pharmacia of support services, such as financial management, accounting,
tax, payroll, legal, investor relations, human resources administration,
financial transaction support, information technology, data processing,
procurement, real estate management and other general administrative
functions. The terms of these services are generally until December 31,
2001, subject to exceptions. We anticipate that we will negotiate a new
agreement with Pharmacia for the continued provision of some of these
services for some period after December 31, 2001, but we cannot guarantee
that we will be able to do so.
During 2001, we recognized expenses of $70 million and recorded a
reimbursement of $48 million for costs incurred on behalf of Pharmacia. As
of December 31, 2001, we had a net payable balance (excluding dividends
payable) of $43 million with Pharmacia.
CAMPUS LEASES
We currently lease from Pharmacia the premises occupied by us generally
located in Chesterfield, Missouri ("Premises") pursuant to a Campus Lease
agreement dated effective as of September 1, 2000 ("Chesterfield Lease").
Under the Chesterfield Lease, we are permitted to occupy and use the
Premises for general office, research and other purposes. In addition, the
Chesterfield Lease permits our use of the Premises' common areas, such as
driveways, sidewalks, parking areas, loading areas and access roads.
The Chesterfield Lease has a term of 15 years, which commenced as of the
September 1, 2000 effective date. In the absence of an Event of Default (as
defined in the Chesterfield Lease), we have the right to extend the
Chesterfield Lease for up to two successive five-year periods, upon
one-year prior notice. If we complete a Major Capital Improvement (as
defined in the Chesterfield Lease), and no Event of Default has occurred,
we have the right to extend the Chesterfield Lease for a 10-year period,
upon one-year prior notice. We also have the right to terminate the
Chesterfield Lease by notifying the Pharmacia in writing three years in
advance of any such termination. In addition, if there is no uncured Event
of Default (as defined in the Chesterfield Lease), and we have elected to
add an Expansion Area (as defined in the Chesterfield Lease) to the
Premises, we have the right to extend the Chesterfield Lease for 12
consecutive five-year terms, subject to certain terms and conditions.
We also have under the Chesterfield Lease, certain purchase rights and
rights of first refusal.
The Chesterfield Lease provides that we pay an annual amount of rent of
approximately $678,460, as well as our percentage share of the costs of a
basic set of services (as defined in the Chesterfield Lease), property
taxes, insurance costs, other taxes for personal property, equipment or
other property used in connection with providing the basic services and
other costs of maintaining the Premises, as well as other additional
services.
At Pharmacia's cost, Pharmacia may relocate the Premises with written
notice to us and our approval. We may not refuse the relocation if the new
premises are comparable in size, physical characteristics and our
conforming uses of the space.
Pharmacia currently leases from us the premises occupied by Pharmacia
generally located in Creve Coeur, Missouri pursuant to a Campus Lease
agreement dated effective as of September 1, 2000 ("Creve Coeur Lease").
The terms and conditions of the Creve Coeur Lease are substantially similar
to those contained in the Chesterfield Lease provided, however, that the
Creve Coeur Lease provides that Pharmacia pay an annual amount of rent of
approximately $1,639,889.
APPENDIX B -- Page 9
ALLOCATION OF CORPORATE OPPORTUNITIES
Our certificate of incorporation provides that, unless otherwise provided
in a written agreement between us and Pharmacia, Pharmacia will have no
duty to refrain from engaging in the same or similar activities or lines of
business as our company engages in or proposes to engage in at the time of
our initial public offering, and, to the fullest extent permitted by law,
neither Pharmacia nor any officer or director of Pharmacia (except as
provided below) will be liable to us or our shareowners for breach of any
fiduciary duty by reason of any such activities of Pharmacia. In the event
that Pharmacia acquires knowledge of a potential transaction or matter
which may be a corporate opportunity for both Pharmacia and us, Pharmacia
will, to the fullest extent permitted by law, have no duty to communicate
or offer such corporate opportunity to us and will, to the fullest extent
permitted by law, not be liable to us or our shareowners for breach of any
fiduciary duty as a shareowner of our company by reason of the fact that
Pharmacia pursues or acquires such corporate opportunity for itself,
directs such corporate opportunity to another person, or does not
communicate information regarding such corporate opportunity to us.
In the event that one of our directors or officers who is also a director
or officer of Pharmacia acquires knowledge of a potential transaction or
matter which may be a corporate opportunity for both us and Pharmacia, such
director or officer will, to the fullest extent permitted by law, have
fully satisfied the fiduciary duty of such director or officer to us and
our shareowners with respect to such corporate opportunity if such director
or officer acts in a manner consistent with the following policy:
* a corporate opportunity offered to any person who is an officer of our
company, and who is also a director but not an officer of Pharmacia, will
belong to us;
* a corporate opportunity offered to any person who is a director but not
an officer of our company, and who is also a director or officer of
Pharmacia, will belong to us if such opportunity is expressly offered to
such person in his or her capacity as a director of our company, and
otherwise will belong to Pharmacia; and
* a corporate opportunity offered to any person who is an officer of both
our company and Pharmacia will belong to us if such opportunity is
expressly offered to such person in his or her capacity as an officer of
our company, and otherwise will belong to Pharmacia.
These corporate opportunities provisions will expire once Pharmacia owns
less than 20% of our common stock and once no person who is a director or
officer of our company is also a director or officer of Pharmacia.
APPENDIX B -- Page 10
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[Map]
Directions from downtown St. Louis:
Take Interstate 64/Highway 40 west to Lindbergh Boulevard north. Take
Lindbergh Boulevard north about 2 1/2 miles to the Olive Boulevard west
exit. Follow Olive to the first traffic light. Turn left and immediately
left again into Monsanto's Creve Coeur Campus. Please follow the signs to
the parking area and entrance to Building K.
Directions from St. Louis International Airport (Lambert):
Take Interstate 70 west to Lindbergh Boulevard south. Take Lindbergh
Boulevard south about 6 miles to Olive Boulevard west exit. Follow to the
first traffic light. Proceed directly across the intersection and then
immediately turn left into Monsanto's Creve Coeur Campus. Please follow the
signs to the parking area and entrance to Building K.
NOTICE OF
2002 ANNUAL MEETING
OF SHAREOWNERS
AND PROXY STATEMENT
[MONSANTO Logo]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, AND 3. Please mark
your votes as
indicated in
this example /X/
ITEM 1 - Election of Directors
FOR all nominees WITHHOLD Nominees: 01 Frank V. AtLee III,
listed at right AUTHORITY 02 Hendrik A. Verfaillie,
(except as marked to vote for 03 Christopher J. Coughlin,
to the contrary) all nominees 04 Michael Kantor, 05 Gwendolyn
listed at right S. King, 06 Sharon R. Long, Ph.D.,
07 C. Steven McMillan, 08 Philip
/ / / / Needleman, Ph.D., 09 William
U. Parfet, 10 John S. Reed
ITEM 2 - RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
FOR AGAINST ABSTAIN
/ / / / / /
ITEM 3 - APPROVAL OF 2000 MANAGEMENT
INCENTIVE PLAN
FOR AGAINST ABSTAIN
/ / / / / /
If you plan to attend the WILL
Annual Meeting, please mark ATTEND / /
the WILL ATTEND box
By checking the box to the right, I consent to future delivery of / /
annual reports, proxy statements, prospectuses and other materials and
shareholder communications electronically via the Internet at a webpage
which will be disclosed to me. I understand that the Company may no
longer distribute printed materials to me from any future shareholder
meeting until such consent is revoked. I understand that I may revoke my
consent at any time by contacting the Company's transfer agent, Mellon
Investor Services LLC, Ridgefield Park, NJ and that costs normally
associated with electronic delivery, such as usage and telephone charges
as well as any costs I may incur in printing documents, will be my
responsibility.
SIGNATURE SIGNATURE DATE
------------------- --------------------- ---------------
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
INTERNET
http://www.eproxy.com/mon
Use the Internet to vote your
proxy. Have your proxy card in
hand when you access the web OR
site. You will be prompted to enter
your control number, located in
the box below, to create and
submit an electronic ballot.
TELEPHONE
1-800-435-6710
Use any touch-tone telephone to
vote your proxy. Have your proxy
card in hand when you call. You will OR
be prompted to enter your control
number, located in the box below,
and then follow the directions given.
MAIL
Mark, sign and date
your proxy card
and
return it in the
enclosed postage-paid
envelope.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
[MONSANTO logo]
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF MONSANTO COMPANY
The undersigned hereby appoints Hendrik A. Verfaillie, Hugh Grant and
Charles W. Burson, and each of them, with power to act without the other
and with power of substitution, as proxies and attorneys-in-fact and
hereby authorizes them to represent and vote, as provided on the other
side, all the shares of Monsanto Company Common Stock which the
undersigned is entitled to vote, and, in their discretion, to vote upon
such other business as may properly come before the Annual Meeting of
Shareowners of the Company to be held May 1, 2002 or any adjournment
thereof, with all powers which the undersigned would possess if present
at the Meeting.
THIS PROXY CARD, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, BUT THE
CARD IS SIGNED, THIS PROXY CARD WILL BE VOTED FOR THE ELECTION OF ALL
NOMINEES UNDER PROPOSAL 1, FOR PROPOSAL 2, FOR PROPOSAL 3, AND IN THE
DISCRETION OF THE PROXIES WITH RESPECT TO SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING. IF THIS CARD IS SIGNED BUT THE BOX
GRANTING THE CONSENT TO ELECTRONIC DELIVERY IS NOT MARKED, THEN NO
CONSENT NOR REVOCATION OF ANY PRIOR CONSENT WILL BE DEEMED TO HAVE BEEN
GRANTED OR MADE.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
- ------------------------------------------------------------------------
FOLD AND DETACH HERE
YOU CAN NOW ACCESS YOUR MONSANTO COMPANY ACCOUNT ONLINE.
Access your Monsanto Company shareowners account online via Investor
ServiceDirect(SM) (ISD).
Mellon Investor Services LLC, as agent for Monsanto Company, now makes it
easy and convenient to get current information on your shareholder
account. After a simple, and secure process of establishing a Personal
Identification Number (PIN), you are ready to log in and access your
account to:
* View account status * View payment history for dividends
* View certificate history * Make address changes
* View book-entry information * Obtain a duplicate 1099 tax form
* View stock price history * Establish/change your PIN
VISIT US ON THE WEB AT http://www.melloninvestor.com
AND FOLLOW THE INSTRUCTIONS SHOWN ON THIS PAGE.
STEP 1: FIRST TIME USERS - ESTABLISH A PIN
You must first establish a Personal Identification Number (PIN) online
by following the directions provided in the upper right portion of the
web screen as follows. You will also need your Social Security Number
(SSN) available to establish a PIN.
INVESTOR SERVICEDIRECT(SM) IS CURRENTLY ONLY AVAILABLE FOR DOMESTIC
INDIVIDUAL AND JOINT ACCOUNTS.
* SSN
* PIN
* Then click on the ESTABLISH PIN button
Please be sure to remember your PIN, or maintain it in a secure place
for future reference.
STEP 2: LOG IN FOR ACCOUNT ACCESS
You are now ready to log in. To access your account please enter your:
* SSN
* PIN
* Then click on the SUBMIT button
If you have more than one account, you will now be asked to select
the appropriate account.
STEP 3: ACCOUNT STATUS SCREEN
You are now ready to access your account information. Click on the
appropriate button to view or initiate transactions.
* Certificate History
* Book-Entry Information
* Issue Certificate
* Payment History
* Price History
* Duplicate 1099
FOR TECHNICAL ASSISTANCE CALL 1-877-978-7778 BETWEEN
9AM-7PM MONDAY-FRIDAY EASTERN TIME
APPENDIX
Page 21 of the Proxy Statement contains a Total Return to Shareowners
performance graph. The information depicted within the graph is
presented in a tabular format immediately following the graph.