AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 2002
REGISTRATION NO. 333-98105
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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PFIZER INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2834 13-5315170
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
235 EAST 42ND STREET
NEW YORK, NEW YORK 10017
(212) 573-2323
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MARGARET M. FORAN, ESQ.
PFIZER INC.
235 EAST 42ND STREET
NEW YORK, NEW YORK 10017
(212) 573-2323
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
JEFFREY B. KINDLER, ESQ. DENNIS J. BLOCK, ESQ. RICHARD T. COLLIER, ESQ. NEIL T. ANDERSON, ESQ.
PFIZER INC. LOUIS J. BEVILACQUA, ESQ. PHARMACIA CORPORATION KEITH A. PAGNANI, ESQ.
235 EAST 42ND STREET CADWALADER, WICKERSHAM & TAFT 100 ROUTE 206 NORTH SULLIVAN & CROMWELL
NEW YORK, NEW YORK 10017 100 MAIDEN LANE PEAPACK, NEW JERSEY 07977 125 BROAD STREET
(212) 573-2323 NEW YORK, NEW YORK 10038 (908) 901-8000 NEW YORK, NEW YORK 10004
(212) 504-6000 (212) 558-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and the
effective time of the merger (the "Merger") of Pilsner Acquisition Sub Corp., a
Delaware corporation ("Merger Sub") and a direct wholly-owned subsidiary of
Pfizer Inc., a Delaware corporation ("Pfizer"), with and into Pharmacia
Corporation, a Delaware corporation ("Pharmacia"), as described in the Agreement
and Plan of Merger, dated as of July 13, 2002 (the "Merger Agreement"), attached
as Annex A to the Joint Proxy Statement/Prospectus forming part of this
Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ---------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ---------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE PER UNIT PRICE(2) REGISTRATION FEE(3)
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Common Stock, par value $0.05
per share, and associated
preferred stock purchase
right....................... 995,424 $37.93 $26,968,874.81 $2,481.14
Series A Convertible Perpetual
Preferred Stock, no par
value....................... N/A N/A N/A N/A
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(1) Includes 2,008,620,844 shares registered pursuant to this Form S-4 for the
Registrant filed on August 14, 2002. A registration fee of $5,791,355 was
paid on August 14, 2002 to register such shares. An additional 995,424
shares are being registered pursuant hereto and a filing fee of $2,481.14 is
being paid with respect to such additional shares.
(2) Pursuant to Rules 457(c) and 457(f)(1) under the Securities Act of 1933, as
amended, and solely for the purpose of calculating the registration fee, the
proposed maximum aggregate offering price is equal to (x) the additional
number of shares of Pharmacia Common Stock to be exchanged in the Merger
multiplied by (y) $37.93, the average of the high and low sale prices per
share of Pharmacia Common Stock on the New York Stock Exchange Composite
Tape on September 24, 2002.
(3) This fee has been calculated under Section 6(b) of the Securities Act, by
multiplying the proposed maximum aggregate offering amount of $26,968,874.81
by 0.000092.
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THE REGISTRANT AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES A
FURTHER AMENDMENT WHICH STATES THAT THIS REGISTRATION STATEMENT WILL BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL
THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON THE DATE THAT THE
COMMISSION, ACTING UNDER SECTION 8(a), DETERMINES.
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THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 2002
[Pfizer LOGO] [Pharmacia LOGO]
MERGER PROPOSAL--YOUR VOTE IS IMPORTANT
The boards of directors of Pfizer Inc. and Pharmacia Corporation have
approved a merger designed to create the world's largest pharmaceutical company.
We believe the combined company will be able to create substantially more
shareholder value than could be achieved by either company individually.
If the merger is completed, Pharmacia shareholders will receive 1.4 shares
of Pfizer common stock for each share of Pharmacia common stock, plus cash in
lieu of fractional shares. Each share of Pharmacia convertible perpetual
preferred stock will be exchanged for a newly created class of Pfizer
convertible perpetual preferred stock with substantially identical rights.
Pfizer shareholders will continue to own their existing Pfizer shares. We
estimate that Pfizer may issue up to 1.804 billion shares of Pfizer common stock
to Pharmacia shareholders. Upon completion of the merger, Pfizer's shareholders
will own approximately 77% of the combined company on a fully diluted basis, and
Pharmacia shareholders will own approximately 23% of the combined company on a
fully diluted basis. The shares of the combined company will be traded on the
New York Stock Exchange under the symbol "PFE."
We are asking the PFIZER shareholders to approve the issuance of shares
of Pfizer common stock in the merger and an amendment to the Pfizer
certificate of incorporation. Pfizer's special meeting will be held:
Friday, December 6, 2002
9:00 a.m. local time
Hotel du Pont
11th and Market Streets
Wilmington, Delaware 19801
Pfizer's board of directors unanimously recommends that Pfizer
shareholders vote FOR the issuance of shares of Pfizer common stock in the
merger and the amendment to the Pfizer certificate of incorporation.
We are asking the PHARMACIA shareholders to adopt the merger agreement.
Pharmacia's special meeting will be held:
Monday, December 9, 2002
1:00 p.m. local time
Hotel du Pont
11th and Market Streets
Wilmington, Delaware 19801
Pharmacia's board of directors unanimously recommends that Pharmacia
shareholders vote FOR the adoption of the merger agreement.
We cannot complete the merger unless the shareholders of Pharmacia adopt
the merger agreement and the shareholders of Pfizer approve the issuance of
shares of Pfizer common stock in the merger and the amendment to the Pfizer
certificate of incorporation. YOUR VOTE IS IMPORTANT.
We believe this merger will create a strong combined company that will
deliver important benefits to its shareholders and customers.
[Signature] [Signature]
DR. HENRY MCKINNELL FRED HASSAN
Chairman and Chairman and
Chief Executive Officer Chief Executive Officer
Pfizer Inc. Pharmacia Corporation
CONSIDER THE RISKS DESCRIBED ON PAGES I-20 THROUGH I-21 OF THIS DOCUMENT.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THE SECURITIES TO BE ISSUED UNDER THIS JOINT PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED , 2002, AND IS
FIRST BEING MAILED TO THE SHAREHOLDERS OF PFIZER AND PHARMACIA ON OR ABOUT
, 2002.
REFERENCES TO ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Pfizer and Pharmacia from other documents that are
not included in or delivered with this joint proxy statement/prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain those documents incorporated by reference in this joint
proxy statement/prospectus by requesting them in writing or by telephone from
the appropriate company at the following addresses and telephone numbers:
Pfizer Inc. Pharmacia Corporation
Shareholder Services Investor Relations
235 East 42nd Street 100 Route 206 North
New York, NY 10017 Peapack, NJ 07977
Tel: (212) 573-2323 Tel: (908) 901-8000
If you would like to request documents, please do so by [ ],
in order to receive them before your special meeting.
See "Where You Can Find More Information" beginning on page V-3.
VOTING ELECTRONICALLY OR BY TELEPHONE
Pfizer shareholders of record may submit their proxies:
- Through the Internet, by visiting a web site established for that purpose
at www.eproxyvote.com/pfe and following the instructions; or
- By telephone, by calling the toll-free number 1-877-PRX-VOTE
(1-877-779-8683) in the United States, Canada or Puerto Rico on a
touch-tone phone and following the recorded instructions; or
- Outside the United States, Canada and Puerto Rico, by calling
(201)536-8073.
Pharmacia shareholders of record may submit their proxies:
- Through the Internet, by visiting a web site established for that purpose
at www.eproxy.com/pha and following the instructions; or
- By telephone, by calling the number 1-800-435-6710 in the United States,
Canada or Puerto Rico on a touch-tone phone and following the recorded
instructions.
If you are a beneficial owner, please refer to your proxy card or the
information forwarded by your bank, broker or other holder of record to see
which options are available to you.
[PFIZER LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF PFIZER INC.
NOTICE IS HEREBY GIVEN that Pfizer Inc. will hold a special meeting of its
shareholders on Friday, December 6, 2002, 9:00 a.m., local time, at the Hotel du
Pont, 11th and Market Streets, Wilmington, Delaware 19801 for the following
purposes:
1. To consider and vote on a proposal to approve the issuance of shares of
Pfizer common stock under an Agreement and Plan of Merger, dated as of
July 13, 2002, among Pfizer, a wholly-owned subsidiary of Pfizer, and
Pharmacia. A copy of the merger agreement is attached as Annex A to the
joint proxy statement/prospectus accompanying this notice;
2. To consider and vote upon a proposal to amend the Pfizer certificate of
incorporation to increase the authorized share capital; and
3. To transact such other business as may properly come before the special
meeting and any adjournment or postponement thereof.
Holders of record of Pfizer common stock at the close of business on
October 18, 2002, are entitled to receive this notice and to vote their shares
at the special meeting or any adjournment or postponement of that meeting. As of
that date, there were [ ] shares of common stock outstanding. Each share
of common stock is entitled to one vote on each matter properly brought before
the meeting.
A list of shareholders entitled to vote at the Pfizer special meeting will
be available at the special meeting and for ten days prior to the meeting,
between the hours of 8:45 a.m. and 4:30 p.m., at our offices at 235 East 42nd
Street, New York, New York. You should contact the Secretary of Pfizer if you
wish to review this list of shareholders.
IF YOU PLAN TO ATTEND THE SPECIAL MEETING, AN ADMISSION TICKET OR PROOF OF
OWNERSHIP OF PFIZER STOCK MUST BE SHOWN AT THE DOOR. PLEASE SEND A WRITTEN
REQUEST, ALONG WITH PROOF OF YOUR OWNERSHIP OF PFIZER STOCK TO: PFIZER
SHAREHOLDER SERVICES, 235 EAST 42ND STREET, 7TH FLOOR, NEW YORK, NEW YORK 10017
OR CALL 1-800-XXX-XXXX TO OBTAIN AN ADMISSION TICKET.
The Hotel du Pont is accessible to disabled persons and, upon request, we
will provide wireless headsets for hearing amplification. If you require this
service or other special accommodations, please send a written request to the
address noted above.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE
EACH OF THE COMPANY'S PROPOSALS LISTED ABOVE, ALL OF WHICH ARE DESCRIBED IN
DETAIL IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.
By Order of the Board of Directors
[SIGNATURE]
MARGARET M. FORAN
Secretary
, 2002
Pfizer Inc.
235 East 42nd Street
New York, NY 10017
IMPORTANT
Your vote is important. Please either (1) mark, sign, date and return the
enclosed proxy card as promptly as possible in the enclosed postage-paid
envelope; (2) use the telephone number shown on the proxy card to submit your
proxy by telephone or (3) visit the web site noted on your proxy card to submit
your proxy on the Internet. In this way, if you are unable to attend in person,
your shares can still be voted at the Pfizer special meeting. REMEMBER, YOUR
VOTE IS IMPORTANT, SO PLEASE ACT TODAY!
[PHARMACIA LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
PHARMACIA CORPORATION
To Pharmacia's Shareholders:
NOTICE IS HEREBY GIVEN that Pharmacia Corporation will hold a special
meeting of its shareholders at Hotel du Pont, 11th and Market Streets,
Wilmington, Delaware 19801, at 1:00 p.m., local time, on December 9, 2002. The
purpose of the Pharmacia special meeting is to consider and to vote upon the
following matters:
1. A proposal to adopt the Agreement and Plan of Merger, dated as of July
13, 2002 among Pfizer Inc., a wholly owned subsidiary of Pfizer, and
Pharmacia. A copy of the merger agreement is included as Appendix A to
the accompanying joint proxy statement/prospectus; and
2. To transact such other business as may properly come before the special
meeting and any adjournment or postponement thereof.
In the merger, each share of Pharmacia common stock will be converted into
the right to receive 1.4 shares of Pfizer common stock.
Holders of record of Pharmacia common stock and Pharmacia Series B
convertible perpetual preferred stock at the close of business on October 18,
2002, are entitled to receive this notice and to vote their shares at the
special meeting or any adjournment or postponement of that meeting. As of the
record date, there were [ ] shares of Pharmacia common stock
outstanding. Each share of common stock is entitled to one vote on each matter
properly brought before the meeting. In addition, as of the record date, shares
of the Pharmacia Series B convertible perpetual preferred stock having votes
equivalent to [ ] shares of common stock were held by one of the
employee benefit plan trusts and are entitled to vote at the special meeting or
any postponement or adjournment.
A list of Pharmacia shareholders entitled to vote at the special meeting
will be available for inspection by any shareholder during regular business
hours at the office of the Secretary of Pharmacia, 100 Route 206 North, Peapack,
New Jersey, and at Hotel du Pont, 11th and Market Streets, Wilmington, Delaware
19801 for ten days prior to the date of the special meeting and will also be
available at the special meeting.
If you owned shares on the record date and wish to attend the meeting in
person, you must provide advance notice to Pharmacia when you vote or by writing
to the Secretary of Pharmacia at the address below. If you do not hold shares in
your own name, you must be able to provide proof of your beneficial ownership on
the record date, such as an account statement from your bank, broker, custodian
or other recordholder. To gain admittance to the meeting, you must check-in at
the registration desk, show government-issued identification, provide proof of
beneficial ownership on the record date if you are not a shareholder of record,
and be on the admission list of individuals who have notified Pharmacia that
they plan to attend.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO ADOPT THE
MERGER AGREEMENT. YOUR ATTENTION IS DIRECTED TO THE JOINT PROXY
STATEMENT/PROSPECTUS ACCOMPANYING THIS NOTICE FOR A DISCUSSION OF THE MERGER AND
THE MERGER AGREEMENT.
YOUR VOTE IS IMPORTANT.
By Order of the Board of Directors
[SIGNATURE]
DON W. SCHMITZ
Secretary
Peapack, New Jersey
, 2002
IMPORTANT
Your vote is important. Please either (1) mark, sign, date and return the
enclosed proxy card as promptly as possible in the enclosed postage-paid
envelope; (2) use the telephone number shown on the proxy card to submit your
proxy by telephone; or (3) visit the web site noted on your proxy card to submit
your proxy on the Internet. In this way, if you are unable to attend in person,
your shares can still be voted at the Pharmacia special meeting. REMEMBER, YOUR
VOTE IS IMPORTANT, SO PLEASE ACT TODAY!
TABLE OF CONTENTS
PAGE
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CHAPTER ONE
THE MERGER
QUESTIONS AND ANSWERS ABOUT THE
MERGER.......................... I-1
SUMMARY........................... I-3
The Companies................... I-3
What Pharmacia Shareholders will
Receive in the Merger........ I-3
Recommendations to
Shareholders................. I-4
Reasons for the Merger.......... I-4
Shareholder Votes Required...... I-4
The Merger...................... I-5
Treatment of Pharmacia Stock
Options, Restricted Stock,
and other Equity-Based
Awards....................... I-5
Ownership of Pfizer After the
Merger....................... I-5
Conditions to the Completion of
the Merger................... I-6
Termination of Merger
Agreement.................... I-6
Regulatory Approvals............ I-8
Material Federal Income Tax
Consequences of the Merger... I-8
Listing of Pfizer Common
Stock........................ I-8
Appraisal Rights................ I-8
Interests of Officers and
Directors in the Merger...... I-9
Accounting Treatment of the
Merger....................... I-9
Opinions of Pfizer's Financial
Advisors..................... I-9
Opinion of Pharmacia's Financial
Advisor...................... I-9
Amendment to the Pfizer
Certificate of
Incorporation................ I-9
Selected Historical Financial
Information.................. I-10
Selected Unaudited Pro Forma
Combined Financial
Information.................. I-15
Comparative Per Share
Information.................. I-16
Recent Closing Prices........... I-19
RISK FACTORS...................... I-20
PAGE
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FORWARD-LOOKING STATEMENTS........ I-22
THE PROPOSED MERGER............... I-24
General......................... I-24
Pfizer Proposals................ I-24
Pharmacia Proposal.............. I-24
Background of the Merger........ I-24
Our Reasons for the Merger...... I-28
Factors Considered by, and
Recommendation of, the Board
of Directors of Pfizer....... I-34
Factors Considered by, and
Recommendation of, the Board
of Directors of Pharmacia.... I-36
Accounting Treatment............ I-40
Material Federal Income Tax
Consequences of the Merger... I-40
Regulatory Matters Relating to
the Merger................... I-42
Appraisal Rights................ I-42
Federal Securities Laws
Consequences; Stock Transfer
Restriction Agreements....... I-43
Repurchase of Common Stock...... I-43
Stock Exchange Listing;
Delisting and Deregistration
of Pharmacia Common Stock.... I-43
Recent Developments............. I-44
THE COMPANIES..................... I-45
Pfizer.......................... I-45
Pharmacia....................... I-45
OPINIONS OF FINANCIAL ADVISORS.... I-47
Opinions of Pfizer's Financial
Advisors..................... I-47
Opinion of Lazard............... I-47
Opinion of Bear Stearns......... I-49
Summary of Lazard and Bear
Stearns Financial Analyses... I-51
Opinion of Pharmacia's Financial
Advisor...................... I-62
i
PAGE
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INTERESTS OF CERTAIN PERSONS IN
THE MERGER...................... I-68
New Employment Agreement with
Fred Hassan.................. I-68
Other Executive Employment
Agreements................... I-69
Executive Benefit Plans......... I-71
Operations Committee Incentive
Plan......................... I-71
Cash Long-Term Incentive Plan
and Long-Term Performance
Share Unit Incentive Plan.... I-71
Excess Parachute Tax Indemnity
Plan......................... I-72
Founders Performance Contingent
Shares Program............... I-72
Ownership of Common Stock; Stock
Options...................... I-72
Directors and Executive
Officers..................... I-72
Treatment of Pharmacia Stock
Options and Restricted
Stock........................ I-73
Indemnification; Directors' and
Officers' Insurance.......... I-73
THE MERGER AGREEMENT.............. I-74
General......................... I-74
Closing Matters................. I-74
Consideration to Be Received in
the Merger; Treatment of
Stock Options................ I-74
Exchange of Certificates in the
Merger....................... I-75
Fractional Shares............... I-76
Listing of Pfizer Stock......... I-76
Covenants....................... I-76
Other Covenants and
Agreements................... I-81
Representations and
Warranties................... I-81
Conditions...................... I-82
Termination of Merger
Agreement.................... I-83
Amendments, Extensions and
Waivers...................... I-86
Amendment to Co-Promotion and
Co-Marketing Agreements...... I-86
PAGE
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CHAPTER TWO
PRO FORMA FINANCIAL DATA
PFIZER AND PHARMACIA UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS........................ II-1
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF INCOME For
the Year Ended December 31,
2001............................ II-2
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF INCOME For
the Six Months Ended June 30,
2002............................ II-3
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET As of
June 30, 2002................... II-4
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL
STATEMENTS...................... II-5
UNAUDITED FINANCIAL FORECASTS..... II-11
CHAPTER THREE
INFORMATION ABOUT THE MEETINGS
AND VOTING
Matters Relating to the
Meetings..................... III-1
Vote Necessary to Approve Pfizer
and Pharmacia Proposals...... III-3
Proxies......................... III-4
How to Vote by Proxy............ III-4
Proxies for Pfizer Plan
Participants................. III-5
Householding Information........ III-6
Proxies for Pharmacia Plan
Participants................. III-6
Other Business; Adjournments.... III-7
Pfizer Shareholder Account
Maintenance.................. III-8
Pharmacia Shareholder Account
Maintenance.................. III-8
ii
PAGE
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CHAPTER FOUR
CERTAIN LEGAL INFORMATION
COMPARISON OF PFIZER/PHARMACIA
SHAREHOLDER RIGHTS.............. IV-1
Summary of Material Differences
Between Current Rights of
Pharmacia Shareholders and
Rights Those Shareholders
Will Have as Pfizer
Shareholders Following the
Merger....................... IV-1
DESCRIPTION OF PFIZER CAPITAL
STOCK........................... IV-8
Authorized Capital Stock........ IV-8
Pfizer Common Stock............. IV-8
Pfizer Preferred Stock.......... IV-8
New Convertible Perpetual
Preferred Stock to be Issued
in the Merger................ IV-9
Pharmacia Shareholders Rights
Agreement.................... IV-11
Transfer Agent and Registrar.... IV-12
LEGAL MATTERS..................... IV-12
EXPERTS........................... IV-12
PAGE
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CHAPTER FIVE
ADDITIONAL INFORMATION FOR
SHAREHOLDERS
FUTURE SHAREHOLDER PROPOSALS...... V-1
Pfizer.......................... V-1
Pharmacia....................... V-2
WHERE YOU CAN FIND MORE
INFORMATION..................... V-3
ANNEXES
Annex A Agreement and Plan of Merger
Annex B Opinion of Lazard Freres &
Co. LLC
Annex C Opinion of Bear, Stearns &
Co. Inc.
Annex D Opinion of Goldman, Sachs &
Co.
Annex E Certificate of Designation
of Series A Convertible
Perpetual Preferred Stock of
Pfizer
Annex F Section 262 of the Delaware
General Corporation Law
iii
CHAPTER ONE -- THE MERGER
CHAPTER ONE
THE MERGER
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT DO I NEED TO DO NOW?
A: After you carefully read this document, mail your signed proxy card in the
enclosed return envelope, or submit your proxy by telephone or on the
Internet, as soon as possible, so that your shares may be represented at your
meeting. In order to assure that your vote is recorded, please vote your
proxy as instructed on your proxy card even if you currently plan to attend
your meeting in person.
Q: WHY IS MY VOTE IMPORTANT?
A: If you do not return your proxy card or submit your proxy by telephone or
through the Internet or vote in person at your special meeting, it will be
more difficult for Pfizer and Pharmacia to obtain the necessary quorum to
hold their special meetings. In addition, if you are a Pfizer shareholder,
your failure to vote will have the effect of reducing the number of
affirmative votes required to approve the issuance of shares of Pfizer common
stock in the merger and will have the same effect as a vote against the
amendment to the Pfizer certificate of incorporation. If you are a Pharmacia
shareholder, your failure to vote will have the same effect as a vote against
the adoption of the merger agreement.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker will not be permitted to vote them on
either the adoption of the merger agreement by Pharmacia shareholders or
approval of the issuance of shares of Pfizer common stock in the merger and
amendment to the Pfizer certificate of incorporation by Pfizer shareholders.
You should therefore be sure to provide your broker with instructions on how
to vote your shares. Please check the voting form used by your broker to see
if it offers telephone or Internet submission of proxies.
Q: WHAT IF I FAIL TO INSTRUCT MY BROKER?
A: If you fail to instruct your broker to vote your shares and the broker
submits an unvoted proxy, the resulting broker "non-vote" will be counted
toward a quorum at the respective special meeting, but it will otherwise have
the consequences set forth above under "WHY IS MY VOTE IMPORTANT?"
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at your
company's special meeting. You can do this in one of three ways:
- timely delivery of a valid, later-dated proxy by mail, or a later-dated
proxy by telephone or Internet;
- written notice to your company's Secretary before the meeting that you have
revoked your proxy; or
- voting by ballot at either the Pfizer special meeting or the Pharmacia
special meeting.
If you have instructed a broker to vote your shares, you must follow
directions from your broker to change those instructions.
Q: WHEN AND WHERE ARE THE SPECIAL MEETINGS?
A: The Pfizer special meeting will take place on Friday, December 6, 2002, at
the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware 19801, at
9:00 a.m. The Pharmacia special meeting will take place on Monday, December
9, 2002 at Hotel du Pont, 11th and Market Streets, Wilmington, Delaware 19801
at 1:00 p.m.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Pfizer will send Pharmacia shareholders
written instructions for exchanging their stock certificates. Pfizer
shareholders will keep their existing stock certificates.
I-1
CHAPTER ONE -- THE MERGER
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger by the end of 2002. However, it is
possible that factors outside of our control could require us to complete the
merger at a later time or not complete it at all. We hope to complete the
merger as soon as reasonably practicable.
Q: WILL PFIZER SHAREHOLDERS RECEIVE ANY SHARES AS A RESULT OF THE MERGER?
A: No. Pfizer shareholders will continue to hold the Pfizer shares they
currently own.
Q: WHO DO I CALL IF I HAVE QUESTIONS ABOUT THE MEETINGS OR THE MERGER?
A: Pfizer shareholders may call [ ].
Pharmacia shareholders may call [ ].
I-2
CHAPTER ONE -- THE MERGER
SUMMARY
This summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger agreement, you should carefully
read this entire document and the documents to which we refer you. See "Where
You Can Find More Information" on page V-3.
THE COMPANIES (SEE PAGE I-45)
Pfizer Inc.
235 East 42nd Street
New York, New York 10017
(212) 573-2323
Internet address: www.pfizer.com
Pfizer is a research-based global pharmaceutical company that discovers,
develops, manufactures and markets leading prescription medicines for humans and
animals as well as many of the world's best known consumer products. Pfizer
reported revenues of $32.3 billion for 2001 and revenues of $29.4 billion for
2000. The company's Norvasc(R), Zoloft(R), Zithromax(R), Viagra(R), Diflucan(R),
Neurontin(R), Lipitor(R), as well as Celebrex(R), which Pfizer co-promotes and
co-markets with Pharmacia, each had worldwide third-party sales exceeding $1
billion in 2001. Pfizer employs approximately 90,000 people worldwide. Pfizer
spent $4.8 billion on research and development in 2001.
Pharmacia Corporation
100 Route 206 North
Peapack, New Jersey 07977
(908) 901-8000
Internet address: www.pharmacia.com
Pharmacia is a global pharmaceutical company whose core business is the
development, manufacture and sale of pharmaceutical products, including general
therapeutics, ophthalmology and hospital products, such as oncology and
diversified therapeutics. Pharmacia also operates several businesses that
include, among others, consumer health care, animal health care, diagnostics and
contract manufacturing and bulk pharmaceutical chemicals. Pharmacia's leading
prescription products include the co-promoted and co-marketed products Bextra(R)
and Celebrex(R), as well as Xalatan(R), Genotropin(R), Camptosar(R)(1) and
Detrol(R)/Detrol LA(R). Pharmacia reported revenues of $13.8 billion for 2001
and $12.7 billion for 2000. Pharmacia employs approximately 43,000 people
worldwide. Pharmacia spent $2.3 billion on research and development in 2001.
WHAT PHARMACIA SHAREHOLDERS WILL RECEIVE IN THE MERGER (SEE PAGE I-74)
Pharmacia shareholders will receive 1.4 shares of Pfizer common stock for
each share of Pharmacia common stock they hold. Pfizer will not issue fractional
shares in the merger. As a result, the total number of shares of Pfizer common
stock that each Pharmacia shareholder will receive in the merger will be rounded
down to the nearest whole number, and each Pharmacia shareholder will receive a
cash payment for the remaining fraction of a share of Pfizer common stock that
he or she would otherwise receive, if any, based on the market value of Pfizer
common stock at the close of business at the date the merger became effective.
Example: If you currently own 151 shares of Pharmacia common stock, you
will be entitled to receive 211 shares of Pfizer common stock and a check for
the market value of 0.4 shares of Pfizer common stock at the close of business
on the date the merger becomes effective.
The holder of Pharmacia Series C convertible perpetual preferred stock
(which will be received by the holder in exchange for its
---------------
(1) Camptosar(R) is a registered trademark of Yakult Honsha Co., Ltd.
I-3
CHAPTER ONE -- THE MERGER
Pharmacia Series B convertible perpetual preferred stock prior to the completion
of the merger) will receive one share of Pfizer Series A convertible perpetual
preferred stock for each share of Pharmacia Series C convertible perpetual
preferred stock, having substantially similar terms.
RECOMMENDATIONS TO SHAREHOLDERS (SEE PAGES I-34 AND I-36)
TO PFIZER SHAREHOLDERS:
Pfizer's board of directors believes the merger is advisable, fair to you
and in your best interests and recommends that you vote FOR the proposal to
issue shares of Pfizer common stock in the merger.
Pfizer's board of directors also recommends that you vote FOR the proposal
to amend the Pfizer certificate of incorporation to increase the authorized
share capital.
TO PHARMACIA SHAREHOLDERS:
Pharmacia's board of directors believes the merger is advisable, fair to
you and in your best interests and recommends that you vote FOR the proposal to
adopt the merger agreement.
REASONS FOR THE MERGER (SEE PAGES I-28 TO I-30)
The boards of directors of Pfizer and Pharmacia believe that this merger
will create the world's largest pharmaceutical company, with the scientific
depth, global marketing strength and financial resources to take greater
advantage of new opportunities and to bring innovative new products to market
faster.
The boards of both companies believe that by combining our companies, we
will be able to benefit from:
- Enhanced revenue potential resulting from, among other things:
-- access to late stage pipeline drugs;
-- enhanced capability to bring new products to market; and
-- increased scale.
- Significant cost savings from, among other things, increased purchasing
power as a combined company;
- Combination of operational factors, such as growth opportunities and risk
reductions with respect to research and development; and
- Leadership in major therapeutic categories.
SHAREHOLDER VOTES REQUIRED (SEE PAGE III-3)
FOR PFIZER SHAREHOLDERS:
Approval of the proposal to issue shares of Pfizer common stock in the
merger requires the affirmative vote of at least a majority of the votes cast by
the holders of Pfizer common stock as long as a quorum, which is a majority of
the shares outstanding, is present in person or by proxy. Approval of the
proposal to amend the Pfizer certificate of incorporation requires the
affirmative vote of at least a majority of the outstanding shares of Pfizer
common stock. The amendment to the Pfizer certificate of incorporation is
necessary to provide Pfizer with sufficient shares of common stock to pay the
merger consideration to Pharmacia shareholders. Approval of the proposal to
issue shares of Pfizer common stock in the merger and the proposal to amend the
Pfizer certificate of incorporation are conditions to the completion of the
merger. Therefore, if shareholders wish to have the merger completed, they must
approve both proposals.
On the record date, directors and executive officers of Pfizer and their
affiliates beneficially owned or had the right to vote [ ] shares of
Pfizer common stock, representing less than [ ]% of the shares of
Pfizer common stock outstanding on the record date. To Pfizer's knowledge,
directors and executive officers of Pfizer and their affiliates intend to vote
their common stock in favor of the proposal to issue shares of Pfizer common
stock in the merger and the proposal to amend the Pfizer certificate of
incorporation.
I-4
CHAPTER ONE -- THE MERGER
FOR PHARMACIA SHAREHOLDERS:
Adoption of the merger agreement requires the affirmative vote of at least
a majority of the votes represented by the outstanding shares of Pharmacia
common stock and Pharmacia Series B convertible perpetual preferred stock,
voting together as a single class. On the record date, directors and executive
officers of Pharmacia and their affiliates beneficially owned or had the right
to vote [ ] shares of Pharmacia common stock, or approximately
[ ]% of the outstanding shares of Pharmacia common stock outstanding
and entitled to vote at the special meeting. To Pharmacia's knowledge, directors
and executive officers of Pharmacia and their affiliates intend to vote their
common stock in favor of the adoption of the merger agreement.
THE MERGER (SEE PAGE I-74)
Under the terms of the proposed merger, a wholly-owned subsidiary of
Pfizer, formed for the purpose of the merger, will merge with and into
Pharmacia. As a result, Pharmacia will survive the merger and will become a
wholly-owned subsidiary of Pfizer upon completion of the merger.
The merger agreement is attached as Annex A to this joint proxy statement/
prospectus. We encourage you to read the merger agreement carefully and fully as
it is the legal document that governs the merger.
TREATMENT OF PHARMACIA STOCK OPTIONS, RESTRICTED STOCK, AND OTHER EQUITY-BASED
AWARDS (SEE PAGE I-74)
Each outstanding Pharmacia stock option will become fully vested and
exercisable either upon adoption of the merger agreement by Pharmacia
shareholders or upon completion of the merger, depending on the terms of the
stock option plan, grant, employment agreement or other arrangement under which
such option was granted. In the merger, each then-outstanding option to purchase
Pharmacia common stock will be converted into an option to purchase Pfizer
common stock. The number of shares of Pfizer common stock underlying the new
Pfizer option will equal the number of shares of Pharmacia common stock for
which the corresponding Pharmacia option was exercisable, multiplied by 1.4. The
per share exercise price of each new Pfizer option will equal the exercise price
of the corresponding Pharmacia option divided by 1.4.
All shares of Pharmacia restricted common stock will vest either upon
adoption of the merger agreement by Pharmacia shareholders or upon completion of
the merger, depending on the terms of the stock option plan, grant, employment
agreement or other arrangement under which such restricted stock was granted,
and will be treated in the merger like other shares of Pharmacia common stock.
All awards under Pharmacia benefit plans that provide for cash payments
based on the value of Pharmacia common stock shall become fully vested either
upon adoption of the merger agreement by Pharmacia shareholders or upon
completion of the merger, depending on the terms of the plans under which such
payments are to be made.
OWNERSHIP OF PFIZER AFTER THE MERGER
Pfizer may issue up to 1.804 billion shares of Pfizer common stock to
Pharmacia shareholders in the merger. Immediately following completion of the
merger, it is expected that there will be approximately 7.986 billion shares of
common stock outstanding. The shares of Pfizer common stock to be issued to
Pharmacia shareholders in the merger will represent approximately 23% of the
outstanding Pfizer common stock after the merger on a fully diluted basis. This
information is based on the number of Pfizer and Pharmacia shares and options
outstanding on June 30, 2002.
I-5
CHAPTER ONE -- THE MERGER
CONDITIONS TO THE COMPLETION OF THE MERGER (SEE PAGE I-82)
The completion of the merger depends upon the satisfaction or waiver of a
number of conditions, including the following:
- adoption of the merger agreement by the Pharmacia shareholders and
approval of the issuance of shares of Pfizer common stock in the merger
and amendment to the Pfizer certificate of incorporation by the Pfizer
shareholders;
- expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
approval of the merger by the European Commission;
- absence of any law or court order in the United States or European Union
prohibiting the merger;
- receipt of opinions of counsel to Pfizer and Pharmacia that the merger
will qualify as a tax-free reorganization;
- material accuracy, as of the closing, of the representations and
warranties made by the parties and material compliance by the parties
with their respective obligations under the merger agreement; and
- neither party having suffered any change that would reasonably be
expected to have a material adverse effect on that party.
TERMINATION OF MERGER AGREEMENT (SEE PAGE I-83)
Right to Terminate. The merger agreement may be terminated at any time
prior to the effective time in any of the following ways:
- by our mutual written consent;
- by either one of us:
-- if the merger has not been completed by April 15, 2003 or, if the
conditions to closing relating to antitrust or other governmental
approvals of the merger have not been satisfied, but all other
conditions to closing are satisfied or are capable of being satisfied,
this date is automatically extended to July 15, 2003; except that a
party may not terminate the merger agreement if the cause of the
merger not being completed is that party's failure to fulfill its
obligations under the merger agreement;
-- if a governmental authority or a court in the United States or
European Union permanently prohibits the completion of the merger or a
governmental authority in the United States or European Union fails to
grant any necessary approval of the merger, except that a party may
not terminate the merger agreement if the cause of the prohibition or
failure to obtain approval is a result of that party's failure to
fulfill its obligations under the provision of the merger agreement
which, among other requirements, requires each party to use its
reasonable best efforts to obtain government approvals for the
completion of the merger and requires each party to divest certain
assets in response to requirements imposed by antitrust authorities;
-- if the other party has breached in any material respect any of its
representations or warranties, or has failed to perform in any
material respect any of its covenants or obligations under the merger
agreement and such breach:
(1) would result in the failure of certain closing conditions to the
merger being satisfied; and
(2) is incapable of being cured or remains uncured at April 15, 2003.
-- if either Pfizer's shareholders fail to approve the issuance of shares
of Pfizer common stock in the merger
I-6
CHAPTER ONE -- THE MERGER
or the amendment to the Pfizer certificate of incorporation, or Pharmacia's
shareholders fail to adopt the merger agreement.
- by Pfizer:
-- if Pharmacia's board of directors either changes its recommendation in
a manner adverse to Pfizer, or fails to call the Pharmacia special
meeting to vote on the merger by January 13, 2003 (which deadline will
be extended if this registration statement has not become effective by
November 14, 2002).
- by Pharmacia:
-- if Pfizer's board of directors either changes its recommendation in a
manner adverse to Pharmacia, or fails to call the Pfizer special
meeting to vote on the proposal to issue shares of Pfizer common stock
in the merger or the proposal to amend the Pfizer certificate of
incorporation by January 13, 2003 (which deadline will be extended if
this registration statement has not become effective by November 14,
2002); or
-- if Pharmacia's board of directors authorizes Pharmacia to enter into a
written agreement concerning a transaction that Pharmacia's board of
directors has determined in accordance with the merger agreement is a
superior proposal, except that Pharmacia cannot terminate the merger
agreement for this reason unless it has complied with certain
procedural obligations to Pfizer and pays Pfizer the termination fee
described below at or prior to such termination.
Termination Fees Payable by Pharmacia. Pharmacia has agreed to pay Pfizer a
termination fee of $1.6 billion (within one business day after the earlier of
the date Pharmacia enters into a definitive agreement with respect to, or
consummates, a business combination), if the merger agreement is terminated
under one of the following circumstances:
- the merger agreement is (1) terminated by Pfizer because the board of
directors of Pharmacia withdraws or changes its recommendation in a
manner adverse to Pfizer or for any reason Pharmacia fails to call or
hold its shareholders' meeting by January 13, 2003 or until this
registration statement becomes effective if such date is extended (but
only if, on or before the date the agreement is terminated, there was an
offer or proposal for, or announcement with respect to, a "business
combination" involving Pharmacia) and (2) within twelve months of the
termination, Pharmacia enters into a definitive agreement or completes a
transaction with respect to a business combination with a third party;
- the merger agreement is (1) terminated by Pfizer or Pharmacia because
Pharmacia's shareholders failed to adopt the merger agreement (but only
if, prior to the date of the Pharmacia special meeting, there was made
public to a significant number of Pharmacia's shareholders an offer or
proposal for, or any public announcement with respect to, a business
combination involving Pharmacia) and (2) within twelve months of the
termination, Pharmacia enters into a definitive agreement or completes a
transaction with respect to a business combination with a third party; or
- the merger agreement is (1) terminated by Pfizer or Pharmacia because the
necessary regulatory approvals have not been obtained and the merger has
not been completed by April 15, 2003 (or July 15, 2003 if the termination
date is extended), and at the time of termination Pharmacia has not yet
obtained its shareholder approval and prior to April 15, 2003 (or July
15, 2003 if the termination date is extended), there has
I-7
CHAPTER ONE -- THE MERGER
been an offer or proposal for, or announcement with respect to, a business
combination involving Pharmacia and (2) within twelve months of the termination,
Pharmacia enters into a definitive agreement or completes a transaction with
respect to a business combination with a third party.
Pharmacia also has agreed to pay Pfizer a termination fee of $1.6 billion
(at or prior to such termination), if Pharmacia terminates the merger agreement
because Pharmacia's board of directors has authorized Pharmacia to enter into a
written agreement for a superior proposal and Pfizer has not, within five
business days of notice from Pharmacia, made an offer that the board of
directors of Pharmacia determines is at least as favorable as the superior
proposal Pharmacia has received from a third party.
REGULATORY APPROVALS (SEE PAGE I-42)
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
the merger cannot be completed until we have made required notifications, we
have given certain information and materials to the Federal Trade Commission and
the Antitrust Division of the United States Department of Justice and specified
waiting period requirements have expired. Pfizer and Pharmacia filed the
required notification and report forms with the Antitrust Division and the
Federal Trade Commission on September 3, 2002.
Pfizer and Pharmacia each conduct business in member states of the European
Union, and the merger therefore also requires the review of the European
Commission. Pfizer and Pharmacia intend to seek approval of the European
Commission for the merger shortly.
Pfizer and Pharmacia are not permitted to complete the merger unless the
regulatory conditions to completion of the merger described above are satisfied.
In addition, the companies have agreed that, if necessary to secure regulatory
approval of the merger, Pfizer will hold assets separate or conduct any portion
of its business in a specified manner for up to 6 months and Pfizer and
Pharmacia will divest or hold separate assets so long as such divestitures do
not have a material adverse effect on Pharmacia (including, for this purpose, on
its prospects).
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE I-40)
A Pharmacia shareholder's receipt of Pfizer common stock in the merger
generally will be tax-free for United States federal income tax purposes, except
for taxes which may result from any receipt of cash in lieu of fractional shares
of Pfizer common stock.
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES DESCRIBED ABOVE MAY NOT
APPLY TO SOME HOLDERS OF PHARMACIA STOCK, INCLUDING SOME TYPES OF HOLDERS
SPECIFICALLY REFERRED TO ON PAGE I-40. THE TAX CONSEQUENCES TO PHARMACIA
SHAREHOLDERS WILL DEPEND UPON THEIR OWN PERSONAL SITUATION. ACCORDINGLY, WE
STRONGLY URGE PHARMACIA SHAREHOLDERS TO CONSULT THEIR TAX ADVISORS FOR A FULL
UNDERSTANDING OF THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO THEM.
LISTING OF PFIZER COMMON STOCK
The shares of Pfizer common stock to be issued in the merger will be listed
on the New York Stock Exchange under the ticker symbol "PFE." Pfizer common
stock is also listed on the London, Euronext and Swiss stock exchanges and is
also traded on various United States regional stock exchanges.
APPRAISAL RIGHTS (SEE PAGE I-42)
Neither the holders of Pharmacia common stock nor the holders of Pfizer
common stock have any right to an appraisal of the value of their shares in
connection with the merger or the amendment to the Pfizer certificate of
incorporation. The holder of Pharmacia Series B convertible perpetual preferred
stock has appraisal rights for its shares if it complies with the procedures
required under Delaware law.
I-8
CHAPTER ONE -- THE MERGER
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE I-68)
When Pharmacia shareholders consider their board of directors'
recommendation that they vote in favor of the adoption of the merger agreement,
Pharmacia shareholders should be aware that Pharmacia executive officers and
directors may have interests in the merger that may be different from, or in
addition to, shareholders' interests.
ACCOUNTING TREATMENT OF THE MERGER (SEE PAGE I-40)
Pfizer will account for the merger under the purchase method of accounting
for business combinations under accounting principles generally accepted in the
United States of America.
OPINIONS OF PFIZER'S FINANCIAL ADVISORS (SEE PAGE I-47)
In connection with the merger, the Pfizer board of directors considered the
opinions of Lazard Freres & Co. LLC and Bear, Stearns & Co. Inc., Pfizer's
financial advisors. The Pfizer board of directors received written opinions from
each of Lazard and Bear Stearns as to the fairness, from a financial point of
view, to Pfizer of the exchange ratio in the merger as of July 13, 2002. These
opinions, which are attached as Annex B and Annex C, respectively, set forth the
procedures followed, assumptions made, matters considered and limitations on the
review undertaken by each of Lazard and Bear Stearns in providing their
respective opinions. We encourage you to read these opinions carefully and in
their entirety.
THESE OPINIONS ARE DIRECTED TO THE BOARD OF DIRECTORS OF PFIZER AND DO NOT
CONSTITUTE RECOMMENDATIONS TO ANY SHAREHOLDER AS TO HOW THAT SHAREHOLDER SHOULD
VOTE ON, OR TAKE ANY OTHER ACTION WITH RESPECT TO, THE MERGER.
OPINION OF PHARMACIA'S FINANCIAL ADVISOR (SEE PAGE I-62)
Goldman, Sachs & Co. delivered its opinion to the Pharmacia board of
directors that, as of July 13, 2002 and subject to the factors and assumptions
set forth therein, the exchange ratio pursuant to the merger agreement was fair
from a financial point of view to the holders of Pharmacia common stock.
The full text of the written opinion of Goldman Sachs, dated July 13, 2002,
which sets forth the assumptions made, procedures followed, matters considered
and limitations on the review undertaken in connection with the opinion, is
attached as Annex D. Pharmacia common shareholders should read the opinion in
its entirety. GOLDMAN SACHS PROVIDED ITS OPINION FOR THE INFORMATION AND
ASSISTANCE OF THE PHARMACIA BOARD OF DIRECTORS IN CONNECTION WITH ITS
CONSIDERATION OF THE TRANSACTION CONTEMPLATED BY THE MERGER AGREEMENT. THE
GOLDMAN SACHS OPINION IS NOT A RECOMMENDATION AS TO HOW ANY HOLDER OF PHARMACIA
COMMON STOCK OR PHARMACIA SERIES B CONVERTIBLE PERPETUAL PREFERRED STOCK SHOULD
VOTE WITH RESPECT TO SUCH TRANSACTION.
AMENDMENT TO THE PFIZER CERTIFICATE OF INCORPORATION (SEE PAGE IV-8)
At the Pfizer special meeting, holders of Pfizer common stock will be asked
to approve an amendment to the Pfizer certificate of incorporation increasing
the authorized number of shares of common stock from 9 billion to 12 billion and
the number of shares of preferred stock from 12 million to 27 million.
The merger cannot be completed unless Pfizer shareholders approve this
amendment to the Pfizer certificate of incorporation.
I-9
CHAPTER ONE -- THE MERGER
SELECTED HISTORICAL FINANCIAL INFORMATION
We are providing the following financial information to assist you in your
analysis of the financial aspects of the merger. We derived the annual Pfizer
historical information from the consolidated financial statements of Pfizer as
of and for each of the years ended December 31, 1997 through 2001. We derived
the annual Pharmacia historical information from the consolidated financial
statements of Pharmacia as of and for each of the years ended December 31, 1997
through 2001. The data as of and for the six months ended June 30, 2002 has been
derived from interim financial statements of both Pfizer and Pharmacia and which
in the opinion of each company's management, include all normal and recurring
adjustments that are considered necessary for the fair presentation of the
results for the interim period. The information is only a summary and should be
read in conjunction with each company's historical consolidated financial
statements and related notes contained in the Pfizer and Pharmacia annual
reports on Form 10-K for the year ended December 31, 2001 and quarterly reports
on Form 10-Q for the quarter ended June 30, 2002, which have been incorporated
by reference herein, as well as other information that has been filed with the
SEC. See "Where You Can Find More Information" on page V-3 for information on
where you can obtain copies of this information. The historical results included
below and elsewhere in this document are not indicative of the future
performance of Pfizer, Pharmacia or the combined company.
PFIZER SELECTED HISTORICAL FINANCIAL INFORMATION
AS OF AND FOR THE
--------------------------------------------------------------------------
SIX MONTHS ENDED
-------------------- YEAR ENDED DECEMBER 31,
JUNE 30, JULY 1, -------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
-------- ------- ------- ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Revenues(1)....................... $16,452 15,205 31,982 29,100 26,940 23,017 18,975
Income from continuing operations
before cumulative effect of a
change in accounting
principle(2).................... 4,330 3,722 7,752 3,718 4,972 3,232 2,888
Net income(3)..................... 3,920 3,759 7,788 3,726 4,952 4,633 3,019
Per common share data:
Basic:
Income from continuing
operations before
cumulative effect of a
change in accounting
principle.................. .70 .60 1.25 .60 .81 .53 .48
Net income................... .63 .60 1.25 .60 .81 .76 .50
Diluted:
Income from continuing
operations before
cumulative effect of a
change in accounting
principle.................. .69 .59 1.22 .59 .79 .51 .46
Net income................... .62 .59 1.22 .59 .78 .73 .48
Cash dividends paid per share..... .26 .22 .44 .36 .30 2/3 .25 1/3 .22 2/3
Total assets...................... 42,568 36,941 39,153 33,510 31,372 27,227 22,964
Long-term debt.................... 3,072 2,367 2,609 1,123 1,774 1,794 2,561
Shareholders' equity.............. 18,830 17,816 18,293 16,076 13,950 12,616 10,901
Ratio of earnings to fixed
charges......................... 32.1 23.5 25.3 11.6 14.7 13.1 10.9
------- ------ ------- ------ ------ ------ ------
I-10
CHAPTER ONE -- THE MERGER
YEAR
----------------------------
2001 2000 1999
------ ------ ------
ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS-TRANSITIONAL DISCLOSURE
Net income....................................... $7,788 3,726 4,952
Add back: goodwill amortization.................. 36 38 39
Add back: indefinite lived intangible assets
amortization.................................. 8 9 9
------ ------ ------
Adjusted net income.............................. $7,832 3,773 5,000
====== ====== ======
Basic earnings per common share:
Net income....................................... $ 1.25 .60 .81
Add back: goodwill amortization.................. .01 .01 .01
------ ------ ------
Adjusted net income................................ $ 1.26 .61 .82
====== ====== ======
Diluted earnings per common share:
Net income....................................... $ 1.22 .59 .78
Add back: goodwill amortization.................. .01 .01 .01
------ ------ ------
Adjusted net income.............................. $ 1.23 .60 .79
====== ====== ======
-------------------------
On June 19, 2000, Pfizer merged with Warner-Lambert Company ("Warner-Lambert")
in a transaction accounted for as a pooling-of-interests. All financial
information reflects the combined results of Pfizer and Warner-Lambert as if the
merger had been in effect for all periods presented.
All financial information reflects the divestitures of Pfizer's Medical
Technology and Food Science businesses as discontinued operations.
Per share data reflects the 3-for-1 stock split which occurred in June 1999.
2001, 2000, 1999 and 1998 data was restated to reflect reclassifications between
Revenues and Selling, informational and administrative expenses of $277 million
in 2001, $255 million in 2000, $226 million in 1999 and $214 million in 1998 as
a result of the January 1, 2002, adoption of Emerging Issues Task Force (EITF)
Issue No. 00-25, Vendor Income Statement Characterization of Consideration Paid
to a Reseller of the Vendor's Products. Pfizer has not restated periods prior to
1998 for EITF Issue No. 00-25 because the data is not available. After Pfizer
reorganized its financial systems due to Pfizer's merger with Warner-Lambert,
the level of detail necessary to develop an EITF 00-25 amount for periods prior
to 1998 was no longer available.
-------------------------
(1) In 2001, Pfizer brought the accounting methodology pertaining to accruals
for estimated liabilities related to Medicaid discounts and contract rebates
of Warner-Lambert into conformity with Pfizer's historical method. This
adjustment increased revenues in 2001 by $175 million.
(2) Includes merger-related costs incurred in connection with Pfizer's merger
with Warner-Lambert:
Six months ended June 30, 2002 -- Integration costs of $181 million and
restructuring charges of $94 million.
Six months ended July 1, 2001 -- Integration costs of $264 million and
restructuring charges of $212 million.
2001 -- Integration costs of $467 million and restructuring charges of $372
million.
2000 -- Transaction costs directly related to the merger with
Warner-Lambert of $226 million; costs related to Warner-Lambert's
termination of the Warner-Lambert/Wyeth (formerly
I-11
CHAPTER ONE -- THE MERGER
known as American Home Products) merger of $1,838 million;
integration costs of $246 million and restructuring charges of $947
million.
1999 -- Transaction costs directly related to the merger with Agouron
Pharmaceuticals, Inc. of $33 million.
(3) Includes the cumulative effect of a change in accounting principle in the
six months ended June 30, 2002 for the January 1, 2002 adoption of Statement
of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. As a result of adopting SFAS No. 142, Pfizer recorded the
following non-cash pre-tax charges of $565 million ($410 million after-tax)
in the first six months of 2002:
-- $536 million for the impairment provisions related to goodwill in
Pfizer's Animal Health business which was included in the
Pharmaceuticals segment (amount was determined in the second quarter of
2002 and reported after tax as a one-time cumulative effect of a change
in accounting principle as of the beginning of 2002); and
-- $29 million for the impairment provisions related to identifiable
intangible assets which was included in the Consumer Products segment
(amount was determined in the first quarter of 2002 and reported after
tax as a one-time cumulative effect of a change in accounting principle
as of the beginning of 2002).
I-12
CHAPTER ONE -- THE MERGER
PHARMACIA SELECTED HISTORICAL FINANCIAL INFORMATION
AS OF AND FOR THE
-----------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
------- ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Revenues........................... $ 6,680 6,623 13,837 12,651 11,177 9,289 8,907
Earnings from continuing operations
before extraordinary items and
cumulative effect of a change in
accounting principle............. 1,275 626 1,291 804 1,156 606 359
Net earnings(1).................... 472 987 1,501 717 1,378 362 711
Per common share data:
Basic:
Earnings from continuing
operations before
extraordinary items and
cumulative effect of a
change in accounting
principle................... .98 .48 .98 .62 .92 .49 .29
Net earnings.................. .36 .76 1.14 .55 1.10 .29 .58
Diluted:
Earnings from continuing
operations before
extraordinary items and
cumulative effect of a
change in accounting
principle................... .97 .47 .97 .61 .90 .48 .29
Net earnings.................. .36 .74 1.12 .54 1.07 .28 .57
Cash dividends declared per
share(2)...................... .27 .255 .525 -- -- -- --
Total assets....................... 22,291 22,272 22,377 22,777 20,738 19,940 18,233
Long-term debt and ESOP debt....... 2,642 2,815 2,731 3,624 1,958 2,384 1,630
Shareholders' equity............... 12,152 12,322 12,390 11,921 10,911 10,559 9,678
YEAR
----------------------------
2001 2000 1999
------ ------ ------
ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS-TRANSITIONAL DISCLOSURE
Net earnings..................................... $1,501 717 1,378
Add back: goodwill amortization.................. 100 107 111
------ ------ ------
Adjusted net earnings............................ $1,601 824 1,489
====== ====== ======
Basic earnings per common share:
Net earnings..................................... $ 1.14 .55 1.10
Add back: goodwill amortization.................. .08 .09 .09
------ ------ ------
Adjusted net earnings............................ $ 1.22 .64 1.19
====== ====== ======
I-13
CHAPTER ONE -- THE MERGER
YEAR
----------------------------
2001 2000 1999
------ ------ ------
Diluted earnings per common share:
Net earnings..................................... $ 1.12 .54 1.07
Add back: goodwill amortization.................. .08 .08 .09
------ ------ ------
Adjusted net earnings............................ $ 1.20 .62 1.16
====== ====== ======
-------------------------
(1) Includes income from discontinued operations plus or minus related gains or
losses on disposal of discontinued operations, as appropriate:
Six months ended June 30, 2002 -- $89 million relating to Monsanto Company
Six months ended June 30, 2001 -- $372 million relating principally to
Monsanto Company
2001 -- $221 million relating principally to Monsanto Company
2000 -- $143 million relating principally to Monsanto Company
1999 -- $242 million comprised of $150 million relating principally to
Monsanto Company and $92 million relating to divestiture by former
Monsanto of its alginates, biogums, bulk aspartame and tabletop
sweeteners businesses.
Includes extraordinary items, income/(expense):
Six months ended June 30, 2002 -- Gain of $649 million (net of taxes of
$124 million) associated with the sale of
an investment that took place within two
years of the merger of Pharmacia &
Upjohn, Inc. and former Monsanto Company
which was accounted for as a pooling of
interests.
Six months ended June 30, 2001 -- Costs of $(12) million (net of taxes of
$7 million) associated with the early
retirement of debt.
2001 -- Costs of $(12) million (net of taxes of $7 million) associated with
the early retirement of debt.
2000 -- Costs of $(32) million (net of taxes of $20 million) associated
with the early retirement of debt.
Includes cumulative effect of a change of accounting, income/(expense):
Six months ended June 30, 2002 -- Accounting change adopted by Monsanto:
SFAS No. 142 -- charge of $(1,541)
million.
Six months ended June 30, 2001 -- Accounting change adopted by Pharmacia:
SFAS No. 133 -- credit of $1 million.
2001 -- Accounting change adopted by Pharmacia: SFAS No. 133 -- credit of
$1 million.
2000 -- Accounting change adopted by Pharmacia: SAB 101 -- charge of $(198)
million.
1999 -- Accounting change adopted by Pharmacia: SAB 101 -- charge of $(20)
million.
(2) Cash dividends declared per share have not been presented for periods prior
to 2001. For the year ended December 31, 2000, Pharmacia shareholders
received a combination of dividends declared by post-merger Pharmacia, the
former Monsanto Company and Pharmacia & Upjohn, Inc. For the years prior to
2000, shareholders received dividends declared by former Monsanto Company
and Pharmacia & Upjohn, Inc. Inasmuch as the sum of the respective
predecessor companies' dividends on pre-merger share amounts do not relate
to what the dividend payout was for the newly constituted Pharmacia
Corporation, cash dividends declared per share for periods prior to 2001
would not be meaningful.
I-14
CHAPTER ONE -- THE MERGER
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The merger will be accounted for under the purchase method of accounting,
which means the assets and liabilities of Pharmacia will be recorded, as of
completion of the merger, at their respective fair values and added to those of
Pfizer. For a more detailed description of purchase accounting, see "The
Proposed Merger -- Accounting Treatment" on page I-40.
We have presented below selected unaudited pro forma combined financial
information that reflects the purchase method of accounting and is intended to
provide you with a better picture of what our businesses might have looked like
had they actually been combined. The combined financial information may have
been different had the companies actually been combined. The selected unaudited
pro forma combined financial information does not reflect the effect of asset
dispositions, if any, or cost savings that may result from the merger. You
should not rely on the selected unaudited pro forma combined financial
information as being indicative of the historical results that would have
occurred had the companies been combined or the future results that may be
achieved after the merger. The following selected unaudited pro forma combined
financial information has been derived from, and should be read in conjunction
with, the Unaudited Pro Forma Condensed Combined Financial Statements and
related notes included in Chapter Two of this joint proxy statement/prospectus.
AS OF AND FOR THE
SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 2002 DECEMBER 31, 2001
----------------- ------------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Revenues.............................................. $ 22,528 44,607
Income from continuing operations available to common
shareholders........................................ 4,818 7,635
Per common share data:
Income from continuing operations per share:
Basic............................................ .60 .95
Diluted.......................................... .59 .93
Cash dividends paid per share(1).................... N/A N/A
Shareholders' equity per share...................... 7.67 N/A
Total assets.......................................... 104,107 N/A
Long-term debt........................................ 5,714 N/A
---------------
(1) Pfizer's current quarterly dividend is $0.13 ($0.52 per share annualized)
and is subject to future approval and declaration by Pfizer's board of
directors. Pharmacia's current quarterly dividend is $0.135 ($0.54 per share
annualized) and is subject to future approval and declaration by Pharmacia's
board of directors. The dividend policy of the combined company after the
merger will be determined by its board of directors following the merger.
I-15
CHAPTER ONE -- THE MERGER
COMPARATIVE PER SHARE INFORMATION
The following table sets forth selected historical per share information of
Pfizer and Pharmacia and unaudited pro forma combined per share information
after giving effect to the merger between Pfizer and Pharmacia, under the
purchase method of accounting, assuming that 1.4 shares of Pfizer common stock
had been issued in exchange for each outstanding share of Pharmacia common
stock. You should read this information in conjunction with the selected
historical financial information, included elsewhere in this document, and the
historical financial statements of Pfizer and Pharmacia and related notes that
are incorporated in this document by reference. The unaudited Pfizer pro forma
combined per share information is derived from, and should be read in
conjunction with, the Unaudited Pro Forma Condensed Combined Financial
Statements and related notes included in Chapter Two of this joint proxy
statement/prospectus. The historical per share information is derived from
unaudited financial statements as of and for the six months ended June 30, 2002
and audited financial statements as of and for the year ended December 31, 2001.
The unaudited pro forma Pharmacia per share equivalents are calculated by
multiplying the unaudited Pfizer pro forma combined per share amounts by the
exchange ratio of 1.4.
The unaudited pro forma combined per share information does not purport to
represent what the actual results of operations of Pfizer and Pharmacia would
have been had the companies been combined or to project Pfizer's and Pharmacia's
results of operations that may be achieved after the merger.
I-16
CHAPTER ONE -- THE MERGER
FOR THE
-----------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2002 DECEMBER 31,
(UNAUDITED) 2001
------------- ------------
UNAUDITED PFIZER PRO FORMA COMBINED
Per common share data:
Income from continuing operations:
Basic............................................... $ .60 .95
Diluted............................................. .59 .93
Cash dividends(1)...................................... N/A N/A
Shareholders' equity................................... 7.67 N/A
PFIZER -- HISTORICAL
Per common share data:
Income from continuing operations before cumulative
effect of a change in accounting principle:
Basic............................................... .70 1.25
Diluted............................................. .69 1.22
Cash dividends paid.................................... .26 .44
Shareholders' equity................................... 3.05 2.95
PHARMACIA -- HISTORICAL
Per common share data:
Earnings from continuing operations before
extraordinary items and cumulative effect of a
change in accounting principle:
Basic............................................... .98 .98
Diluted............................................. .97 .97
Cash dividends paid.................................... .27 .51
Shareholders' equity................................... 9.43 9.54
UNAUDITED PRO FORMA PHARMACIA EQUIVALENTS(2)
Per common share data:
Earnings from continuing operations before
extraordinary items and cumulative effect of a
change in accounting principle:
Basic............................................... .84 1.33
Diluted............................................. .83 1.30
Cash dividends(1)...................................... N/A N/A
Shareholders' equity................................... 10.74 N/A
-------------------------
(1) Pfizer's current quarterly dividend is $0.13 ($0.52 per share annualized)
and is subject to future approval and declaration by Pfizer's board of
directors. Pharmacia's current quarterly dividend is $0.135 ($0.54 per share
annualized) and is subject to future approval and declaration by Pharmacia's
board of directors. The dividend policy of the combined company after the
merger will be determined by its board of directors following the merger.
(2) Amounts are calculated by multiplying unaudited Pfizer pro forma combined
per share amounts by the exchange ratio in the merger (1.4 shares of Pfizer
common stock for each share of Pharmacia common stock).
I-17
CHAPTER ONE -- THE MERGER
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Pfizer common stock and Pharmacia common stock are each listed on the New
York Stock Exchange. Pfizer's and Pharmacia's ticker symbols are "PFE" and
"PHA," respectively. The following table shows, for the calendar quarters
indicated, based on published financial sources: (1) the high and low sale
prices of shares of Pfizer and Pharmacia common stock as reported on the New
York Stock Exchange Composite Transaction Tape and (2) the cash dividends paid
per share of Pfizer and Pharmacia common stock.
PHARMACIA
PFIZER COMMON STOCK* COMMON STOCK
--------------------------------- ---------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
--------- --------- --------- --------- --------- ---------
2000
First Quarter.................. $37.94 $30.00 $0.09 $51.50 $34.25 **
Second Quarter................. $48.13 $33.69 $0.09 $59.75 $48.94 **
Third Quarter.................. $49.00 $39.38 $0.09 $60.19 $52.00 $ 0.12
Fourth Quarter................. $48.06 $41.00 $0.09 $61.00 $50.75 $ 0.12
2001
First Quarter.................. $46.75 $34.01 $0.11 $60.00 $44.00 $ 0.12
Second Quarter................. $45.23 $38.50 $0.11 $52.26 $45.10 $ 0.12
Third Quarter.................. $42.23 $34.00 $0.11 $46.95 $37.60 $0.135
Fourth Quarter................. $44.04 $38.32 $0.11 $46.61 $38.39 $0.135
2002
First Quarter.................. $42.15 $40.11 $0.13 $46.00 $37.50 $0.135
Second Quarter................. $39.40 $33.43 $0.13 $45.68 $37.04 $0.135
-------------------------
* Adjusted for a 3-for-l stock split in June 1999.
** Dividends previously paid by former Monsanto Company prior to its merger
with Pharmacia & Upjohn, Inc. are not presented as the information would not
be meaningful.
I-18
CHAPTER ONE -- THE MERGER
RECENT CLOSING PRICES
The following table sets forth the closing prices per share of Pfizer
common stock and Pharmacia common stock as reported on the NYSE Composite
Transaction Tape on July 12, 2002, the last full trading day prior to the
announcement of the merger agreement, and [ ], the most recent
practicable date prior to the mailing of this joint proxy statement/prospectus
to Pfizer's and Pharmacia's shareholders. This table also sets forth the imputed
value of Pharmacia common stock on July 12, 2002 and the equivalent price per
share of Pharmacia common stock on those dates. The equivalent price per share
is equal to the closing price of a share of Pfizer common stock on that date
multiplied by 1.4, the applicable exchange ratio in the merger. These prices
will fluctuate prior to the special meetings and the merger, and shareholders
are urged to obtain current market quotations prior to making any decision with
respect to the merger.
PHARMACIA
IMPUTED VALUE COMMON STOCK
PFIZER COMMON PHARMACIA OF PHARMACIA PER SHARE
DATE STOCK COMMON STOCK COMMON STOCK EQUIVALENT
---- ------------- ------------ ------------- ------------
July 12, 2002.................. $32.20 $32.59* $29.58** $45.08
[ ], 2002............... $ $ N/A $
-------------------------
* Includes value of Monsanto Company shares held by Pharmacia.
** This value has been calculated by subtracting from the closing price of
Pharmacia common stock on July 12, 2002, the amount of $3.01, which is the
value of Pharmacia's interest in Monsanto Company common stock calculated on
a per share of Pharmacia's common stock basis. Pharmacia distributed its
Monsanto Company shares to holders of Pharmacia common stock on August 13,
2002.
Although dividends are subject to future approval and declaration by
Pfizer's and Pharmacia's respective boards of directors, Pfizer and Pharmacia
each currently plan to continue to pay regular quarterly dividends on their
common stock until closing of the merger, although Pfizer and Pharmacia have
agreed to coordinate their dividend policy prior to the merger so that Pharmacia
shareholders do not receive two dividends, or fail to receive a dividend in any
calendar quarter. The dividend policy following the merger will be determined by
the combined company's board of directors following the merger.
I-19
CHAPTER ONE -- THE MERGER
RISK FACTORS
PFIZER AND PHARMACIA SHAREHOLDERS SHOULD CAREFULLY CONSIDER THE FOLLOWING
FACTORS, IN ADDITION TO THOSE FACTORS DISCUSSED IN THE DOCUMENTS THAT WE HAVE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND WHICH WE HAVE INCORPORATED
INTO THIS DOCUMENT AND THE OTHER INFORMATION IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, BEFORE VOTING AT THEIR RESPECTIVE SPECIAL MEETINGS.
THE VALUE OF PFIZER SHARES RECEIVED WILL FLUCTUATE
The number of shares of Pfizer common stock issued in the merger for each
share of Pharmacia common stock is fixed. The market prices of Pfizer common
stock and Pharmacia common stock when the merger is completed may vary from
their market prices at the date of this document and at the date of the special
meetings of Pfizer and Pharmacia. For example, during the 12 month period ending
on [ ], the most recent practical date prior to the mailing of this joint proxy
statement/prospectus, Pfizer common stock traded in a range from a low of $[ ]
to a high of $[ ] and ended that period at $[ ], and Pharmacia common stock
traded in a range from a low of $[ ] to a high of $[ ] and ended that period
at $[ ]. See "Comparative Per Share Market Price and Dividend Information" on
page I-18 for more detailed share price information.
These variations may be the result of various factors including:
- changes in the business, operations or prospects of Pfizer or Pharmacia;
- governmental and/or litigation developments and/or regulatory
considerations;
- market assessments as to whether and when the merger will be consummated;
- governmental action affecting the pharmaceutical industry generally;
- loss of patent protection and competition from generic drugs; and
- general market and economic conditions.
The merger may not be completed until a significant period of time has
passed after the Pfizer and Pharmacia special meetings. At the time of their
respective special meetings, Pfizer and Pharmacia shareholders will not know the
exact value of the Pfizer common stock that will be issued in connection with
the merger.
Shareholders of Pfizer and Pharmacia are urged to obtain current market
quotations for Pfizer and Pharmacia common stock.
WE MAY BE UNABLE TO SUCCESSFULLY INTEGRATE OUR OPERATIONS AND REALIZE THE FULL
COST SAVINGS WE ANTICIPATE
The merger involves the integration of two companies that have previously
operated independently. The difficulties of combining the companies' operations
include:
- the necessity of coordinating geographically separated organizations,
systems and facilities; and
- integrating personnel with diverse business backgrounds.
The process of integrating operations could cause an interruption of, or
loss of momentum in, the activities of one or more of the combined company's
businesses and the loss of key personnel. The diversion of management's
attention and any delays or difficulties encountered in connection with the
merger and the integration of the two companies' operations could have an
adverse effect on the business, results of operations, financial condition or
prospects of the combined company after the merger.
Among the factors considered by the Pfizer and the Pharmacia boards of
directors in connection with their respective approvals of the merger agreement
were the opportunities for operating efficiencies that could result from the
merger. We cannot give any assurance that these savings will be realized within
the time periods contemplated or even if they will be realized at all.
I-20
CHAPTER ONE -- THE MERGER
WE WILL INCUR SIGNIFICANT TRANSACTION, MERGER-RELATED AND RESTRUCTURING COSTS IN
CONNECTION WITH THE MERGER
Pfizer and Pharmacia expect to incur costs associated with combining the
operations of the two companies, transaction fees and other costs related to the
merger. The total estimate includes approximately $100 million for transaction
costs and between $3.5 and $4.0 billion of restructuring and integration costs.
The estimated $100 million of transaction costs are expected to be recorded as a
component of the purchase price. Approximately $1 billion of the restructuring
costs are expected to be included as a liability in the purchase price
allocation. These amounts are preliminary estimates and subject to change.
Additional unanticipated costs may be incurred in the integration of the
businesses of Pfizer and Pharmacia. Although Pfizer and Pharmacia expect that
the elimination of duplicative costs, as well as the realization of other
efficiencies related to the integration of the businesses, may offset
incremental transaction, merger-related and restructuring costs over time, we
cannot give any assurance that this net benefit will be achieved in the near
term, or at all.
OBTAINING REQUIRED APPROVALS AND SATISFYING CLOSING CONDITIONS MAY DELAY OR
PREVENT COMPLETION OF THE MERGER
Completion of the merger is conditioned upon the receipt of all material
governmental authorizations, consents, orders and approvals, including the
expiration or termination of the applicable waiting periods, and any extension
of the waiting periods, under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and approval by the European Commission. Pfizer and
Pharmacia intend to pursue all required approvals in accordance with the merger
agreement. The requirement for these approvals could delay the completion of the
merger for a significant period of time after Pfizer and Pharmacia shareholders
have approved the proposals relating to the merger at their respective special
meetings. See "The Merger Agreement -- Conditions" on page I-82 for a discussion
of the conditions to the completion of the merger and "The Proposed
Merger -- Regulatory Matters Relating to the Merger" on page I-42 for a
description of the regulatory approvals necessary in connection with the merger.
No assurance can be given, however, that these approvals will be obtained or
that the required conditions to closing will be satisfied, and, if all such
approvals are obtained and the conditions are satisfied, no assurance can be
given as to the terms, conditions and timing of the approvals or that they will
satisfy the terms of the merger agreement.
PFIZER AND PHARMACIA ARE THE SUBJECT OF VARIOUS LEGAL PROCEEDINGS
Pfizer and Pharmacia are involved in various patent, product liability,
consumer, environmental and tax claims and litigations and additional matters
that arise from time to time in the ordinary course of business. These include
challenges to the coverage and/or validity of patents on products or processes
and allegations of injuries caused by drugs or medical devices. In addition,
Pfizer and Pharmacia are subject to national, state and local environmental laws
and regulations. Pfizer and Pharmacia are also involved in or are the subject of
governmental or regulatory agency inquiries or investigations from time to time.
For more information about Pfizer's and Pharmacia's legal proceedings, see our
filings with the SEC that are incorporated by reference into this document under
the headings "Commitments, Contingent Liabilities and Litigation" and "Legal
Proceedings."
I-21
CHAPTER ONE -- THE MERGER
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document, and in documents
that are incorporated by reference in this document, that are subject to risks
and uncertainties. These statements are based on the beliefs and assumptions of
each company's management. Generally, forward-looking statements include
information concerning possible or assumed future actions, events or results of
operations of Pfizer, Pharmacia and the combined company. Forward-looking
statements include the information in this document, specifically, regarding:
- management forecasts;
- efficiencies/cost avoidance;
- cost savings;
- income and margins;
- earnings per share;
- growth;
- economies of scale;
- combined operations;
- the economy;
- future economic performance;
- conditions to, and the timetable for, completing the merger;
- future acquisitions and dispositions;
- litigation;
- potential and contingent liabilities;
- management's plans;
- business portfolios;
- taxes;
- merger and integration-related expenses; and
- product approvals and launches.
These statements may be preceded by, followed by or include the words
"believes," "expects," "anticipates," "intends," "plans," "estimates" or similar
expressions. We claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 for
all forward-looking statements.
Forward-looking statements are not guarantees of performance. You should
understand that the following important factors, in addition to those discussed
in "Risk Factors" above and elsewhere in this document, and in the documents
which are incorporated by reference in this document, could affect the future
results of Pfizer and Pharmacia, and of the combined company after the
completion of the merger, and could cause those results or other outcomes to
differ materially from those expressed or implied in our forward-looking
statements:
COMPETITIVE FACTORS
- the ability to respond to and the impact of the loss of patent protection
to Pfizer's, Pharmacia's or the combined company's drugs;
- the impact of competitive products, including competition from the makers
of generic drugs;
- the timing of the introduction of new products;
- the ability to respond to price pressures imposed by managed care groups,
institutions and government agencies;
- the ability to respond to technological advances attained by competitors
and patents granted to competitors; and
- the ability to manufacture products competitively and cost effectively.
OPERATING FACTORS
- changes in the market reaction to Pfizer's and Pharmacia's significant
pharmaceutical products;
- the ability to identify new viable chemical compounds and technologies
and commercialize innovative and competitive products worldwide;
- the ability to successfully complete clinical trials and obtain and
maintain regulatory approval for new products in the United States and
other countries;
- the effect of other regulatory developments;
I-22
CHAPTER ONE -- THE MERGER
- the ability to gain consumer acceptance for our new products and
technologies;
- the ability to secure and defend intellectual property rights and, when
appropriate, license required technology;
- the ability to generate cash flows or obtain financing to fund growth;
- the ability to complete and integrate this and other acquisitions,
strategic alliances and joint ventures;
- the ability to respond to unexpected safety or efficacy concerns arising
with respect to marketed products, whether or not scientifically
justified, leading to product recalls, litigation, withdrawals or
declining sales;
- adverse outcomes of pending or threatened litigation; and
- contingencies related to actual or alleged environmental contamination.
ECONOMIC AND INDUSTRY CONDITIONS
- the effect of changes in currency exchange rates;
- the effect of political and economic conditions, inflation and interest
rates worldwide; and
- the effect of changes in laws and regulations, including changes in
accounting standards, trade, tax, price controls and other regulatory
matters.
I-23
CHAPTER ONE -- THE MERGER
THE PROPOSED MERGER
GENERAL
Pfizer's board of directors is using this joint proxy statement/prospectus
to solicit proxies from the holders of Pfizer common stock for use at the Pfizer
special meeting. Pharmacia's board of directors is also using this document to
solicit proxies from the holders of Pharmacia common stock and Pharmacia Series
B convertible perpetual preferred stock for use at the Pharmacia special
meeting.
PFIZER PROPOSALS
At the Pfizer special meeting, holders of Pfizer common stock are being
asked to vote on:
- the issuance of shares of Pfizer common stock in the merger; and
- an amendment to the Pfizer certificate of incorporation which would
increase the authorized share capital.
THE MERGER WILL NOT BE COMPLETED UNLESS PFIZER'S SHAREHOLDERS APPROVE BOTH
(1) THE ISSUANCE OF SHARES OF PFIZER COMMON STOCK IN THE MERGER; AND (2) THE
AMENDMENT TO THE PFIZER CERTIFICATE OF INCORPORATION, WHICH IS NECESSARY SO THAT
PFIZER WILL HAVE SUFFICIENT AUTHORIZED SHARES TO ISSUE SHARES OF PFIZER COMMON
STOCK TO SHAREHOLDERS OF PHARMACIA.
PHARMACIA PROPOSAL
At the Pharmacia special meeting, holders of Pharmacia common stock and
Pharmacia Series B convertible perpetual preferred stock will be asked to vote
upon the adoption of the merger agreement.
THE MERGER WILL NOT BE COMPLETED UNLESS PHARMACIA'S SHAREHOLDERS ADOPT THE
MERGER AGREEMENT.
BACKGROUND OF THE MERGER
The management of Pfizer has periodically explored and assessed strategic
options for Pfizer as part of its ongoing effort to strengthen its business and
improve its product mix. During the past three years, management of Pfizer has
periodically considered the possibility of a business combination or other
strategic transaction with Pharmacia and its predecessor companies.
An informal discussion on the subject was pursued by Dr. McKinnell,
currently Chairman of Pfizer, with Mr. Hassan, currently Chairman of Pharmacia,
on January 16, 2001. At that time, Mr. Hassan indicated that it was Pharmacia's
desire and strategy to grow on its own. Mr. Hassan subsequently updated the
Pharmacia board of directors on this discussion at its regularly scheduled
meeting on February 21, 2001. In June 2001, at a regularly scheduled meeting of
Pharmacia's board of directors, Pharmacia's board and management discussed the
company's strategic direction and alternatives, and the board affirmed the
general strategic direction being pursued by Pharmacia as an independent company
as the best growth strategy.
Accordingly, no material discussions between Pharmacia and Pfizer regarding
a possible business transaction occurred until April 2002.
On April 9, 2002, Dr. McKinnell met with other members of Pfizer
management, representatives of its investment banker, Lazard Freres & Co. LLC,
and representatives of its legal advisor, Cadwalader, Wickersham & Taft, to
discuss the possibility of making informal inquiries of Pharmacia's management
about a possible business combination or other strategic transaction between
Pfizer and Pharmacia. At this meeting, it was decided that Dr. McKinnell would
approach Mr. Hassan, at the launch of Bextra(R), a new product being co-promoted
and co-marketed by Pfizer and Pharmacia, to gauge Pharmacia's interest in a
possible business combination or other strategic transaction.
At the Bextra(R) launch, which took place between April 9 and April 11,
2002, Dr. McKinnell met briefly with Mr. Hassan and
I-24
CHAPTER ONE -- THE MERGER
suggested that it might be productive for the two of them to get together and
discuss the state of the pharmaceutical industry, including the possibility of a
strategic transaction between Pfizer and Pharmacia in order to better position
the two companies in a volatile economic climate. Mr. Hassan indicated that he
believed that the board of directors of Pharmacia was not interested in
exploring any transaction at the time, but he planned to meet with Dr. McKinnell
to discuss the changing climate in the pharmaceutical industry.
On April 22, 2002, Mr. Hassan followed up with a telephone call to Dr.
McKinnell to arrange a meeting to further discuss industry issues. Dr. McKinnell
and Mr. Hassan agreed to meet in early May.
On April 25, 2002, at a regularly scheduled meeting of Pfizer's board of
directors, Dr. McKinnell briefed the Pfizer board of directors on his recent
informal discussions with Mr. Hassan as well as the strategic considerations for
a possible business combination between Pfizer and Pharmacia. Pfizer's
investment banker and legal advisors also discussed the respective financial and
legal considerations that would likely affect any strategic transaction between
the companies, including the impact of Pharmacia's proposed spin-off of its
interest in one of its subsidiaries, Monsanto Company.
On April 30, 2002, Mr. Hassan updated the Pharmacia board of directors at
its regularly scheduled meeting on the approach from Pfizer. Mr. Hassan
recommended and the board supported continuation of the company's existing
strategy to grow on its own. The board did, however, authorize Mr. Hassan to
meet with Dr. McKinnell to seek a better understanding of Pfizer's intentions.
On May 9, 2002, Dr. McKinnell and Mr. Hassan met in New York. These
discussions, however, did not progress beyond Dr. McKinnell's preliminary
indications of interest in an acquisition of Pharmacia. Mr. Hassan stated that
he believed that Pharmacia's board of directors was not interested in being
acquired by anyone. No additional meetings were scheduled or planned at the
time.
On May 13, 2002, Mr. Hassan had a telephone conference with the Pharmacia
board of directors to update the board on his meeting with Dr. McKinnell. The
board agreed to meet in person to discuss the preliminary indication of interest
in more detail. On May 13, 2002, Pharmacia retained Goldman, Sachs & Co. as its
investment banker.
On June 4, 2002, Dr. McKinnell met with representatives of Lazard and
Cadwalader as well as other members of Pfizer management to discuss making a
proposal to acquire Pharmacia. It was concluded that Dr. McKinnell should
attempt to arrange a meeting with Mr. Hassan and at such meeting present a
specific proposal for a possible business combination between Pfizer and
Pharmacia. In early June, 2002, Dr. McKinnell called Mr. Hassan to request a
meeting.
On June 7, 2002, at a special meeting of Pharmacia's board, Mr. Hassan
described Dr. McKinnell's interest in discussing a potential transaction between
the parties. The board reviewed Pharmacia's performance, prospects and strategic
alternatives with members of senior management and representatives of the
company's financial advisor, Goldman Sachs, and representatives of Pharmacia's
legal advisor, Sullivan & Cromwell. The board authorized Mr. Hassan to meet with
Dr. McKinnell to listen to his proposal.
On June 11, 2002, Dr. McKinnell met with Mr. Hassan and presented an offer
to merge Pfizer and Pharmacia. Dr. McKinnell proposed a transaction in which
Pharmacia's shareholders would receive 1.3 shares of Pfizer common stock in
exchange for each share of Pharmacia common stock, taking into account the
spin-off of Pharmacia's interest in Monsanto Company. Mr. Hassan indicated that
he believed the offer was unacceptable but that he would present it to
Pharmacia's board of directors for consideration.
I-25
CHAPTER ONE -- THE MERGER
On June 14, 2002, Pfizer engaged Bear, Stearns & Co. Inc. to act as its
financial advisor along with Lazard.
On June 18, 2002, Pharmacia's board held a regularly scheduled meeting at
which the proposed transaction with Pfizer was discussed. Mr. Hassan reviewed
his discussions to date with Dr. McKinnell, including the proposal made by Dr.
McKinnell. The board reviewed Pharmacia's performance, prospects and strategic
alternatives with members of senior management and representatives of Goldman
Sachs and Sullivan & Cromwell. Members of senior management discussed with the
board various forecasts for both companies and potential synergies that might
result from a combination of the two companies. The company's legal advisors
reviewed with the board their fiduciary duties under the circumstances. The
board determined that the proposal from Pfizer was inadequate, but authorized
Mr. Hassan and members of senior management to continue discussions with Pfizer.
On June 24, 2002, Mr. Hassan telephoned Dr. McKinnell and informed him that
the Pharmacia board of directors had met and, while still supporting the
company's current strategic direction as an independent company and believing
the proposed exchange ratio of 1.3 to be inadequate, had authorized him to
remain open to further discussions regarding a possible business combination
between Pfizer and Pharmacia. Mr. Hassan emphasized that the Pharmacia board
believed the exchange ratio offered by Pfizer did not accurately reflect
Pharmacia's intrinsic value and could not be the basis for any such transaction.
On June 27, 2002, Pfizer and Pharmacia entered into a customary
confidentiality agreement to allow the exchange of information between the two
companies and their respective legal and financial advisors. On June 27 and 28,
2002, David Shedlarz, the chief financial officer of Pfizer, and Christopher
Coughlin, the chief financial officer of Pharmacia, met several times to discuss
the parameters and details for due diligence. At about the same time, Dr.
McKinnell, in discussions with Mr. Hassan, suggested an exchange ratio of 1.4
shares of Pfizer common stock for each share of Pharmacia common stock, taking
into account the spin-off of Pharmacia's interest in Monsanto Company, which
exchange ratio was dependent upon, among other things, Pharmacia providing
satisfactory information, including information relating to operational
efficiencies of the combined company, to justify such an exchange ratio, and
agreement on the terms of mutually satisfactory definitive agreements and
approval by the Pfizer board of directors.
At a regularly scheduled meeting of the board of directors on June 27,
2002, Dr. McKinnell briefed the Pfizer board of directors regarding his
discussions with Mr. Hassan. The members of the board of directors concurred
that it would be advisable to continue to proceed with negotiations of a
possible business combination with Pharmacia and emphasized the importance of
the due diligence review to be undertaken by Pfizer.
On June 28, 2002, at a special telephonic meeting of the board of
directors, Mr. Hassan updated the Pharmacia board on his discussions with Dr.
McKinnell. The board authorized Mr. Hassan to continue discussions with Dr.
McKinnell regarding the transaction.
On June 30 and July 1, 2002, Dr. McKinnell and Mr. Hassan spoke several
times by telephone regarding the possible business combination. On June 30,
2002, Dr. McKinnell also conferred with members of Pfizer's senior management
and representatives of Pfizer's financial and legal advisors. After these
discussions, Dr. McKinnell and Mr. Hassan continued to discuss an exchange ratio
of 1.4, taking into account the spin-off of Pharmacia's interest in Monsanto
Company, subject to completion of each party's due diligence review, negotiation
of mutually satisfactory definitive agreements and final approval by each
company's board of directors.
On July 1, 2002, members of Pfizer's management, including Dr. McKinnell
and Mr. Shedlarz, met with Pfizer's internal and outside legal advisors and its
financial advisors to discuss the timing and procedures to
I-26
CHAPTER ONE -- THE MERGER
complete a due diligence review of Pharmacia and Pfizer and to negotiate
definitive agreements for the possible business combination.
On July 2, 2002, Mr. Hassan reviewed with the members of the Pharmacia
board of directors in a telephonic meeting the new proposal from Pfizer, noting
that such proposal was subject to completion of satisfactory due diligence by
both parties, mutual agreement on definitive agreements and approval of the
Pfizer board of directors. The members of the board discussed the proposal and
authorized Mr. Hassan to continue discussions with Pfizer with a view to
reaching agreement on the terms of a definitive agreement consistent with the
proposal discussed at the meeting.
From July 2 until July 13, 2002, the respective legal and financial
advisors of Pfizer and Pharmacia conducted extensive due diligence
investigations of the other company. Members of Pfizer's senior management, its
internal and external legal team as well as its financial advisors and external
auditors, conducted a due diligence review from an operational, financial,
accounting, tax and legal perspective. Pfizer's due diligence review included
interviews of Pharmacia's senior management and review of documents. During the
same time, members of Pharmacia's senior management, its internal and external
legal team as well as its financial advisors and external auditors, conducted a
due diligence review from an operational, financial, accounting, tax and legal
perspective. Pharmacia's due diligence review included interviews of Pfizer's
senior management and review of documents.
On July 3, 2002, a draft of the merger agreement was circulated to
Pharmacia and its legal representatives.
During the period from July 3, 2002 to the morning of July 13, 2002, Pfizer
and Pharmacia, working together with their respective legal and financial
advisors, negotiated the terms of the definitive agreements for a possible
business combination and certain changes to their co-promotion and co-marketing
agreements regarding Celebrex(R) and other COX-2 "second generation" drugs.
On July 12, 2002, Pfizer and its outside counsel negotiated with Mr. Hassan
and his personal legal counsel the terms of his employment agreement with
Pfizer. The terms of this employment agreement were finalized the following
morning.
On the morning of July 13, 2002, Pharmacia's board held a special meeting
to discuss in detail the proposed business combination with Pfizer. Members of
senior management and representatives of the company's advisors reviewed the
activities and discussions of the past weeks, and presented a summary of the
proposed transaction terms as reflected in the draft definitive agreements, the
strategic rationale that supported it, and the economic and operational benefits
that it could create. The board reviewed Pharmacia's performance and prospects
and strategic alternatives. Senior management presented the forecasts and
economic benefits upon which the exchange ratio was predicated, and summarized
the process and the results of Pharmacia's senior management's due diligence
investigation of Pfizer. Representatives of Sullivan & Cromwell reviewed in more
detail the terms of the proposed transaction, including the terms of the merger
agreement and the amendment to the COX-2 co-promotion and co-marketing
agreements and described the board's fiduciary duties under the circumstances.
Goldman Sachs provided the Pharmacia board of directors a detailed analysis of
the financial terms of the proposed combination and an oral opinion, which was
subsequently confirmed by delivery of a written opinion, dated July 13, 2002,
that, as of that date and subject to the factors and assumptions set forth in
the opinion, the exchange ratio pursuant to the merger agreement was fair, from
a financial point of view, to the holders of Pharmacia common stock. Without Mr.
Hassan present, members of senior management reviewed with the board the terms
of Mr. Hassan's proposed employment arrangement with Pfizer following completion
of the merger. The board then met without senior management or Mr. Hassan
present to discuss
I-27
CHAPTER ONE -- THE MERGER
any matters that an independent board member wished to raise. During that
session, the board concluded that the terms of Mr. Hassan's employment agreement
were reasonable and did not create a conflict of interest. At the conclusion of
this meeting, after consideration of the factors described under "-- Factors
Considered by, and Recommendation of, the Board of Directors of Pharmacia" on
page I-36, the Pharmacia board of directors determined by a unanimous vote of
the directors present at the meeting that the merger agreement and the
transactions contemplated thereby are advisable, fair to and in the best
interests of Pharmacia and its shareholders, and approved the merger agreement,
the amendment to the Pharmacia shareholder rights plan and the amendment to the
COX-2 co-promotion and co-marketing agreements and authorized the signing
thereof.
On the afternoon of July 13, 2002, the board of directors of Pfizer held a
special meeting to review the final terms of the proposed merger agreement, the
amendment to the COX-2 co-promotion and co-marketing agreements and Mr. Hassan's
employment agreement. Also present at the meeting were members of Pfizer's
senior management, Pfizer's legal advisors, Cadwalader, and Pfizer's financial
advisors, Lazard and Bear Stearns. After an update on the progress of the
negotiations by Dr. McKinnell, Pfizer's senior management presented its
assessment of the proposed transaction and the results of its legal and
financial due diligence review. Representatives of Cadwalader reviewed the
proposed merger agreement in detail with the members of the board of directors
and discussed the fiduciary duties of the board of directors in considering a
possible business combination. Lazard and Bear Stearns then each delivered their
respective oral opinions (which were each subsequently confirmed in writing),
that, as of that date, the exchange ratio pursuant to the merger agreement was
fair to Pfizer from a financial point of view. See "-- Opinions of Financial
Advisors -- Opinions of Pfizer's Financial Advisors" on page I-47 for further
information regarding these opinions. Thereafter, the members of board of
directors of Pfizer, after consideration of the factors described under
"-- Factors Considered by, and Recommendation of, the Board of Directors of
Pfizer" on page I-34, voted unanimously to approve the merger agreement, the
amendment to the Pfizer certificate of incorporation, the amendment to the COX-2
co-promotion and co-marketing agreements with Pharmacia and the employment
agreement with Mr. Hassan.
Before the opening of trading on July 15, 2002, Pharmacia and Pfizer issued
a joint press release announcing the execution of the merger agreement.
OUR REASONS FOR THE MERGER
While each of Pfizer and Pharmacia has growth potential and prospects for
its immediate and long-term future as a stand-alone entity, we both believe that
a combination of the two companies will create a leading global pharmaceutical
company with greater diversity, breadth and financial resources that will have
the opportunity to enhance shareholder value in ways that are unlikely to be
achieved by Pfizer or Pharmacia alone. Specifically, the combined company would
be uniquely positioned to benefit from the following:
- Enhanced revenue potential resulting from, among other things:
-- access to late stage pipeline drugs;
-- enhanced capability to bring new products to market; and
-- increased scale.
- Significant cost savings from among other things, increased purchasing
power as a combined company.
- Combination of operational factors, such as growth opportunities and risk
reductions with respect to research and development.
- Leadership in major therapeutic categories.
Enhanced Revenue Potential. The merger will combine two large and
fast-growing firms in the pharmaceutical industry, which will create the
opportunity for solid growth potential,
I-28
CHAPTER ONE -- THE MERGER
improved financial returns and accelerated earnings growth. The combined company
would be a larger enterprise with a broader and more diversified product line
than either Pfizer or Pharmacia on a stand-alone basis, with estimated potential
combined revenues of $52.8 billion in 2003.
As competition intensifies in the industries in which Pfizer and Pharmacia
participate, we believe that the combined company will benefit from an enhanced
potential for revenue growth in the following areas and for the following
reasons:
- Pharmaceuticals. The combined company expects to have nearly $43.7
billion in prescription pharmaceutical sales in 2003.
Together the two companies had eight products that they own with sales of
more than $1 billion in 2001: Lipitor(R), Viagra(R), Norvasc(R),
Zoloft(R), Zithromax(R), Diflucan(R), Neurontin(R)and Celebrex(R) (which
is co-promoted and co-marketed by Pfizer and Pharmacia). In addition, the
combined company will promote 15 products which had sales in excess of
$500 million each in 2001, including Zyrtec(R), Xalatan(R),
Detrol(R)/Detrol LA(R), Camptosar(R) and Accupril(R), and ten of those
products had an aggregate annual growth of 24% or more in 2001.
We believe that the combined company's enhanced market presence and sales
penetration in key products, coupled with its increased research and
development capabilities may lead to the development of new
pharmaceutical products. Its enhanced capabilities to successfully bring
such products to market may lead to enhanced potential for revenue
growth. Most of the major products of both Pfizer and Pharmacia will
continue to have patent protection well into this decade and beyond. We
believe that these factors provide the opportunity to support the
combined growth of products in both Pfizer's and Pharmacia's pipelines of
new products, as well as organic and geographic growth of present
products.
- New Products and Broad and Diversified Product Line. The combination of
Pfizer's pipeline of new products with Pharmacia's pipeline of new
products is expected to provide the combined company with the potential
for enhanced revenue growth. In June 2002, the FDA approved the
injectable form of Geodon(R), making it the first atypical antipsychotic
medicine for schizophrenia approved in the United States for
intramuscular use. In May 2002, the FDA approved Vfend(R) for life
threatening fungal infections. In April 2002, Bextra(R) was launched in
the United States for the relief of pain and inflammation of
osteoarthritis, adult rheumatoid arthritis and primary dysmenorrhea.
Also, in April 2002, Spiriva(R)(co-promoted with Boehringer-Ingelheim)
was approved by regulatory authorities in Europe as a treatment for
chronic obstructive pulmonary disease. The product was launched in six
countries, including Germany in June 2002. On February 5, 2002, the FDA
accepted a new drug application for eplerenone for the treatment of
hypertension.
- Increased Scale. Scale has importance in many areas, including:
- financial strength;
- research and development of new products;
- an increased presence in major international markets;
- an increased ability to attract licensing partners;
- improved marketing and sales support; and
- distribution capabilities, as well as enhancement of existing
competencies.
I-29
CHAPTER ONE -- THE MERGER
We believe the increased scale of the combined company, and the benefits in
the areas mentioned above, could result in greater efficiency and an enhanced
potential for revenue growth.
While we expect that we will be able to realize enhanced revenues, no
assurance can be given that we will actually be able to do so.
Significant Cost Savings. The combined company is expected to increase its
profitability through cost savings and operating efficiencies resulting from the
elimination of duplicative facilities and functions which would exist in the
combined company in the United States, through multiple organizations and
systems in over thirty foreign countries, and through the benefits of leveraging
our combined annual external purchases. Pfizer estimates that savings from
reductions in cost of goods sold will be realized by optimization of global
manufacturing, involving over 100 manufacturing sites of the two companies
around the world. The combined company may also be able to leverage its
marketing and sales infrastructure to support existing and new products. Savings
from sales, general and administrative expenses are expected to be realized by
the combination of two worldwide headquarters and multiple staff support
functions in over thirty countries. In addition to the competitive advantage
gained by the size of the research and development budget, the combination of
the research and development programs will permit the combined company to
utilize the best science, research, development capabilities and procedures of
each company. Pfizer's human pharmaceutical research and development
expenditures have been growing by a compound annual growth rate of 14% over the
last 3 years. Based on our review of and assumptions about the operations and
infrastructure of the two companies, we expect that the combined company will
realize annual cost savings of approximately $2.5 billion by 2005. We expect to
achieve such cost savings as follows:
- $1.4 billion by 2003;
- $2.2 billion by 2004; and
- $2.5 billion by 2005.
The estimated cost savings reflect the realization of cost reduction
opportunities and efficiencies through the ability to consolidate separate
stand-alone operations into a single entity. While we expect that we will be
able to realize these cost savings, no assurance can be given that we will
actually be able to do so.
The management of both companies believes that the financial performance of
the combined company will be enhanced by the potential cost savings expected
from the merger.
I-30
CHAPTER ONE -- THE MERGER
The following table sets forth the anticipated adjusted earnings of Pfizer,
Pharmacia's forecast, as adjusted by Pfizer with the concurrence of Pharmacia,
and the anticipated adjusted earnings of the combined company. It is being set
forth below because, in connection with its review of the merger, Pfizer's
management developed the information to evaluate the potential benefits of the
merger based on Pharmacia's forecast (as adjusted by Pfizer with the concurrence
of Pharmacia). Adjusted earnings is equal to forecasted GAAP net income or loss,
excluding discontinued operations, extraordinary items, plus the cumulative
effect of a change in accounting principle, plus certain significant items, plus
charges related to purchase price allocations on assets (including write-off of
in-process research and development, amortization of identifiable intangibles
and charges related to write-up of assets to fair market value) plus
merger-related costs (including integration expenses and restructuring charges).
The major assumptions underlying the anticipated combined adjusted earnings set
forth below are: (1) product launches in several major markets during this
timeframe; (2) no loss of significant revenue to generic competition as a result
of expiration or loss of patent protection; (3) no material changes to Pfizer's
and Pharmacia's U.S. pharmaceutical pricing and reimbursement practices; (4)
estimates for Pfizer and Pharmacia are based on current accounting principles
and business practices of each company which existed prior to the merger;
harmonization of accounting principles and business practices after the merger
may result in changes to the projected results; (5) foreign exchange rates
implicit when the forecasts were developed; (6) merger-related cost savings of
$1.4 billion and $2.2 billion are realized in 2003 and 2004, respectively; (7)
no material changes in the U.S. or international tax codes; and (8) $16 billion
in share repurchases are completed by the end of 2003. See "Forward-Looking
Statements" on page I-22 for discussion of the factors that may impact
anticipated results and the statements in Chapter Two under the heading
"Unaudited Financial Forecasts" on Page II-11 for discussion of the factors that
impact the forecasts included in the following table:
AFTER TAX
COST SAVINGS LESS
PHARMACIA INCREMENTAL INTEREST ON
PFIZER FORECAST, AS ADDITIONAL BORROWINGS FOR COMBINED
ADJUSTED ADJUSTED SHARE BUYBACK ADJUSTED
EARNINGS(3) BY PFIZER(3) AND RESTRUCTURING COSTS EARNINGS(4)
----------- ------------ ------------------------- -----------
(IN BILLIONS, EXCEPT PER SHARE AMOUNTS)
Estimated 2002* (without cost
savings)......................... $ 9.9 2.0 -- 11.9
Estimated 2003 (without cost
savings)......................... $11.3 2.3 -- 13.6
Estimated 2003 (with cost
savings)......................... $11.3 2.3 0.8(1) 14.4
Estimated 2004 (without cost
savings)......................... $12.7 2.7 -- 15.4
Estimated 2004 (with cost
savings)......................... $12.7 2.7 1.3(2) 16.7
Estimated Diluted EPS 2003 (with
cost savings).................... $ 1.84
Estimated Diluted EPS 2004 (with
cost savings).................... $ 2.18
-------------------------
* Assumes the merger had occurred on January 1, 2002
(1) Based upon estimated cost savings of $1.4 billion less incremental interest
on additional borrowings for share buy-back and restructuring costs expected
to be realized in 2003 ($0.8 billion after tax).
I-31
CHAPTER ONE -- THE MERGER
(2) Based upon estimated cost savings of $2.2 billion less incremental interest
on additional borrowings for share buy-back and restructuring costs expected
to be realized in 2004 ($1.3 billion after tax).
(3) Adjusted earnings and Pharmacia forecast, as adjusted by Pfizer with the
concurrence of Pharmacia, are presented here to provide additional
information to shareholders. These items should be considered in addition
to, but not as a substitute for or superior to, net earnings, cash flow or
other measures of financial performance prepared in accordance with
accounting principles generally accepted in the United States of America.
Determination of adjusted earnings and management forecasts may vary from
company to company.
(4) Forecasted GAAP net income reconciled to combined adjusted earnings is
follows:
COMBINED 2002
-------------
(IN BILLIONS)
Forecasted GAAP net loss.................................... $(5.8)
+ Discontinued operations - Monsanto (net of tax).......... 1.0
- Extraordinary item - gain on sale of investment (net of
tax)...................................................... (0.6)
+ Cumulative effect of change in accounting principle (net
of tax)................................................... 1.9
+ Certain significant items (net of tax):
Merger-related costs in connection with the
Warner-Lambert merger................................. 0.3
Gain on transfer of Ambien to Sanofi-Synthelabo...... (0.4)
+ Effect of purchase price allocations on assets (net of
tax):
Write-off of in-process research and development..... 13.0
Amortization of identifiable intangibles............. 1.5
Write-up of assets to fair market value.............. 1.0
+ Merger-related costs in connection with Pharmacia merger
(net of tax):
Integration expenses................................. --
Restructuring charges................................ --
-----
Combined adjusted earnings without cost savings (net of
tax)...................................................... $11.9
=====
COMBINED 2003
-------------
(IN BILLIONS)
Forecasted GAAP net income.................................. $10.5
+ Certain significant items (net of tax):
Merger-related costs in connection with the
Warner-Lambert merger................................. 0.1
+ Effect of purchase price allocations on assets (net of
tax):
Amortization of identifiable intangibles............. 1.5
+ Merger-related costs in connection with Pharmacia merger
(net of tax):
Integration expenses................................. 0.7
Restructuring charges................................ 0.8
-----
Combined adjusted earnings without cost savings (net of
tax)...................................................... 13.6
Cost savings less incremental interest on additional
borrowings for share buy-back and restructuring costs (net
of tax)................................................... 0.8
-----
Combined adjusted earnings with cost savings (net of tax)... $14.4
=====
I-32
CHAPTER ONE -- THE MERGER
COMBINED 2004
-------------
(IN BILLIONS)
Forecasted GAAP net income.................................. $13.1
+ Effect of purchase price allocations on assets (net of
tax):
Amortization of identifiable intangibles............. 1.5
+ Merger-related costs in connection with Pharmacia merger
(net of tax):
Integration expenses................................. 0.4
Restructuring charges................................ 0.4
-----
Combined adjusted earnings without cost savings (net of
tax)...................................................... 15.4
Cost savings less incremental interest on additional
borrowings for share buy-back and restructuring costs (net
of tax)................................................... 1.3
-----
Combined adjusted earnings with cost savings (net of tax)... $16.7
=====
None of the financial information set forth in the table above or in the
notes thereto was prepared with a view to public disclosure or compliance with
published guidelines established by the SEC or the American Institute of
Certified Public Accountants regarding projections. None of Pfizer, Pharmacia or
their respective affiliates or Pfizer's or Pharmacia's independent auditors
assume any responsibility for the accuracy of this information. The financial
information was not prepared with the approval of the Pfizer or Pharmacia boards
of directors. The financial information is subjective in many respects and thus
susceptible to interpretation and periodic revision based on actual experience
and recent developments. While presented with numeric specificity, the financial
information reflects numerous assumptions made by the managements of Pfizer and
Pharmacia with respect to industry performance and competition, general
business, economic, market and financial conditions and other matters, all of
which are difficult to predict, many of which are beyond the control of Pfizer
and Pharmacia. For these reasons, the inclusion of the financial information in
this document should not be regarded as an indication that Pfizer, Pharmacia, or
their respective affiliates or representatives, considered or consider the
financial information to be a reliable prediction of future events, and the
financial information should not be relied upon as such. Actual results may be
higher or lower than those estimated. Pfizer and Pharmacia do not generally
publish their respective business plans and strategies or make external
disclosures of their respective anticipated financial position or results of
operations. Accordingly, Pfizer and Pharmacia do not intend to, and specifically
decline any obligation to, update or otherwise revise the prospective financial
information to reflect circumstances existing since their preparation or to
reflect the occurrence of unanticipated events, even if any or all the
underlying assumptions are shown to be in error. Also, Pfizer and Pharmacia do
not intend to, and specifically decline any obligation to, update or revise the
prospective financial information to reflect changes in general economic or
industry conditions. Neither Pfizer's auditors nor Pharmacia's auditors, nor any
other independent accountants, have compiled, examined or performed any
procedures with respect to this financial information, nor have they expressed
any opinion or any other form of assurance on this information or its
achievability, and assume no responsibility for, and disclaim any association
with, this prospective financial information. The independent public
accountants' reports incorporated by reference in this document relate to the
historical financial statements of Pfizer and Pharmacia. These reports do not
extend to these unaudited financial forecasts and should not be read to do so.
------------------------
Combination of Operational Factors. We expect the merger to provide for
significant opportunities in sales and marketing and in research and
development, including new opportunities for innovation in supporting existing
products and bringing new products to market. With the enhanced marketing and
manufacturing platform provided by the merger, we
I-33
CHAPTER ONE -- THE MERGER
expect the combined company to be poised for solid future growth. The research
and development resources of the combined company are expected to provide new
opportunities for innovation and discovery. The research and development budget
of the combined company is expected to be over $7 billion in 2003. While we
expect that the combination of our complementary technology platforms will
result in new opportunities for innovation in supporting existing products and
bringing new products to market, no assurance can be given that we will be able
to do so.
Leadership in Major Therapeutic Categories. The combined company will have
major products in the following major therapeutic categories:
- Cardiovascular, with such products as Norvasc(R), Accupril(R) and
Cardura(R) ;
- Lipid lowering, with the product Lipitor(R);
- Diabetes, with the product Glucotrol XL(R);
- Central Nervous System, with such products as Zoloft(R), Aricept(R),
Neurontin(R), Mirapex(R) and Xanax(R);
- Arthritis/Joint Diseases, with such products as Celebrex(R), Bextra(R)
and Dynastat(R);
- Infectious Diseases, with such products as Zithromax(R), Diflucan(R),
Zyvox(R) and Viracept(R);
- Men's and Women's Health, with such products as Viagra(R), Loestrin(R),
Estrostep(R), femhrt(R) and Detrol LA(R);
- Cancer care, with the products Camptosar(R)(2) and Ellence(R);
- Eye care, with the products Xalatan(R) and Xalcom(R);
- Endocrine disorders, with the product Genotropin(R); and
- Allergies, with the product Zyrtec(R).
FACTORS CONSIDERED BY, AND RECOMMENDATION OF, THE BOARD OF DIRECTORS OF PFIZER
At its meeting on July 13, 2002, Pfizer's board of directors unanimously:
- determined that the merger agreement and the merger are advisable and
fair to, and in the best interests of, Pfizer and its shareholders;
- directed that the proposal to issue Pfizer shares in the merger and the
proposal to amend the Pfizer certificate of incorporation be submitted
for consideration to the Pfizer shareholders;
- recommended that the Pfizer shareholders vote FOR the proposal to issue
shares of Pfizer common stock in the merger; and
- recommended that the Pfizer shareholders vote FOR the proposal to amend
the Pfizer certificate of incorporation to increase its share capital.
In the course of reaching its decision to approve the merger agreement,
Pfizer's board of directors consulted with Pfizer's management, as well as its
legal counsel and its financial advisors, and considered the following material
factors:
(1) information concerning the financial performance and condition,
results of operations, asset quality, prospects and businesses of each
of Pfizer and Pharmacia as separate entities and on a combined basis,
including:
- the revenues of the companies, their complementary businesses and
the potential for cost savings and revenue enhancement;
---------------
2 Camptosar(R) is a registered trademark of Yakult Honsha Co., Ltd.
I-34
CHAPTER ONE -- THE MERGER
- the recent and historical stock price performance of Pfizer common
stock and Pharmacia common stock; and
- the percentage of the combined company Pfizer's shareholders would
own following the merger.
(2) the importance of market position, significant scale and scope and
financial resources to a company's ability to compete effectively in
the changing environment in the global pharmaceutical market, and the
fact that the strategic combination of Pfizer's and Pharmacia's
businesses would create the world's largest pharmaceutical company;
(3) the strategic nature of the transaction, which combines Pfizer's and
Pharmacia's complementary businesses, and creates a broader company
with enhanced global reach and greater resources, enhanced future
operating flexibility and increased opportunity for growth;
(4) the potential benefits to be derived from a combination of the two
companies as described under "-- Our Reasons for the Merger" on page
I-28, including potential cost savings and efficiencies that could
result from the merger;
(5) the current industry, economic and market conditions and trends,
including the likelihood of continuing consolidation and increasing
competition in the pharmaceutical industry;
(6) the nature and timing of new products of both companies in their
respective pipelines, the complementary nature of both companies
pipelines and the effect of combining such pipelines on the growth and
results of operations of the combined company;
(7) the nature and effectiveness of existing products to be sold by the
combined company and the fact that the customer base to be served will
be broader and more diverse;
(8) the opportunity for the shareholders of Pfizer to participate in a
larger company with a broader and more diverse product line and, as
shareholders of the combined company, benefit from future growth of
the combined company;
(9) the exchange ratio will enable Pfizer shareholders to own
approximately 77% of the outstanding stock of the combined company;
(10) the opinion of Lazard, which is described below, under "Opinions of
Financial Advisors -- Opinions of Pfizer's Financial Advisors" on page
I-47, to the effect that, as of the date of its opinion and subject to
the matters set out in its written opinion, the exchange ratio in the
merger was fair, from a financial point of view, to Pfizer;
(11) the opinion of Bear Stearns, which is described below, under "Opinions
of Financial Advisors -- Opinions of Pfizer's Financial Advisors" on
page I-49, to the effect that, as of the date of its opinion and
subject to the matters set out in its written opinion, the exchange
ratio in the merger was fair, from a financial point of view, to
Pfizer;
(12) the structure of the transaction as a tax-free reorganization for
United States federal income tax purposes;
(13) the ability to consummate the merger, including the conditions to the
merger requiring receipt of necessary regulatory approvals in
accordance with the terms of the merger agreement;
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CHAPTER ONE -- THE MERGER
(14) the highly successful ongoing relationship between Pfizer and
Pharmacia in co-marketing, co-promoting and licensing Celebrex(R) and
the successful launch of Bextra(R) and the benefit to Pfizer of
control of Celebrex(R) and the COX-2 "second generation" drug
franchise, including the challenges inherent in expanding the
franchise;
(15) the potential liabilities arising out of the agricultural and chemical
business of the former Monsanto Company as to which Pharmacia is
indemnified by Monsanto Company and Solutia and the ability of the
existing indemnity provisions to shield the combined company from
liability;
(16) potential liability arising out of other legal proceedings involving
Pharmacia;
(17) the challenges of combining the businesses of two major corporations,
including Pfizer's experience successfully integrating the business of
Warner-Lambert Company, and the risks of diverting management
resources for an extended period of time; and
(18) the board of directors' continuing belief in the shareholder value
opportunity represented by the strategic path the board had previously
chosen and the unique implementation opportunity presented by the
definitive transaction terms with Pharmacia.
In view of the variety of factors and the amount of information considered,
Pfizer's board of directors did not find it practicable to and did not quantify,
rank or otherwise assign relative weights to the specific factors it considered
in reaching its decision. The determination was made after consideration of all
of the factors both negative and positive, taken as a whole. In addition,
individual members of Pfizer's board of directors may have given different
weights to different factors.
Pfizer's board of directors considered all these factors in reaching the
conclusions and recommendations described above. It should be noted that this
explanation of the Pfizer board's reasoning and certain information presented in
this section is forward-looking in nature and, therefore, such information
should be read in light of the factors discussed under the heading
"Forward-Looking Statements" on page I-22.
THE PFIZER BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY AND
BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF,
PFIZER AND ITS SHAREHOLDERS. THE PFIZER BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE PROPOSAL TO ISSUE SHARES OF PFIZER COMMON STOCK IN THE MERGER AND FOR THE
PROPOSAL TO AMEND THE PFIZER CERTIFICATE OF INCORPORATION.
FACTORS CONSIDERED BY, AND RECOMMENDATION OF, THE BOARD OF DIRECTORS OF
PHARMACIA
At a special meeting held on July 13, 2002, after due consideration and
consultation with financial and other advisors, the Pharmacia board of
directors:
- determined by a unanimous vote of the directors present at the meeting
that the merger agreement and the transactions contemplated thereby are
advisable, fair to and in the best interests of Pharmacia and its
shareholders;
- approved the merger agreement;
- directed that the merger agreement be submitted for consideration by the
Pharmacia shareholders; and
- recommended that the Pharmacia shareholders vote FOR adoption of the
merger agreement.
In the course of reaching its decision to approve the merger agreement, the
Pharmacia board of directors consulted with Pharmacia's
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CHAPTER ONE -- THE MERGER
management, as well as its outside legal counsel and its financial advisors, and
considered the following material factors:
(1) the relationship of the exchange ratio of 1.4 shares of Pfizer common
stock for each share of Pharmacia common stock to recent and
historical market prices of Pharmacia common stock, as well as its
relationship to the recent and historical ratio of the Pharmacia
market price to the Pfizer market price. In this respect, the board
noted the exchange ratio of 1.4 represents an implied premium of:
- 52.4% over the implied exchange ratio of 0.92 based on the closing
price of Pharmacia common stock and Pfizer common stock on July 12,
2002;
- 40.0% over the implied exchange ratio of 1.00 based on the average
closing price of Pharmacia common stock and Pfizer common stock for
the 3-month period ending on July 12, 2002; and
- 48.3% over the implied exchange ratio of 0.94 based on the average
closing price of Pharmacia common stock and Pfizer common stock for
the 6-month period ending on July 12, 2002.
The Pharmacia board also considered the premiums paid in other
comparable pharmaceutical industry acquisitions. The "implied"
exchange ratio represents ratios or premiums of the actual closing
price of Pharmacia common stock and Pfizer common stock on the
relevant date or for the relevant period, as applicable, minus the
value of Pharmacia's interest in Monsanto Company common stock
calculated on a per share of Pharmacia's common stock basis;
(2) information concerning the recent results of operations, prospects and
businesses of Pharmacia and the recent stock price performance of
Pharmacia shares, Pfizer shares, and the shares of other
pharmaceutical companies;
(3) trends and competitive developments in the pharmaceutical industry and
the range of strategic alternatives available to Pharmacia, including
Pharmacia continuing its existing strategy of continuing to develop
and market pharmaceutical products as an independent company, or
exploring potential "mergers of equals" with similar sized
pharmaceutical companies;
(4) the business, operations, earnings and prospects of Pfizer, the
complementary businesses of Pharmacia and Pfizer, the potential
prospects and businesses of the combined company following the merger
and the opportunity for Pharmacia shareholders to participate in the
combined company's long-term growth. The board also considered that
there could be no assurance that such growth would occur;
(5) that Pharmacia shareholders would own approximately 23% of the
combined company following the merger;
(6) the combined company is expected to have combined annual revenues of
approximately $48 billion, including $39 billion in prescription sales
in 2002;
(7) the importance of size and scope, which would allow the combined
company to compete more effectively in the increasingly competitive
pharmaceutical industry and the fact that the combined company would
be financially stronger than Pharmacia would be as an independent
entity;
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CHAPTER ONE -- THE MERGER
(8) the current environment of the pharmaceutical industry, including the
increasing cost to fund the high-risk and long-term research required
to develop successful pharmaceutical products;
(9) the opportunity to maximize the potential of both companies' current
products and pipelines, such as the near-term launch of several key
Pharmacia products in Japan;
(10) the highly successful ongoing relationship between Pfizer and
Pharmacia in co-marketing, co-promoting and licensing Celebrex(R) and
the successful launch of Bextra(R);
(11) that the dividends payable in respect of 1.4 shares of Pfizer common
stock were expected to be approximately 35% higher in 2003 and
approximately 40% higher in 2004 than the currently-anticipated
dividend on a share of Pharmacia common stock;
(12) the corporate governance aspects of the merger, including that at the
closing of the merger, Mr. Hassan, the current Chairman and Chief
Executive Officer of Pharmacia, will be named the Vice-Chairman of
Pfizer and become a member of Pfizer's board of directors;
(13) the intended treatment of the merger as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code;
(14) the likelihood, determined after consultation with its legal counsel,
that the regulatory approvals and clearances necessary to complete the
merger would be obtained and that Pfizer had agreed in the merger
agreement to take such action, including selling or holding separate
assets of Pfizer or Pharmacia, as necessary to complete the merger,
unless such actions would have a material adverse effect on Pharmacia,
including, for this purpose only, Pharmacia's prospects;
(15) the terms of the merger agreement and the employee related agreements
and plans, including:
- that the merger agreement permits Pharmacia to provide information
and enter into negotiations with a third party if Pharmacia receives
an unsolicited proposal from a third party and the board concludes
that there is a reasonable likelihood that such acquisition proposal
could result in a proposal that is more favorable to Pharmacia's
shareholder from a financial point of view than the proposed merger;
- that it could change its recommendation to the Pharmacia
shareholders in the event that Pfizer suffers a material adverse
effect or if the board determines that an unsolicited acquisition
proposal is more favorable to Pharmacia's shareholders from a
financial point of view; and
- that it could terminate the merger agreement to accept a proposal
that is more favorable to Pharmacia's shareholders from a financial
point of view if it pays Pfizer a termination fee of $1.6 billion
and, if the more favorable transaction is completed within one year
of termination, transfers the tie-breaking vote for decisions under
the COX-2 co-promotion and co-marketing agreements to Pfizer. This
amendment is described in more detail under the heading "Summary of
the Merger Agreement -- Amendment to Co-Promotion and Co-Marketing
Agreements" on page I-86.
(16) the opinion of Goldman Sachs that, based on and subject to the factors
and assumptions set forth in the
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CHAPTER ONE -- THE MERGER
opinion, as of the date of such opinion and subject to the opinion,
the exchange ratio pursuant to the merger agreement was fair, from a
financial point of view, to the holders of Pharmacia common stock,
which opinion is described in detail under the heading "Opinion of
Pharmacia's Financial Advisor" on page I-62.
The Pharmacia board of directors weighed these advantages and opportunities
against:
(1) the challenges inherent in the combination of two business enterprises
of the size and scope of Pfizer and Pharmacia and the possible
resulting diversion of management attention for an extended period of
time;
(2) the risk that the merger would not be completed;
(3) the risk that anticipated benefits, long-term as well as short-term,
of the merger for the Pharmacia shareholders might not be realized;
(4) the impact of the merger on Pharmacia's employees;
(5) the risk that various provisions of the merger agreement and the
agreement regarding the change to the COX-2 co-promotion and
co-marketing agreements may have the effect of discouraging other
persons potentially interested in a combination with Pharmacia from
pursuing such opportunity;
(6) the combined company's potential liability associated with actions
that have been filed against Pfizer related to Rezulin, a diabetes
drug, and to asbestos, in connection with limited sales of minor
products containing asbestos which Pfizer acquired in the 1960s; and
(7) the potential impact of the litigation, and the potential loss of
Pfizer's patent protection, related to Neurontin(R).
The Pharmacia board also considered that the merger agreement provides for
a fixed exchange ratio and that the value of the consideration to be paid in the
merger to Pharmacia shareholders depends on the value of the Pfizer common stock
at the time of the merger. The Pharmacia board realized that there can be no
assurance about future results, including results expected or considered in the
factors listed above, such as assumptions regarding potential revenue
enhancements and anticipated cost savings. However, the Pharmacia board
concluded that the potential positive factors outweighed the potential risks of
completing the merger.
The foregoing discussion of the information and factors considered by the
Pharmacia board of directors is not exhaustive, but includes all material
factors considered by the Pharmacia board. In view of the wide variety of
factors considered by the Pharmacia board in connection with its evaluation of
the merger and the complexity of such matters, the Pharmacia board did not
consider it practical to, nor did it attempt to, quantify, rank or otherwise
assign relative weights to the specific factors that it considered in reaching
its decision. The Pharmacia board discussed the factors described above, asked
questions of Pharmacia's management and Pharmacia's legal and financial
advisors, and reached general consensus that the merger was advisable and in the
best interests of Pharmacia and its shareholders. In considering the factors
described above, individual members of the Pharmacia board of directors may have
given different weight to different factors. It should be noted that this
explanation of the Pharmacia board's reasoning and certain information presented
in this section is forward-looking in nature and, therefore, such information
should be read in light of the factors discussed under the heading
"Forward-Looking Statements" on page I-22.
THE PHARMACIA BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE MERGER AND THE OTHER TRANSACTIONS CONTEM-
I-39
CHAPTER ONE -- THE MERGER
PLATED THEREBY AND BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF PHARMACIA AND ITS SHAREHOLDERS. ACCORDINGLY, THE PHARMACIA
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT PHARMACIA SHAREHOLDERS VOTE "FOR"
THE ADOPTION OF THE MERGER AGREEMENT.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase by Pfizer under accounting
principles generally accepted in the United States of America. Under the
purchase method of accounting, the assets and liabilities of Pharmacia will be
recorded, as of completion of the merger, at their respective fair values and
added to those of Pfizer. Reported financial condition and results of operations
of Pfizer issued after completion of the merger will reflect Pharmacia's
balances and results after completion of the merger, but will not be restated
retroactively to reflect the historical financial position or results of
operations of Pharmacia. Following the completion of the merger, the earnings of
the combined company will reflect purchase accounting adjustments, including
in-process research and development write-offs and increased amortization and
depreciation expense for acquired assets.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following general discussion summarizes the material United States
federal income tax consequences of the merger to holders of Pfizer common stock
and Pharmacia common stock.
United States Federal Income Tax Consequences to Pharmacia Shareholders Who
Participate in the Merger.
This discussion addresses only those Pharmacia shareholders that hold their
Pharmacia common stock as a capital asset and does not address all aspects of
federal income taxation that may be relevant to a holder of Pharmacia common
stock in light of that shareholder's particular circumstances or to a
shareholder subject to special rules, such as:
- a shareholder that is not a citizen or resident of the United States;
- a financial institution or insurance company;
- a mutual fund;
- a tax-exempt organization;
- a dealer or broker in securities or foreign currencies;
- traders in securities that elect to apply a mark-to-market method of
accounting;
- a shareholder that holds its Pharmacia common stock as part of a hedge,
appreciated financial position, straddle or conversion transaction; or
- a shareholder that acquired its Pharmacia common stock pursuant to the
exercise of options or otherwise as compensation.
The following discussion is not binding on the Internal Revenue Service. It
is based on the Internal Revenue Code of 1986, as amended, applicable Treasury
regulations, administrative interpretations and court decisions, each as in
effect as of the date of this joint proxy statement/prospectus and all of which
are subject to change, possibly with retroactive effect. The tax consequences
under United States state and local and foreign laws and United States federal
laws other than United States federal income tax laws are not addressed.
Holders of Pharmacia common stock are strongly urged to consult their tax
advisors as to the specific tax consequences to them of the merger, including
the applicability and effect of United States federal, state and local and
foreign income and other tax laws in light of their particular circumstances.
Pfizer and Pharmacia have structured the merger so that it is anticipated
that the merger will qualify as a reorganization for United
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CHAPTER ONE -- THE MERGER
States federal income tax purposes. On the date this registration statement
becomes effective, Pfizer will receive a written opinion from Cadwalader,
Wickersham & Taft, and Pharmacia will receive a written opinion from Sullivan &
Cromwell, both to the effect that for United States federal income tax purposes,
the merger will constitute a reorganization within the meaning of section 368(a)
of the Internal Revenue Code. It is a condition to the completion of the merger
that Cadwalader, Wickersham & Taft and Sullivan & Cromwell confirm their
respective opinions as of the closing date of the merger. Neither Pfizer nor
Pharmacia intends to waive this condition. These opinions will each rely, on
assumptions, including assumptions regarding the absence of changes in existing
facts and law and the completion of the merger in the manner contemplated by the
merger agreement, and representations and covenants made by Pfizer, Pharmacia
and others, including those contained in certificates of officers of Pfizer and
Pharmacia. If any of those representations, covenants or assumptions is
inaccurate, counsel may not be able to render the required opinions and the tax
consequences of the merger could differ from those discussed here. Opinions of
counsel neither bind the IRS nor preclude the IRS from adopting a contrary
position. No ruling has been or will be sought from the IRS on the tax
consequences of the merger.
For United States federal income tax purposes:
- A holder of Pharmacia common stock will not recognize any gain or loss
upon the exchange of that shareholder's shares of Pharmacia common stock
for shares of Pfizer common stock in the merger, except that gain or loss
will be recognized on the receipt of cash in lieu of a fractional share
of Pfizer common stock;
- To the extent that a holder of Pharmacia common stock receives cash in
lieu of a fractional share of Pfizer common stock, the holder will be
required to recognize gain or loss, measured by the difference between
the amount of cash received and the portion of the tax basis of that
holder's shares of Pharmacia common stock allocable to that fractional
share of Pfizer common stock. This gain or loss will be capital gain or
loss and will be long-term capital gain or loss if the holding period for
the share of Pharmacia common stock exchanged for the fractional share of
Pfizer common stock is more than one year at the completion of the
merger;
- A holder of Pharmacia common stock will have a tax basis in the Pfizer
common stock received in the merger equal to (1) the tax basis of the
Pharmacia common stock surrendered by that holder in the merger, less (2)
any tax basis of the Pharmacia common stock surrendered that is allocable
to a fractional share of Pfizer common stock for which cash is received;
and
- The holding period for shares of Pfizer common stock received in exchange
for shares of Pharmacia common stock in the merger will include the
holding period for the shares of Pharmacia common stock surrendered in
the merger.
United States Federal Income Tax Consequences to Pfizer
Shareholders. There will be no United States federal income tax consequences to
a holder of Pfizer common stock as a result of the merger.
This discussion is intended to provide only a general summary of the
material United States federal income tax consequences of the merger, and is not
a complete analysis or description of all potential United States federal income
tax consequences of the merger. This discussion does not address tax
consequences that may vary with, or are contingent on, individual circumstances.
In addition, it does not address any non-income tax or any foreign, state or
local tax consequences of the merger. ACCORDINGLY, PFIZER AND PHARMACIA STRONGLY
URGE EACH HOLDER OF PHARMACIA COMMON STOCK TO CONSULT HIS OR HER TAX ADVISOR TO
DETERMINE THE PARTICULAR UNITED STATES FEDERAL, STATE OR
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CHAPTER ONE -- THE MERGER
LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES TO THAT SHAREHOLDER OF THE
MERGER.
REGULATORY MATTERS RELATING TO THE MERGER
United States Antitrust. Under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and its associated rules, the merger may
not be completed until notifications have been given and certain information and
materials have been furnished to and reviewed by the Antitrust Division of the
United States Department of Justice and the Federal Trade Commission and the
required waiting period has expired or terminated. Pfizer and Pharmacia filed
the required notification and report forms under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with the Federal Trade Commission and the
Department of Justice on September 3, 2002. There can be no assurance that a
challenge to the merger on antitrust grounds will not be made or, if a challenge
is made, that it would not be successful. In addition, state antitrust
authorities and private parties in certain circumstances may bring legal action
under the antitrust laws seeking to enjoin the merger or seeking conditions to
the completion of the merger.
European Union. Both Pfizer and Pharmacia conduct business in member
states of the European Union. Council Regulation No. 4064/89 and accompanying
regulations require notification to and approval by the European Commission of
specific mergers or acquisitions involving parties with worldwide sales and
individual European Union sales exceeding specified thresholds before these
mergers and acquisitions can be implemented. Pfizer and Pharmacia intend to seek
approval of the European Commission for the merger shortly.
Expiration or termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and gaining approval under
Council Regulation No. 4064/89 are conditions to completing the merger.
Other Jurisdictions. Pfizer and Pharmacia each conduct operations in a
number of jurisdictions where other regulatory approvals are required or
advisable in connection with the completion of the merger. We recognize that
some of these approvals, which are not required to be obtained under the merger
agreement, may not be obtained prior to the completion of the merger and may
impact the combined company's ability to conduct business in those
jurisdictions. However, neither party is required to complete the merger if the
companies have failed to obtain any governmental approval and such failure would
reasonably be expected to have a material adverse effect on the combined company
following the merger.
In addition, the companies have agreed that, if necessary to secure
regulatory approval of the merger, Pfizer will hold assets separate or conduct
any portion of its business in a specified manner for up to 6 months and Pfizer
and Pharmacia will divest or hold separate assets so long as such divestitures
do not have a material adverse effect on Pharmacia (including, for this purpose,
on its prospects).
APPRAISAL RIGHTS
Holders of Pfizer common stock and Pharmacia common stock do not have
appraisal rights under Delaware law in connection with the merger.
The holder of Pharmacia Series B convertible perpetual preferred stock will
have appraisal rights under Delaware law in connection with the merger. If such
holder has not voted its shares of Pharmacia Series B convertible perpetual
preferred stock in favor of adoption of the merger agreement, it has the right
to demand appraisal of, and to be paid the fair market value for such shares of
Pharmacia Series B convertible perpetual preferred stock. The value of the
Pharmacia Series B convertible perpetual preferred stock for this purpose will
exclude any element of value arising from the accomplishment or expectation of
the merger. In order for the holder of Pharmacia Series B convertible perpetual
preferred stock to exercise its right to an appraisal, if any, such holder must
deliver to Pharmacia a written demand for an appraisal of the shares of
Pharmacia Series B convertible perpetual preferred stock prior to the time the
vote is
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CHAPTER ONE -- THE MERGER
taken on the adoption of merger agreement at the Pharmacia meeting as provided
by Delaware law. Annex F to this document sets forth the pertinent provisions of
Delaware law addressing appraisal rights. Simply voting against adoption of the
merger agreement will not be considered a demand for appraisal rights. If the
holder of Pharmacia Series B convertible perpetual preferred stock fails to
deliver such a written demand to the corporate secretary of Pharmacia
Corporation at 100 Route 206 North, Peapack, New Jersey 07977, prior to the time
the vote is taken on the adoption of the merger agreement at the Pharmacia
special meeting, it will lose the right to an appraisal. In addition, if such
holder votes its shares of Pharmacia Series B convertible perpetual preferred
stock for adoption of the merger agreement, it will lose the right to an
appraisal with respect to such shares. Failure to vote against adoption of the
merger agreement will not constitute a waiver of such holder's appraisal rights.
The preceding discussion is not a complete statement of the law pertaining to
appraisal rights under the Delaware General Corporation Law and is qualified in
its entirety by the provisions of Delaware law attached as Annex F to this
document.
FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTION AGREEMENTS
This registration statement of which this joint proxy statement/prospectus
is a part does not cover any resales of the Pfizer common stock to be received
by the shareholders of Pharmacia upon completion of the merger, and no person is
authorized to make any use of this joint proxy statement/prospectus in
connection with any such resale.
All shares of Pfizer common stock received by Pharmacia shareholders in the
merger will be freely transferable, except that shares of Pfizer common stock
received by persons who are deemed to be "affiliates" of Pharmacia under the
Securities Act of 1933, as amended, at the time of the Pharmacia special meeting
may be resold by them only in transactions permitted by Rule 145 under the 1933
Act or as otherwise permitted under the 1933 Act. Persons who may be deemed to
be affiliates of Pharmacia for such purposes generally include individuals or
entities that control, are controlled by or are under common control with,
Pharmacia, as the case may be, and include directors and certain executive
officers of Pharmacia. The merger agreement requires that Pharmacia use
reasonable best efforts to cause each affiliate to execute a written agreement
to the effect that such persons will not offer, sell or otherwise dispose of any
of the shares of Pfizer common stock issued to them in the merger in violation
of the 1933 Act or the related SEC rules and regulations promulgated thereunder.
REPURCHASE OF COMMON STOCK
Pfizer has previously announced a common stock repurchase program under
which it and its affiliates are authorized to acquire, from time to time as
price and conditions warrant, up to $16 billion of its common stock in the open
market or in privately negotiated transactions.
Regulation M under the federal securities laws prohibits Pfizer from
bidding for or repurchasing its common stock during the period commencing with
the mailing of this joint proxy statement/prospectus through the date of
Pharmacia's special meeting.
Subject to applicable law, Pfizer may, from time to time as price and
conditions warrant, repurchase shares of Pfizer common stock and Pharmacia may,
from time to time as price and conditions warrant, repurchase shares of
Pharmacia common stock.
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION OF PHARMACIA COMMON
STOCK
It is a condition to the merger that the shares of Pfizer common stock
issuable in the merger be approved for listing on the New York Stock Exchange,
subject to official notice of issuance. If the merger is completed, Pharmacia
common stock will cease to be listed on the New York Stock Exchange and the
Swedish stock exchange and its shares will be deregistered under the Exchange
Act.
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CHAPTER ONE -- THE MERGER
RECENT DEVELOPMENTS
On July 15, 2002, a suit was filed in the Chancery Court in Delaware on
behalf of a purported class of Pharmacia's shareholders against Pharmacia,
Pharmacia's directors and Pfizer, alleging that the price to be paid for
Pharmacia's shares is inadequate as a result of Pharmacia's directors' breach of
their fiduciary duties to the shareholders of Pharmacia and that Pfizer is
alleged to have aided and abetted the alleged breach. The complaint, which
Pfizer and Pharmacia believe to be without merit, seeks damages and to enjoin
the merger.
On the same date, a second suit was filed in the Chancery Court in Delaware
against Pharmacia and Pharmacia's directors, alleging that the price to be paid
for Pharmacia's shares is inadequate as a result of Pharmacia's directors'
breach of their fiduciary duties to the shareholders of Pharmacia. The
complaint, which Pharmacia believes to be without merit, seeks damages and to
enjoin the merger.
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CHAPTER ONE -- THE MERGER
THE COMPANIES
PFIZER
Pfizer is a research based, global pharmaceutical company. Pfizer
discovers, develops, manufactures and markets leading prescription medicines for
humans and animals as well as many of the world's best-known consumer products.
Pfizer operates in two business segments: pharmaceutical and consumer products.
Pharmaceutical Segment. The pharmaceutical business segment includes
Pfizer's Human Pharmaceuticals and Animal Health businesses, as well as
Capsugel, a capsule manufacturing business. Principal products of the Pfizer
human pharmaceutical group include cardiovascular products Norvasc(R),
Cardura(R) and Accupril(R)/Accuretic(R), the lipid-lowering agent Lipitor(R),
infectious diseases products Zithromax(R), Diflucan(R) and Viracept(R), central
nervous system disorder products Zoloft(R), Neurontin(R), Geodon(R) and
Aricept(R), co-promoted with Eisai Co., Ltd., Viagra(R) for erectile
dysfunction, Glucotrol XL(R) for diabetes, Zyrtec(R) for allergies and
Celebrex(R) and Bextra(R) for arthritis symptom relief, co-marketed and
co-promoted with Pharmacia. Pfizer's Animal Health Group develops, manufactures
and sells products for the prevention and treatment of diseases in livestock and
companion animals. Animal health products include Revolution(R), an
antiparasitic for cats and dogs, Rimadyl(R), an anti-arthritic for dogs, and for
livestock, Dectomax(R), an antiparasitic, and RespiSure(R)/Stellamune(R), a
swine vaccine.
Consumer Products Segment. Pfizer's Consumer Products segment includes its
consumer healthcare, confectionery, shaving and fish products businesses.
Pfizer's Consumer Healthcare Division's products include Listerine(R)
mouthwash, Listerine PocketPaks(R) oral care strips, Benadryl(R) antihistamine
for allergies, Sudafed(R) for sinus congestion, Zantac 75(R) for prevention and
relief of heartburn, Rolaids(R) antacid tablets, Actifed(R) for relief of cough,
cold and flu, Benylin(R) cough products, Sinutab(R) for sinus pain relief,
Efferdent(R) denture cleaner, Neosporin(R) antibiotic ointment, e.p.t.(R) home
pregnancy tests, Visine(R) eye care, BenGay(R) topical analgesic, Cortizone(R)
hydrocortisone skin cream, Lubriderm(R) skin care lotions, Unisom(R) sleep aids
and Desitin(R) ointments for treatment of diaper rash.
Pfizer's Confectionery Division markets a broad range of leading products,
including Halls(R) cough drops, Trident(R) sugarless gums, Bubbaloo(R),
Bubblicious(R), Chiclets(R) and Freshen-Up(R) gums, and Dentyne(R), Dentyne
Ice(R), Certs(R), Clorets(R) and Max Air(R) breath-freshening gums and mints.
Pfizer's Shaving Products business consists of Schick(R) and Wilkinson
Sword(R) razors and blades and a range of manicure and toiletry products.
The consumer healthcare products segment also manufactures and sells
products for fish, reptiles and other small pets under the TETRA(R) trademark.
During 2002, Pfizer announced that it is exploring strategic options for
the confectionery business, the shaving products business and the Tetra aquarium
and pond supplies business, including possible sale.
PHARMACIA
Pharmacia is a global pharmaceutical company. Pharmacia's core business is
the development, manufacture and sale of pharmaceutical products, including
general therapeutics, ophthalmology and hospital products, including oncology
and diversified therapeutics. Pharmacia also operates several businesses that
include, among others, consumer health care, animal health care, diagnostics and
contract manufacturing and bulk pharmaceutical chemicals.
I-45
CHAPTER ONE -- THE MERGER
Pharmacia's leading prescription products include Celebrex(R), Bextra(R),
Xalatan(R), Genotropin(R), Camptosar(R)(3), and Detrol(R)/Detrol LA(R).
The consumer health care business consists of self-medication products that
are available to consumers over-the-counter without a prescription, including
the Nicorette(R) line of products to treat tobacco dependency, and Rogaine(R)
(Regaine(R) outside the U.S.) products for the treatment of hereditary hair
loss.
The animal health business produces and markets both pharmaceuticals and
feed additives for livestock and pets, including Naxcel(R)/Excenel(R), an
antibiotic used to treat a variety of infections, and Linocomix(R)/Linco-
Spectin(R), an antibiotic used to treat swine and poultry infections.
The diagnostics business is engaged in the sale of in vitro allergy
diagnostic equipment.
The bulk pharmaceutical commercial services business develops, manufactures
and markets certain bulk pharmaceutical chemicals and selected specialty
chemicals to third parties.
As previously announced, on August 13, 2002, Pharmacia distributed its
remaining ownership interest in Monsanto Company to Pharmacia common
shareholders.
---------------
(3) Camptosar(R) is a registered trademark of Yakult Honsha Co., Ltd.
I-46
CHAPTER ONE -- THE MERGER
OPINIONS OF FINANCIAL ADVISORS
OPINIONS OF PFIZER'S FINANCIAL ADVISORS
Lazard Freres & Co. LLC and Bear, Stearns & Co. Inc., Pfizer's financial
advisors, have rendered separate opinions to the Pfizer board of directors as to
the fairness, from a financial point of view, to Pfizer of the exchange ratio in
the merger. The full text of the written opinion of Lazard, dated July 13, 2002,
is attached to this document as Annex B, and the full text of the written
opinion of Bear Stearns, dated July 13, 2002, is attached to this document as
Annex C. We encourage you to read each of the opinions carefully and in their
entirety to understand the procedures followed, assumptions made, matters
considered and limitations on the review undertaken by each of Lazard and Bear
Stearns in providing their respective opinions. THE OPINIONS OF LAZARD AND BEAR
STEARNS ARE DIRECTED TO THE PFIZER BOARD OF DIRECTORS AND DO NOT CONSTITUTE
RECOMMENDATIONS TO ANY SHAREHOLDER AS TO HOW THAT SHAREHOLDER SHOULD VOTE ON, OR
TAKE ANY OTHER ACTION WITH RESPECT TO, THE MERGER.
OPINION OF LAZARD
At a meeting of Pfizer's board of directors held on July 13, 2002, at which
the Pfizer board of directors considered the merger and approved the merger
agreement and the merger, Lazard rendered its oral opinion (which was
subsequently confirmed in a written opinion, dated July 13, 2002) that, as of
such date and based upon and subject to the matters reviewed with Pfizer's board
of directors, the exchange ratio in the merger was fair to Pfizer from a
financial point of view.
The full text of the Lazard opinion is attached as Annex B. This
description of the Lazard opinion is qualified in its entirety by reference to
the full text of the Lazard opinion set forth in Annex B. Pfizer's shareholders
are urged to read the Lazard opinion in its entirety for a description of the
procedures followed, assumptions made, matters considered and qualifications and
limitations on the review undertaken by Lazard in connection with rendering its
opinion. The Lazard opinion is necessarily based upon the economic, monetary,
market and other conditions as they were in effect on, and the information made
available to Lazard as of, the date of the Lazard opinion. Lazard assumes no
responsibility for updating or revising its opinion based on circumstances or
events occurring after the date of the Lazard opinion. The Lazard opinion is for
the benefit and use of Pfizer's board of directors and addresses only the
fairness from a financial point of view of the exchange ratio in the merger to
Pfizer. It does not address the merits of the underlying decision by Pfizer to
engage in the merger and does not constitute a recommendation to any shareholder
of Pfizer as to how such shareholder should vote on, or take any other action
with respect to, the merger.
In the course of performing its review and analyses for rendering its
opinion, Lazard:
- reviewed the financial terms and conditions of the merger agreement and
the certificate of designations for Series A convertible perpetual
preferred stock of Pfizer Inc.;
- analyzed certain historical publicly available business and financial
information relating to Pfizer and Pharmacia;
- reviewed various financial forecasts and other data provided to Lazard by
Pfizer and Pharmacia relating to their respective businesses;
- reviewed the synergistic savings and benefits and the timing of their
occurrence as projected by Pfizer to be realized by the combined entity
in connection with the merger;
- held discussions with members of the senior managements of Pfizer and of
Pharmacia with respect to the business and prospects of Pfizer and
Pharmacia, respectively, the strategic objectives of
I-47
CHAPTER ONE -- THE MERGER
each and the possible benefits that might be realized following the
merger as projected by Pfizer;
- reviewed public information with respect to certain other companies in
lines of businesses believed by Lazard to be generally comparable to
those of Pfizer and Pharmacia;
- reviewed the financial terms of certain significant business combinations
involving companies in lines of businesses believed by Lazard to be
generally comparable to those of Pfizer and Pharmacia;
- reviewed the historical trading prices and trading volumes of Pfizer's,
Pharmacia's and Monsanto Company's common stock;
- reviewed the pro forma financial results, financial condition and
capitalization of Pfizer giving effect to the merger provided to Lazard
by the management of Pfizer; and
- conducted such other financial studies, analyses and investigations as
Lazard deemed appropriate.
Lazard relied upon the accuracy and completeness of the financial and other
information that it reviewed and used in its analysis, including the financial
and other information provided by Pfizer and Pharmacia and reviewed by Lazard
for purposes of the Lazard opinion. Lazard did not assume any responsibility for
any independent verification of such information or any independent valuation or
appraisal of any of the assets and liabilities of Pfizer or Pharmacia, or
concerning the solvency of or issues relating to solvency concerning either of
Pfizer or Pharmacia. With respect to financial forecasts, including the scope
and timing of the synergistic savings and benefits projected by Pfizer to be
realized following the merger, Lazard assumed that they were reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
managements of Pfizer and of Pharmacia as to the future financial performance of
Pfizer and Pharmacia, respectively, and of Pfizer with respect to the combined
entity. Lazard assumed no responsibility for and expressed no view as to such
forecasts or the assumptions on which they were based.
In rendering its opinion, Lazard assumed that the merger will be
consummated on the terms and subject to the conditions described in the merger
agreement without any waiver or modification of any material terms or conditions
by Pfizer, that obtaining the necessary regulatory approvals for the merger will
not have an adverse effect on Pfizer or Pharmacia and that the synergistic
savings and benefits of the merger projected by the management of Pfizer will be
substantially realized both in scope and timing. In addition, Lazard assumed
that:
(i) the merger will be accounted for as a tax-free "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code;
(ii) number of outstanding shares of common stock of Pharmacia on a fully
diluted basis will not be materially different than as represented in the merger
agreement; and
(iii) other representations and warranties of Pharmacia and Pfizer
contained in the merger agreement are true and complete.
Further, in rendering its opinion, Lazard did not express any opinion as to
the price at which the common stock of Pfizer or Pharmacia may trade subsequent
to the announcement of the merger or as to the price at which the common stock
of Pfizer may trade subsequent to the completion of the merger. Lazard also did
not express any opinion as to any aspect of Pharmacia's proposed disposition of
its interest in Monsanto Company.
Lazard has in the past provided investment banking services to Pfizer for
which Lazard has received customary fees. In the ordinary course of Lazard's
business, Lazard and its affiliates may actively trade shares of Pfizer's,
Pharmacia's and Monsanto Company's common stock and other securities of Pfizer,
Pharmacia and Monsanto Company for their own accounts
I-48
CHAPTER ONE -- THE MERGER
and for the accounts of their customers and, accordingly, may at any time hold a
long or short position in these securities.
OPINION OF BEAR STEARNS
At a meeting of Pfizer's board of directors held on July 13, 2002, at which
the Pfizer board of directors considered the merger and approved the merger
agreement and the merger, Bear Stearns rendered its oral opinion (which was
subsequently confirmed in a written opinion, dated July 13, 2002) that, as of
such date and based upon and subject to the matters reviewed with Pfizer's board
of directors, the exchange ratio in the merger was fair to Pfizer from a
financial point of view.
The full text of the Bear Stearns opinion is attached as Annex C. This
description of the Bear Stearns opinion is qualified in its entirety by
reference to the full text of the Bear Stearns opinion set forth in Annex C.
Pfizer's shareholders are urged to read the Bear Stearns opinion in its entirety
for a description of the procedures followed, assumptions made, matters
considered and qualifications and limitations on the review undertaken by Bear
Stearns in connection with rendering its opinion. The Bear Stearns opinion is
subject to the assumptions and conditions stated in the opinion and is
necessarily based on economic, market and other conditions and the information
made available to Bear Stearns, as of the date of the Bear Stearns opinion. Bear
Stearns assumes no responsibility for updating or revising its opinion based on
circumstances or events occurring after the date of the Bear Stearns opinion.
The Bear Stearns opinion is intended for the benefit and use of the board of
directors of Pfizer and does not constitute a recommendation to the board of
directors of Pfizer or any holders of Pfizer common stock as to how to vote in
connection with the merger. The Bear Stearns opinion does not address Pfizer's
underlying decision to pursue the merger, the relative merits of the merger as
compared to any alternative business strategies that might have existed for
Pfizer or the effects of any other transaction in which Pfizer might have
engaged.
In the course of performing its review and analyses for rendering its
opinion, Bear Stearns:
- reviewed the merger agreement and the Certificate of Designations for
Series A Convertible Perpetual Preferred Stock of Pfizer Inc.;
- reviewed each of Pfizer's and Pharmacia's Annual Reports to Shareholders
and Annual Reports on Form 10-K for the years ended December 31, 1999
through 2001, their respective Quarterly Reports on Form 10-Q for the
period ended March 31, 2002 and their Current Reports on Form 8-K for the
three years ended the date of the Bear Stearns opinion;
- reviewed certain operating and financial information provided to Bear
Stearns by the senior managements of Pfizer and of Pharmacia relating to
Pfizer's and Pharmacia's respective businesses and prospects, including
financial projections for Pfizer for the years ending December 31, 2002
through 2004 prepared by the management of Pfizer and for Pharmacia for
the years ending December 31, 2002 through 2004 prepared by the
management of Pharmacia (assuming the completion of Pharmacia's
disposition of its interest in Monsanto Company) and certain other
forward-looking information;
- reviewed certain estimates of cost savings and other combination benefits
expected to result from the merger prepared and provided to Bear Stearns
by the management of Pfizer;
- met with certain members of the senior managements of Pfizer and of
Pharmacia and Pharmacia's advisors to discuss (1) the current business
landscape and competitive dynamics related to the markets in which Pfizer
and Pharmacia operate; (2) each company's business, operations,
historical and projected financial results, future prospects and
financial
I-49
CHAPTER ONE -- THE MERGER
condition; (3) each company's views of the strategic, business,
operational and financial rationale for, and expected strategic benefits
and other implications of, the merger; (4) the financial projections for
Pfizer and for Pharmacia and the estimates of cost savings and other
combination benefits expected to result from the merger described above;
and (5) certain other assumptions and judgments underlying certain
estimates which Bear Stearns deemed relevant to its analysis;
- reviewed the historical prices, valuation parameters and trading volumes
of the common stock of Pfizer, the common stock of Pharmacia and the
common stock of Monsanto Company;
- reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which Bear Stearns deemed generally
comparable to Pfizer and Pharmacia or otherwise relevant to Bear Stearns'
analysis;
- reviewed the terms, to the extent publicly available, of recent mergers
and acquisitions of companies which Bear Stearns deemed generally
comparable to the merger or otherwise relevant to Bear Stearns' analysis;
- performed discounted cash flow analyses based on the financial
projections for Pfizer and for Pharmacia and the estimates of cost
savings and other combination benefits expected to result from the merger
described above;
- reviewed the pro forma financial results, financial condition and
capitalization of Pfizer giving effect to the merger provided to Bear
Stearns by the management of Pfizer; and
- conducted such other studies, analyses, inquiries and investigations as
Bear Stearns deemed appropriate.
Bear Stearns relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including,
without limitation, the financial projections for Pfizer and for Pharmacia and
the estimates of cost savings and other combination benefits expected to result
from the merger described above, provided to Bear Stearns by Pfizer or
Pharmacia, as the case may be. With respect to these financial projections and
estimates of cost savings and other combination benefits expected to result from
the merger, Bear Stearns relied on representations that these projections and
estimates have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the senior managements of Pfizer and of
Pharmacia as to the expected future performance of Pfizer and Pharmacia,
respectively. Bear Stearns did not assume any responsibility for the independent
verification of any information, projections or estimates of cost savings and
other combination benefits expected to result from the merger provided to it,
and Bear Stearns further relied upon the assurances of the senior managements of
Pfizer and of Pharmacia that they were unaware of any facts that would make the
information, projections or estimates of cost savings and other combination
benefits expected to result from the merger provided to it incomplete or
misleading.
In arriving at its opinion, Bear Stearns did not perform or obtain any
independent appraisal of the assets or liabilities (contingent or otherwise) of
Pfizer or Pharmacia, nor was Bear Stearns furnished with any such appraisals.
Bear Stearns assumed that the merger will qualify as a tax-free "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code and further
assumed that the merger will be consummated in a timely manner and in accordance
with the terms and conditions of the merger agreement without any limitations,
restrictions, conditions, waivers, amendments or modifications, regulatory or
otherwise, that collectively would have a material effect on Pfizer or
Pharmacia.
Bear Stearns did not express any opinion as to the price or range of prices
at which the common stock of Pfizer or the common stock of Pharmacia may trade
subsequent to the
I-50
CHAPTER ONE -- THE MERGER
announcement of the merger or as to the price or range of prices at which the
common stock of Pfizer may trade subsequent to the completion of the merger.
Bear Stearns also did not express any opinion as to any aspect of Pharmacia's
proposed disposition of its interest in Monsanto Company.
Bear Stearns has been previously engaged by Pharmacia to provide certain
investment banking and financial advisory services in connection with actual and
prospective merger, acquisition and divestiture transactions as well as certain
capital raising transactions, for which Bear Stearns received customary
compensation. In the ordinary course of business, Bear Stearns and its
affiliates may actively trade the equity and debt securities and/or bank debt of
Pfizer, Pharmacia and/or Monsanto Company for their own accounts and for the
accounts of their customers and, accordingly, may at any time hold a long or
short position in these securities or this bank debt.
SUMMARY OF LAZARD AND BEAR STEARNS FINANCIAL ANALYSES
The following is a summary of the material financial analyses performed by
Lazard and Bear Stearns in connection with the rendering of their respective
fairness opinions to the Pfizer board of directors. Although Lazard and Bear
Stearns each performed their own independent analyses in connection with
rendering their respective fairness opinions, Lazard and Bear Stearns jointly
presented their analyses to the Pfizer board of directors.
In each of the analyses described below, Lazard and Bear Stearns each
valued Pharmacia by assuming that the proposed disposition by Pharmacia of its
approximately 84% interest in Monsanto Company would occur prior to the
completion of the merger. (Such disposition did in fact occur on August 13,
2002.) Specifically, in deriving the implied equity values per share of
Pharmacia common stock set forth below, Lazard and Bear Stearns excluded the
implied value of Monsanto Company attributable to each share of Pharmacia common
stock. The implied per share value of Pharmacia's interest in Monsanto Company
was calculated by dividing the market value of Pharmacia's approximately 84%
interest in Monsanto Company (calculated with reference to the closing share
price of Monsanto Company common stock on July 12, 2002, unless otherwise
indicated below) by the number of shares of Pharmacia common stock outstanding
on May 9, 2002 on a fully diluted basis. In addition, in each of the analyses
described below, Lazard and Bear Stearns based their analyses on the fully
diluted shares outstanding as of May 9, 2002 for Pharmacia, as reported in
Pharmacia's Form 10-Q dated March 31, 2002, and on the fully diluted shares
outstanding for Pfizer, as provided by Pfizer's management.
SOME OF THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION
PRESENTED IN TABULAR FORMAT. IN ORDER TO UNDERSTAND FULLY LAZARD'S AND BEAR
STEARNS' FINANCIAL ANALYSES, THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF
THE SUMMARY. THE TABLES ALONE ARE NOT A COMPLETE DESCRIPTION OF THE FINANCIAL
ANALYSES. CONSIDERING THE TABLES ALONE COULD CREATE A MISLEADING OR INCOMPLETE
VIEW OF LAZARD'S AND BEAR STEARNS' FINANCIAL ANALYSES.
Comparable Public Companies Analysis. Lazard and Bear Stearns each
performed a comparable public companies analysis to assist the Pfizer board of
directors in valuing Pharmacia based on various financial multiples of selected
comparable public companies in the pharmaceutical industry. In performing these
analyses, Lazard and Bear Stearns each reviewed certain financial information
relating to Pharmacia and compared such information to the corresponding
financial information of other pharmaceutical companies which each of Lazard and
Bear Stearns deemed to be comparable to Pharmacia.
Lazard compared the projected financial performance and the resulting
multiples as of July 12, 2002 of Pharmacia to seven major publicly-traded
pharmaceutical and/or life science companies which Lazard deemed gener-
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CHAPTER ONE -- THE MERGER
ally comparable to Pharmacia. The companies included in the Lazard analysis
were:
- AstraZeneca plc
- Aventis S.A.
- Eli Lilly and Company
- Johnson & Johnson
- Pfizer Inc.
- Sanofi Synthelabo SA
- Wyeth
Using publicly available information and market data as of July 12, 2002,
and, in the case of Pfizer, information based on Pfizer management estimates and
using Wall Street research projections for revenue, EBITDA and EBIT and
consensus earnings estimates for EPS for the above comparable companies, Lazard
calculated the following median multiples for the above comparable companies:
2001A 2002E 2003E 2004E
----- ----- ----- -----
Enterprise Value as a multiple of:
Revenues..................................... 4.54x 4.22x 3.78x 3.44x
EBITDA....................................... 13.5x 11.8x 11.6x 10.1x
EBIT......................................... 17.2x 14.1x 13.3x 11.7x
Share Price as a multiple of:
EPS.......................................... 24.6x 22.0x 19.2x 16.2x
------------------------
"EBITDA" is a company's earnings before interest, taxes, depreciation and
amortization. "EBIT" is a company's earnings before interest and taxes. "EPS" is
a company's earnings per share. Using the median multiples calculated above and
estimates for the corresponding data for Pharmacia provided by the managements
of Pfizer and of Pharmacia, Lazard derived a range of implied equity values per
share of Pharmacia common stock (adjusted for Pharmacia's proposed disposition
of its interest in Monsanto Company) of approximately $23.58 to $58.75 and a
corresponding range of implied exchange ratios of approximately 0.73x to 1.82x
based on the closing share price of Pfizer common stock as of July 12, 2002.
This compares to the exchange ratio in the merger of 1.4x.
Bear Stearns compared the projected financial performance and the price to
earnings multiples as of July 12, 2002 of Pfizer and of Pharmacia to 13 major
publicly-traded pharmaceutical and/or life science companies which Bear Stearns
deemed generally comparable to Pfizer and Pharmacia. The companies included in
the Bear Stearns analysis were:
- Abbott Laboratories
- AstraZeneca plc
- Aventis S.A.
- Bristol-Myers Squibb Company
- Eli Lilly and Company
- GlaxoSmithKline plc
- Johnson & Johnson
- Merck & Co., Inc.
- Novartis AG
- Roche Holdings AG
- Sanofi-Synthelabo SA
- Schering-Plough Corporation
- Wyeth
In its analysis, Bear Stearns compared the financial performance of the
combined entity (including estimated cost savings expected to result from the
merger based on estimates from Pfizer's management) and the combined entity's
pro forma price to earnings multiples (based on the income weighted average of
the estimated stand-alone price to earnings multiples of Pfizer
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CHAPTER ONE -- THE MERGER
and of Pharmacia (adjusted for Pharmacia's proposed disposition of its interest
in Monsanto Company)) to those of the above comparable companies.
Based on revenue and earnings forecasts for the above comparable companies
from Wall Street research projections and consensus earnings estimates, Bear
Stearns calculated the following growth rates and multiples for the above
comparable companies:
PFIZER/
HARMONIC PHARMACIA
LOW HIGH MEAN MEAN PFIZER PHARMACIA COMBINED
---- ---- ---- -------- ------ --------- ---------
Revenue Growth (2002-2004).. 2.6% 12.5% 8.6% 10.6% 9.1% 9.8%
EPS Five Year Growth........ 9.8% 18.5% 12.1% 17.2% 14.4% 20.0%
P/E for the years:
2002...................... 13.5x 24.3x 18.3x 20.4x 19.1x 21.8x
2003...................... 12.9x 23.3x 16.5x 17.5x 16.6x 17.3x
2004...................... 10.1x 20.2x 13.9x 15.2x 14.3x 14.8x
------------------------
"P/E" is equal to a company's stock price divided by its projected net
income per share for the year indicated. "Harmonic Mean" is calculated using the
reciprocals of the multiples and gives equal weight to equal dollar investments
in the securities whose ratios are being averaged. Bear Stearns utilized the
harmonic mean in averaging ratios in which price was the numerator. Based on its
analysis, Bear Stearns observed that the projected revenue and earnings growth
rates for Pfizer and for Pharmacia were above the average of the projected
growth rates of the above comparable companies, and both Pfizer's and
Pharmacia's market price to earnings multiples were above the average of the
price to earnings multiples of the above comparable companies.
Bear Stearns also observed that the combined entity would have a projected
revenue growth rate that was above the average of the revenue growth rates of
the above comparable companies and an earnings growth rate that was higher than
those of any of the above comparable companies. In addition, Bear Stearns noted
that the combined entity's price to earnings multiples (based on stock prices as
of July 12, 2002, with Pharmacia's stock price adjusted for its proposed
disposition of its interest in Monsanto Company) were above the harmonic mean of
the price to earnings multiples of the above comparable companies.
Exchange Ratio Analysis. Lazard and Bear Stearns each examined the
historical daily trading exchange ratios of Pfizer common stock to Pharmacia
common stock (adjusted for Pharmacia's proposed disposition of its interest in
Monsanto Company) to assist the Pfizer board of directors in valuing Pharmacia
based on the relative historical value of Pfizer's closing share price to
Pharmacia's closing share price (adjusted for Pharmacia's proposed disposition
of its interest in Monsanto Company) for the period beginning October 18, 2000
(the date of Monsanto Company's initial public offering) and ending July 12,
2002 and for the one year, six month, three month and one month periods ended
July 12, 2002. Based on this analysis and using the closing price of Pfizer
common stock and of Pharmacia common stock (adjusted for Pharmacia's proposed
disposition of its interest in Monsanto Company) on July 12, 2002, Lazard and
Bear Stearns each derived a range of implied equity values per share for
Pharmacia common stock of approximately $24.84 to $41.74 and a corresponding
range of implied exchange ratios of approximately 0.771x to 1.296x with a mean
of 1.001x and a median of 0.9862x. This compares to the exchange ratio in the
merger of 1.4x.
Selected Precedent Pharmaceutical Transactions Analysis. Lazard and Bear
Stearns each performed selected precedent transactions
I-53
CHAPTER ONE -- THE MERGER
analyses to assist the Pfizer board of directors in valuing Pharmacia based on
transaction values expressed as multiples of various financial measures in
selected pharmaceutical transactions.
Using publicly available information, Lazard reviewed and analyzed certain
financial and operating data relating to selected transactions in the
pharmaceutical industry excluding transactions that Lazard determined to be
"merger of equals" transactions. These selected transactions were:
- Pfizer Inc./Warner-Lambert Company
- Glaxo Wellcome plc/SmithKline Beecham plc
- Monsanto Company/Pharmacia & Upjohn, Inc.
- Rhone-Poulenc S.A./Hoechst AG
- Zeneca Group, plc/Astra AB
- Sanofi SA/Synthelabo
Lazard calculated the following multiples for the selected precedent
pharmaceutical transactions used in its analysis:
LOW MEAN MEDIAN HIGH
---- ---- ------ ----
Enterprise Value as a multiple of:
LTM Revenue................................... 3.09x 4.94x 5.00x 7.07x
LTM EBIT...................................... 18.6x 25.9x 24.5x 35.1x
Share Price as a multiple of:
2002E EPS..................................... 25.8x 39.3x 37.3x 52.0x
------------------------
"LTM Revenue" is a company's revenue for the last twelve months. "LTM EBIT"
is a company's earnings before interest and taxes for the last twelve months.
Lazard also reviewed the LTM Revenue, LTM EBIT and LTM EPS multiples in the
Pfizer/Warner-Lambert Company transaction, which were 7.07x, 30.8x and 50.0x,
respectively, and noted that the corresponding multiples in the current
transaction were 4.28x, 23.6x and 29.1x. Using the multiples calculated above
and estimates for the corresponding data for Pharmacia provided by the
managements of Pfizer and of Pharmacia for the twelve month period ending
December 2002 (the anticipated closing of the current transaction), Lazard
derived a range of implied equity values per share for Pharmacia common stock of
approximately $36.04 to $74.69 and a corresponding range of implied exchange
ratios of approximately 1.12x to 2.32x based on the closing share price of
Pfizer common stock as of July 12, 2002. This compares to the exchange ratio in
the merger of 1.4x.
Using Wall Street research projections and consensus earnings estimates,
Bear Stearns reviewed and analyzed certain financial and operating data relating
to selected transactions in the pharmaceutical industry. Bear Stearns separated
the selected precedent pharmaceutical transactions it used in its analysis into
two categories: "Selected Acquisitions" transactions and "Selected Merger of
Equals" transactions. For the purposes of Bear Stearns' analysis, "Selected
Acquisitions" transactions included transactions in which the target company and
the acquiring company were clearly identifiable, consideration consisted of
stock, cash or a combination of both and a change of control occurred. "Selected
Merger of Equals" transactions included transactions in which the target company
and the acquiring company were not clearly identifiable, consideration consisted
only of stock and pro forma ownership was relatively evenly split between both
the target company's and the acquiring company's shareholders.
The "Selected Acquisitions" transactions included in the Bear Stearns
analysis were:
- Bristol-Myers Squibb Company/DuPont Pharmaceuticals Company
- Johnson & Johnson/ALZA Corporation
- Abbott Laboratories/Knoll AG (BASF AG)
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CHAPTER ONE -- THE MERGER
- Pfizer Inc./Warner-Lambert Company
- Rhone Poulenc S.A./Rorer Group Inc.
- Hoechst AG/Roussel-Uclaf SA
- Rhone-Poulenc Roror Inc./Fisons plc
- Glaxo plc/Wellcome plc
- Hoechst AG/Marion Merrell Dow Inc.
- American Home Products Corporation/ American Cyanamid Company
- Roche Holdings AG/Syntex Corporation
The "Selected Merger of Equals" transactions included in the Bear Stearns
analysis were:
- Glaxo Wellcome plc/SmithKline Beecham plc
- Monsanto Company/Pharmacia & Upjohn, Inc.
- Rhone-Poulenc S.A./Hoechst AG
- Sanofi SA/Synthelabo
- Zeneca Group, plc/Astra AB
- Sandoz Ltd./Ciba-Geigy Ltd.
- Pharmacia AB/Upjohn Co.
Bear Stearns calculated the following multiples for the selected precedent
pharmaceutical transactions used in its analysis:
HARMONIC
LOW MEAN MEAN HIGH
---- ---- -------- -----
All Transactions (Selected Acquisitions and
Selected Merger of Equals transactions)
Transaction Value as a multiple of:
LTM Revenue................................. 1.48x 4.03x 2.98x 13.01x
LTM EBIT.................................... 9.5x 21.6x 18.1x 48.7x
Purchase Price as a multiple of Projected Net
Income...................................... 14.2x 28.4x 25.4x 50.9x
Selected Acquisitions
Transaction Value as a multiple of:
LTM Revenue................................. 1.48x 4.32x 3.04x 13.01x
LTM EBIT.................................... 12.1x 23.2x 19.3x 48.7x
Purchase Price as a multiple of Projected Net
Income...................................... 18.3x 30.1x 27.1x 50.9x
------------------------
"Transaction Value" is equal to the sum of the purchase price of common
equity on a fully diluted basis and the value of the net debt, any minority
interests and preferred stock. "Projected Net Income" is a target company's
projected net income for the year ending in which the transaction was announced.
Bear Stearns noted that for the Pfizer/Pharmacia merger, the transaction value
as a multiple of LTM revenue was 4.45x, the transaction value as a multiple of
LTM EBIT was 23.0x and the purchase price as a multiple of projected net income
was 29.4x.
Based on the multiples calculated above and estimates for the corresponding
data for Pharmacia provided by the managements of Pfizer and of Pharmacia, Bear
Stearns observed that all of the transaction multiples analyzed for the
Pfizer/Pharmacia merger (adjusted for Pharmacia's proposed disposition of its
interest in Monsanto Company) fell within the range of the corresponding
multiples for the "Selected Acquisitions" transactions together with the
"Selected Merger of Equals" transactions and for the "Selected Acquisitions"
transactions alone.
Discounted Cash Flow Analysis. Based on cash flow and cost savings
estimates of the managements of Pfizer and of Pharmacia, Lazard and Bear Stearns
each performed
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CHAPTER ONE -- THE MERGER
discounted cash flow analyses to assist the Pfizer board of directors in valuing
Pharmacia.
Lazard's discounted cash flow analysis valued Pharmacia based on the
present value of expected future cash flows of Pharmacia. Lazard's discounted
cash flow analysis was based upon a range of terminal year exit multiples of
EBITDA of 14.0x to 17.0x and a range of discount rates of 10% to 12%. In its
discounted cash flow analysis, Lazard analyzed two forecast cases for Pharmacia,
one without cost savings and one with Pfizer's management's projected cost
savings expected to result from the merger (net of the projected cash cost to
realize the cost savings).
Using this analysis, Lazard derived a range of implied equity values per
share for Pharmacia common stock (adjusted for Pharmacia's proposed disposition
of its interest in Monsanto Company) as follows:
IMPLIED EQUITY
VALUE
PER SHARE
--------------
Pharmacia common stock:
Forecasts without cost savings............................ $32.41-$42.88
Forecasts with cost savings............................... $49.02-$64.60
------------------------
Based on this analysis, Lazard derived a corresponding range of implied
exchange ratios of approximately 1.01x to 1.33x without cost savings and 1.52x
to 2.01x with cost savings based on the closing share price of Pfizer common
stock as of July 12, 2002. This compares to the exchange ratio in the merger of
1.4x.
In performing its analysis, Bear Stearns calculated discounted cash flow
valuations for Pfizer on a stand-alone basis, for the combined entity (including
estimated cost savings expected to result from the merger based on estimates
from Pfizer's management) and for Pharmacia (including the same estimated cost
savings expected to result from the merger adjusted by the exchange ratio in the
merger of 1.4x). Bear Stearns' discounted cash flow analysis was based upon a
range of perpetual growth rates of unlevered net income of 3% to 6% and a range
of illustrative discount rates of 9% to 11%.
Based on this analysis, Bear Stearns derived a range of implied equity
values per share for Pfizer common stock and for Pharmacia common stock
(adjusted for Pharmacia's proposed disposition of its interest in Monsanto
Company) as follows:
IMPLIED EQUITY
VALUE
PER SHARE
--------------
Pfizer common stock:
Stand-alone............................................... $27.62-$64.71
Combined entity (with estimated cost savings)............. $27.75-$66.11
Pharmacia common stock (with estimated cost savings)........ $38.86-$92.55
------------------------
The implied equity value per share of Pharmacia common stock was derived by
applying the exchange ratio in the merger of 1.4x to the range of implied equity
values per share of "Pfizer common stock combined entity
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CHAPTER ONE -- THE MERGER
(with estimated cost savings)" calculated above.
Precedent Transaction Premiums Paid Analysis. Lazard and Bear Stearns each
performed a precedent transaction premiums paid analysis to assist the Pfizer
board of directors in valuing Pharmacia based upon the premiums paid in selected
transactions. In conducting their analyses, Lazard and Bear Stearns analyzed the
premiums paid in the following subsets of precedent transactions:
- selected precedent pharmaceutical transactions (which were not "merger of
equals" transactions);
- selected precedent transactions over $20 billion (which were not "merger
of equals" transactions and transactions in the financial services
industry); and
- selected precedent transactions over $1 billion in the pharmaceutical and
biotech industries (which were not "merger of equals" transactions).
The range of implied values that Lazard and Bear Stearns derived were based
on the one day, one week and one month implied premiums for the transactions
indicated. The implied premiums in this analysis were calculated by comparing
the per share transaction price at the announcement of the transaction to the
target company's stock price one day, one week and one month prior to the
announcement of the transaction.
Selected Precedent Pharmaceutical Transactions Premiums Paid
Analysis. Lazard and Bear Stearns each calculated a range of premiums paid in
the following selected transactions in the pharmaceutical industry:
- Amgen Inc./Immunex Corporation
- Johnson & Johnson/ALZA Corporation
- Pfizer Inc./Warner-Lambert Company
- Sanofi SA/Synthelabo
- Rhone-Poulenc Rorer Inc./Fisons plc
- Glaxo plc/Wellcome plc
- American Home Products Corporation/ American Cyanamid Company
- Roche Holdings AG/Syntex Corporation
- Roche Holdings AG/Genentech, Inc.
- Rhone-Poulenc S.A./Rorer Group Inc.
The range of median and mean premiums paid over the target's closing stock
price one day, one week and one month prior to the announcement of the
transaction was 30.6% to 47.6%. Using the closing prices for Pharmacia common
stock as of July 12, 2002, July 5, 2002 and June 14, 2002 (adjusted for
Pharmacia's proposed disposition of its interest in Monsanto Company), Lazard
and Bear Stearns derived a range of implied equity values per share for
Pharmacia common stock of approximately $35.56 to $57.62 and a corresponding
range of implied exchange ratios of approximately 1.10x to 1.79x based on the
closing share price of Pfizer common stock as of July 12, 2002. This compares to
the exchange ratio in the merger of 1.4x.
Precedent Transactions Over $20 Billion Premiums Paid Analysis. Lazard and
Bear Stearns each calculated a range of premiums paid in the following precedent
transactions with transaction values over $20 billion:
- Hewlett-Packard Company/Compaq Computer Corporation
- Chevron Corporation/Texaco Inc.
- Deutsche Telekom AG/VoiceStream Wireless Corporation
- JDS Uniphase Corporation/SDL, Inc.
- Vivendi S.A./The Seagram Company Ltd.
- Unilever PLC/Bestfoods
- VeriSign, Inc./Network Solutions, Inc.
- Pacific Century Cyberworks Ltd./Cable & Wireless HKT Ltd.
- America Online, Inc./Time Warner Inc.
- Vodafone AirTouch PLC/Mannesmann AG
- Pfizer Inc./Warner-Lambert Company
- Mannesmann AG/Orange PLC
- Clear Channel Communications, Inc./ AMFM Inc.
- VEBA AG/VIAG AG
- Viacom Inc./CBS Corporation
- Total Fina SA/Elf Aquitaine SA
- Qwest Communications International Inc./US WEST, Inc.
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CHAPTER ONE -- THE MERGER
- AlliedSignal Inc./Honeywell Inc.
- AT&T Corp./MediaOne Group, Inc.
- BP Amoco plc/Atlantic Richfield Company (ARCO)
- Ing C Olivetti & Co SpA/Telecom Italia SpA
- Vodafone Group PLC/AirTouch Communications, Inc.
- Lucent Technologies Inc./Ascend Communications, Inc.
- Exxon Corporation/Mobil Corporation
- British Petroleum Company plc/Amoco Corporation
- Bell Atlantic Corporation/GTE Corporation
- AT&T Corp./Tele-Communications, Inc. - Class A
- AT&T Corp./Tele-Communications, Inc. - Class B
- SBC Communications Inc./Ameritech Corporation
- Daimler-Benz AG/Chrysler Corporation
The ranges of median and mean premiums paid over the target's closing stock
price one day, one week and one month prior to the announcement of the
transaction was 20.2% to 39.7%. Using the closing prices for Pharmacia common
stock as of July 12, 2002, July 5, 2002 and June 14, 2002 (adjusted for
Pharmacia's proposed disposition of its interest in Monsanto Company), Lazard
and Bear Stearns derived a range of implied equity values per share for
Pharmacia common stock of approximately $30.14 to $68.29 and a corresponding
range of implied exchange ratios of approximately 0.94x to 2.12x based on the
closing share price of Pfizer common stock as of July 12, 2002. This compares to
the exchange ratio in the merger of 1.4x.
PHARMACEUTICAL AND BIOTECH TRANSACTIONS OVER $1 BILLION PREMIUMS PAID
ANALYSIS. Lazard and Bear Stearns calculated a range of premiums paid in the
following transactions in the pharmaceutical and biotechnology industries with
transaction values over $1 billion:
- Amgen Inc./Immunex Corporation
- Millennium Pharmaceuticals, Inc./COR Therapeutics, Inc.
- MedImmune, Inc./Aviron
- Bristol-Myers Squibb Company/ImClone Systems Incorporated (this
transaction represents an equity investment)
- Mayne Nickless Limited/FH Faulding & Co. Limited
- Johnson & Johnson/ALZA Corporation
- Shire Pharmaceuticals Group plc/BioChem Pharma Inc.
- Genzyme Corporation/Geltex Pharmaceuticals, Inc.
- Elan Corporation, plc/Dura Pharmaceuticals, Inc.
- King Pharmaceuticals, Inc./Jones Pharma Incorporated
- Celltech Chiroscience PLC/Medeva PLC
- Pfizer Inc./Warner-Lambert Company
- Shire Pharmaceuticals Group plc/Roberts Pharmaceutical Corporation
- Johnson & Johnson/Centocor, Inc.
- Warner-Lambert Company/Agouron Pharmaceuticals, Inc.
The ranges of median and mean premiums paid over the target's closing stock
price one day, one week and one month prior to the announcement of the
transaction or proposed transaction was 19.9% to 44.8%. Using the closing prices
for Pharmacia common stock as of July 12, 2002, July 5, 2002 and June 14, 2002
(adjusted for Pharmacia's proposed disposition of its interest in Monsanto
Company), Lazard and Bear Stearns derived a range of implied equity values per
share for Pharmacia common stock of approximately $33.99 to $56.41 and a
corresponding range of implied exchange ratios of approximately 1.06x to 1.75x
based on the closing share price of Pfizer common stock as of July 12, 2002.
This compares to the exchange ratio in the merger of 1.4x.
Illustrative Valuation of Cost Savings versus Value of Premium
Analysis. Lazard and Bear Stearns each performed an illustrative valuation of
the projected cost savings expected to result from the merger. This analysis was
based on the hypothetical capitalized value of estimated incremental net income
assuming a
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CHAPTER ONE -- THE MERGER
range of price to earnings multiples of 12.5x to 20.0x, pre-tax estimated cost
savings of $2.0 billion to $2.5 billion based on estimates from Pfizer's
management (excluding one-time costs to achieve such cost savings) and tax
effected at a 32% tax rate.
The following table shows the calculated hypothetical capitalized values of
the projected cost savings resulting from this analysis (all dollar values are
in billions):
PROJECTED COST SAVINGS: 12.5X 15.0X 17.5X 20.0X
----------------------- ----- ----- ----- -----
$2.0........................................... $17.0 $20.4 $23.8 $27.2
2.5........................................... 21.3 25.5 29.8 34.0
------------------------
Both Lazard and Bear Stearns compared the illustrative valuation of the
projected cost savings expected to result from the merger to the value of the
premium implied by the exchange ratio in the merger, assuming stock prices for
Pfizer common stock and for Pharmacia common stock (adjusted for Pharmacia's
proposed disposition of its interest in Monsanto Company) as of July 12, 2002
and the average prices of Pfizer common stock and of Pharmacia common stock
(adjusted for Pharmacia's proposed disposition of its interest in Monsanto
Company) for the prior 30 days. Both Lazard and Bear Stearns observed that the
calculated hypothetical capitalized values of the projected cost savings
expected to result from the merger were generally higher than the value of the
implied premiums in the merger of $20.1 billion and $19.3 billion based on the
stock prices of Pfizer common stock and of Pharmacia common stock (adjusted for
Pharmacia's proposed disposition of its interest in Monsanto Company) as of July
12, 2002 and the average prices for the 30 days prior to July 12, 2002,
respectively.
Contribution Analysis. Lazard and Bear Stearns each performed a
contribution analysis to assist the Pfizer board of directors in valuing
Pharmacia based on the relative contribution of each company to the combined pro
forma entity, based on the projections of the managements of Pfizer and of
Pharmacia and public information. Lazard and Bear Stearns calculated the
relative contribution by both Pfizer and Pharmacia to the combined entity with
respect to equity value at market (based on the closing share price of the
Pfizer common stock and of the Pharmacia common stock (adjusted for Pharmacia's
proposed disposition of its interest in Monsanto Company) as of July 12, 2002)
and at the 1.4x exchange ratio in the merger, and projected financial data
including revenues, EBIT and net income with and without projected cost savings.
In this analysis, Lazard and Bear Stearns each adjusted the Pfizer and Pharmacia
projections to exclude alliance revenue paid to Pfizer by Pharmacia and based
cost savings on estimates provided by Pfizer's management.
For the calculation of Pharmacia's percentage contribution based on "2004E
Net Income (with cost savings)" and "2004E Net Income (peak)," both Lazard and
Bear Stearns included the impact of $2.2 billion ($1.5 billion after tax) and
$2.5 billion ($1.7 billion after tax) in cost savings, respectively, as
estimated by Pfizer's management.
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CHAPTER ONE -- THE MERGER
The following table illustrates the relative contribution to revenues,
EBIT, net income, equity value at market and equity value at the exchange ratio
in the merger of 1.4x of both Pfizer and Pharmacia to the combined company:
PERCENTAGE PERCENTAGE
CONTRIBUTION CONTRIBUTION
OF PFIZER OF PHARMACIA TOTAL
--------------- --------------- -----
2002E Total Revenues.......................... 71.2 28.8 100.0
2002E EBIT.................................... 83.1 16.9 100.0
2002E Net Income (without cost savings)....... 82.9 17.1 100.0
2004E Net Income (without cost savings)....... 82.6 17.4 100.0
2004E Net Income (with cost savings).......... 75.3 24.7 100.0
2004E Net Income (peak)....................... 74.4 25.6 100.0
Equity Value at Market........................ 83.8 16.2 100.0
Equity Value at 1.4x Exchange Ratio........... 77.2 22.8 100.0
------------------------
Pro Forma Merger Analysis. Lazard and Bear Stearns each performed a pro
forma merger analysis to assist the Pfizer board of directors in analyzing the
financial impact of the merger on Pfizer. Lazard and Bear Stearns each reviewed
and analyzed certain pro forma financial impacts of the merger on holders of
Pfizer common stock based on the following:
- the exchange ratio in the merger of 1.4x;
- the financial projections provided to each of Lazard and Bear Stearns by
the managements of Pfizer and of Pharmacia, respectively;
- an assumption for analytical purposes, based on estimates from Pfizer's
management, that the combination of Pfizer and Pharmacia would realize
projected pre-tax cost savings of $1.4 billion and $2.2 billion in 2003
and 2004, respectively (tax-effected at a 32% tax rate);
- an assumption for analytical purposes that the earnings impact would be
presented on the basis of adjusted earnings (as described below); and
- an assumption for analytical purposes, based on public statements made by
Pfizer's management, that Pfizer would expand its previously announced
share repurchase program from $10 billion to $16 billion via open market
purchases as well as accelerate the buyback period with the anticipation
of completing the program in 2003.
The following table shows the projected per share accretion/(dilution) to
Pfizer's pro forma adjusted earnings, including the projected cost savings for
the calendar years presented. For the purpose of this analysis, adjusted
earnings is equal to GAAP net income, plus the cumulative effect of a change in
accounting principle, plus certain significant items, plus charges related to
purchase price allocations on assets (including write-off of in-process research
and development, amortization of identifiable intangibles and charges related to
write-up of assets to fair market value) and plus merger-related costs
(including integration expenses and restructuring charges).
2003E 2004E
----- -----
Accretion/(Dilution) to Pfizer common stock................. $0.00 $0.06
------------------------
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CHAPTER ONE -- THE MERGER
MISCELLANEOUS
In connection with rendering the Lazard opinion and the Bear Stearns
opinion, Lazard and Bear Stearns each respectively performed a variety of
financial analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to a partial analysis
or summary description. Accordingly, notwithstanding the separate analyses
summarized above, each of Lazard and Bear Stearns believes that its analyses
must be considered as a whole and that selecting portions of the analyses and
factors considered by them, without considering all such analyses and factors,
or attempting to ascribe relative weights to some or all such analyses and
factors, could create an incomplete view of the evaluation process underlying
the Lazard opinion and the Bear Stearns opinion.
In performing their respective analyses, each of Lazard and Bear Stearns
made numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond the control
of Pfizer. The analyses performed by Lazard and Bear Stearns are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Neither Lazard nor Bear
Stearns assigned any specific weight to any of the analyses described above and
did not draw any specific conclusions from or with regard to any one method of
analysis. With respect to the analysis of comparable companies and the analysis
of selected precedent transactions summarized above, no public company utilized
as a comparison is identical to Pfizer or Pharmacia, and no transaction is
identical to the merger. Accordingly, an analysis of publicly traded comparable
companies and comparable business combinations is not mathematical; rather, it
involves complex considerations and judgments concerning the differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading values or announced merger transaction values,
as the case may be, of Pfizer or Pharmacia and the companies to which they were
compared. The analyses do not purport to be appraisals or to reflect the prices
at which any securities may trade at the present time or at any time in the
future. In addition, the Lazard opinion and the Bear Stearns opinion were just
two of many factors taken into consideration by Pfizer's board of directors.
Consequently, Lazard's and Bear Stearns' analysis should not be viewed as
determinative of the decision of Pfizer's board of directors or Pfizer's
management with respect to the fairness of the exchange ratio as set forth in
the merger agreement.
Lazard and Bear Stearns are internationally recognized investment banking
firms and are each continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements, leveraged buyouts and valuations for estate, corporate and
other purposes.
Lazard was selected to act as investment banker to the Pfizer board of
directors because of its expertise and its reputation in investment banking and
mergers and acquisitions and its familiarity with the pharmaceutical industry
and Pfizer. Pfizer and Lazard have entered into a letter agreement, dated as of
July 8, 2002, relating to the services to be provided by Lazard in connection
with the merger and the transactions related to it, under which Pfizer has
agreed to pay Lazard customary compensation, a substantial portion of which is
payable only upon completion of the merger. Pfizer also agreed to reimburse
Lazard for certain out-of-pocket expenses incurred in connection with the
engagement. In addition, Pfizer agreed to indemnify Lazard against certain
liabilities, including liabilities under the federal securities law, relating to
or arising out of its engagement.
Bear Stearns was selected to act as financial advisor to the Pfizer board
of directors because of its expertise and its reputation in
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CHAPTER ONE -- THE MERGER
investment banking and mergers and acquisitions and its familiarity with the
pharmaceutical industry and Pfizer. Pfizer and Bear Stearns have entered into a
letter agreement, dated as of July 13, 2002, relating to the services to be
provided by Bear Stearns in connection with the merger and the transactions
related to it, under which Pfizer has agreed to pay Bear Stearns customary
compensation, a substantial portion of which is payable only upon completion of
the merger. Pfizer agreed to reimburse Bear Stearns for certain out-of-pocket
expenses incurred in connection with the engagement. In addition, Pfizer agreed
to indemnify Bear Stearns against certain liabilities, including liabilities
under the federal securities law, relating to or arising out of its engagement.
OPINION OF PHARMACIA'S FINANCIAL ADVISOR
Goldman Sachs delivered its opinion to the Pharmacia board of directors
that, as of July 13, 2002 and based upon and subject to the factors and
assumptions set forth therein, the exchange ratio pursuant to the merger
agreement was fair from a financial point of view to the holders of Pharmacia
common stock.
The full text of the written opinion of Goldman Sachs, dated July 13, 2002,
which sets forth the assumptions made, procedures followed, matters considered
and limitations on the review undertaken in connection with the opinion, is
attached as Annex D. Holders of Pharmacia common stock should read the opinion
in its entirety. Goldman Sachs provided its opinion for the information and
assistance of the Pharmacia board of directors in connection with its
consideration of the transaction contemplated by the merger agreement. The
Goldman Sachs opinion is not a recommendation as to how any holder of Pharmacia
common stock should vote with respect to such transaction.
In connection with rendering the opinion described above and performing its
related financial analyses, Goldman Sachs reviewed, among other things:
- the merger agreement;
- Annual Reports to Shareholders and Annual Reports on Form 10-K of
Pharmacia and Pfizer for each of the five years ended December 31, 2001;
- certain interim reports to shareholders and Quarterly Reports on Form
10-Q of Pharmacia and Pfizer;
- certain other communications from Pharmacia and Pfizer to their
respective shareholders; and
- certain internal financial analyses and forecasts for Pharmacia and
Pfizer prepared by their respective managements, including certain cost
savings and operating synergies expected to result from the transaction
contemplated by the merger agreement (the "Synergies").
Goldman Sachs also held discussions with members of the senior management
of Pharmacia and Pfizer regarding their assessments of the strategic rationale
for, and the potential benefits of, the transaction contemplated by the merger
agreement and the past and current business operations, financial condition and
future prospects of their respective companies. In addition, Goldman Sachs
reviewed the reported price and trading activity for Pharmacia common stock and
Pfizer common stock, compared certain financial and stock market information for
Pharmacia and Pfizer with similar information for certain other companies, the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the pharmaceutical industry specifically and in
other industries generally and performed such other studies and analyses as it
considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial, accounting and other information discussed with or reviewed by it and
assumed such accuracy and completeness for purposes of rendering the opinion
described above. In that regard, Goldman Sachs assumed, with the consent of the
Pharmacia board of directors, that the internal financial forecasts prepared by
the respective managements of Pharmacia and Pfizer, including the Synergies,
were reasonably
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CHAPTER ONE -- THE MERGER
prepared on a basis reflecting the best currently available estimates and
judgments of Pharmacia and Pfizer. In addition, Goldman Sachs did not make an
independent evaluation or appraisal of the assets and liabilities of Pharmacia
or Pfizer or any of their respective subsidiaries. No evaluation or appraisal of
the assets or liabilities of Pharmacia or Pfizer or any of their respective
subsidiaries was furnished to Goldman Sachs. Goldman Sachs also assumed that all
material governmental, regulatory or other consents and approvals necessary for
the completion of the transaction contemplated by the merger agreement will be
obtained without any adverse effect on Pharmacia or Pfizer or on the expected
benefits of the transaction contemplated by the merger agreement. In addition,
Goldman Sachs assumed that the proposed spin-off of Pharmacia's 84% interest in
Monsanto Company to holders of Pharmacia common stock will be completed prior to
the completion of the merger contemplated by the merger agreement.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with rendering the opinion described above. The
following summary, however, does not purport to be a complete description of the
financial analyses performed by Goldman Sachs. The order of analyses described
does not represent relative importance or weight given to those analyses by
Goldman Sachs. Some of the summaries of the financial analyses include
information presented in tabular format. The tables must be read together with
the full text of each summary and are alone not a complete description of
Goldman Sachs' financial analyses. Except as otherwise noted, the following
quantitative information, to the extent that it is based on market data, is
based on market data as it existed on or before July 13, 2002 and is not
necessarily indicative of current market conditions. In addition, the
quantitative information presented below with respect to Pharmacia or Pharmacia
common stock have been adjusted to exclude Pharmacia's 84% interest in Monsanto
Company, which was distributed to holders of Pharmacia common stock on August
13, 2002.
Historical Exchange Ratio Analysis. Goldman Sachs calculated the implied
exchange ratios of Pharmacia common stock to Pfizer common stock based on the
average closing share prices of Pharmacia common stock and Pfizer common stock
for the three-month, six-month and twelve-month periods ended July 12, 2002 and
on the closing share prices of Pfizer common stock and Pharmacia common stock on
July 12, 2002, the last trading day prior to the announcement of the execution
of the merger agreement. This analysis indicated that the implied exchange ratio
for each of these periods was 1.00, 0.94 and 0.92, respectively, and on July 12,
2002 was 0.92, while the exchange ratio in the merger agreement was 1.4.
Implied Premium Analysis. Goldman Sachs compared the merger consideration
to be received by holders of Pharmacia common stock based on the exchange ratio
of 1.40 and the closing share price of Pfizer common stock of $32.20 on July 12,
2002, to the closing share price of Pharmacia common stock of $32.59 on July 12,
2002 and to the average closing share prices for Pharmacia common stock and
Pfizer common stock for the three-month and six-month periods ended July 12,
2002. This analysis indicated that the consideration per share of Pharmacia
common stock to be received by Pharmacia common shareholders pursuant to the
merger agreement represented a premium of 52.4%, 40.0% and 48.3%, respectively.
Contribution Analysis. Goldman Sachs analyzed the relative income
statement contribution of Pharmacia and Pfizer to the combined company following
completion of the transaction contemplated by the merger agreement, before
taking into account any of the possible benefits that may be realized following
the transaction but adjusting Pharmacia's sales for the Celebrex(R) payment it
makes to Pfizer, for the year 2002, based on financial data and on the
assumptions provided to Goldman Sachs by Pharmacia and Pfizer managements.
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CHAPTER ONE -- THE MERGER
The following table presents the results of this analysis:
PHARMACIA CONTRIBUTION
TO THE COMBINED COMPANY
---------------------------
SALES EBIT NET INCOME
----- ---- ----------
2002E................................................ 26.6% 18.2% 17.1%
------------------------
The contribution of Pharmacia to the combined company, based on the market
capitalizations of Pharmacia and Pfizer using the market prices of Pharmacia and
Pfizer common stock on July 12, 2002, was 15.9%.
Goldman Sachs compared all of the above results with the expected
percentage ownership of Pharmacia common shareholders in the combined company of
22.4% based on fully diluted shares of each company outstanding as of March 30,
2002.
Selected Companies Analysis. Goldman Sachs reviewed and compared certain
financial information, ratios and public market multiples for Pharmacia and
Pfizer to corresponding financial information, ratios and public market
multiples for the following publicly traded U.S. corporations in the
pharmaceutical industry:
- Johnson & Johnson
- Merck & Co., Inc.
- Eli Lilly and Company
- Abbott Laboratories
- Wyeth
- Bristol-Myers Squibb Company
- Schering-Plough Corporation
Although none of the selected companies is directly comparable to Pharmacia
or Pfizer, the companies included were chosen because they are publicly traded
U.S. companies with operations that for purposes of analysis may be considered
similar to certain operations of Pharmacia and Pfizer.
Goldman Sachs also calculated and compared various financial multiples and
ratios based on information it obtained from the latest available SEC filings
and Institutional Broker Estimate Service, or IBES, and First Call estimates.
The multiples and ratios for each of the selected companies and Pharmacia and
Pfizer were calculated using the closing share prices on July 12, 2002. Goldman
Sachs calculated and compared the following multiples:
- enterprise value, which is the market value of common equity plus the
book value of debt less cash, as a multiple of sales for the latest
twelve months, or LTM; and
- enterprise value as a multiple of latest twelve months earnings before
interest and taxes, or EBIT.
The results of these analyses are summarized as follows:
SELECTED COMPANIES (INCLUDING
PHARMACIA AND PFIZER)
-----------------------------
ENTERPRISE VALUE AS A MULTIPLE OF: RANGE MEDIAN MEAN PHARMACIA PFIZER
---------------------------------- ---------- ------ ----- --------- ------
LTM Sales........................... 2.3x-6.1x 3.4x 3.8x 2.9x 6.1x
LTM EBIT............................ 8.5x-17.9x 14.6x 13.7x 15.4x 17.8x
------------------------
Goldman Sachs also calculated and compared the selected companies'
estimated price/earnings ratios for calendar years 2002 and 2003 to the
estimated price/earnings ratios for Pharmacia and Pfizer for the same periods.
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CHAPTER ONE -- THE MERGER
The following table presents the results of this analysis:
SELECTED COMPANIES (INCLUDING
PHARMACIA AND PFIZER)
-------------------------------
PRICE/EARNINGS RATIO: RANGE MEDIAN MEAN PHARMACIA PFIZER
--------------------- ------------ ------ ----- --------- ------
2002E............................ 13.5x-22.6x* 16.8x 17.4x 19.1x** 20.4x*
2003E............................ 13.0x-19.6x* 14.9x 15.5x 16.6x** 17.6x*
-------------------------
* Based on IBES estimates.
** Using earnings estimates based on First Call.
Goldman Sachs also considered five-year earnings per share growth rates
provided by IBES or, in the case of Pharmacia, First Call. The following table
presents the results of this analysis:
SELECTED COMPANIES (INCLUDING
PHARMACIA AND PFIZER)
-----------------------------
RANGE MEDIAN MEAN PHARMACIA PFIZER
---------- ------ ----- --------- ------
5-Year EPS Growth Rate............ 9.0%-20.0% 13.0% 13.4% 20.0% 19.0%
------------------------
Selected Transactions Analysis. Goldman Sachs analyzed certain information
relating to the following selected transactions in the pharmaceutical industry
since 1989:
- acquisition of Warner-Lambert Company by Pfizer in 2000
- acquisition of Wellcome PLC by Glaxo PLC in 1995
- acquisition of Squibb Corporation by Bristol-Myers Company in 1989
For each of the selected transactions, Goldman Sachs calculated and
compared the aggregate consideration as a multiple of latest twelve months EBIT
and equity consideration as a multiple of latest twelve months net income.
The following table presents the results of this analysis:
SELECTED
TRANSACTIONS
------------
CONSIDERATION AS A MULTIPLE OF: RANGE PROPOSED TRANSACTION
------------------------------- ------------ --------------------
LTM EBIT............................................ 12.2x-31.8x 22.7x
LTM Net Income...................................... 21.6x-57.4x 30.3x
------------------------
For each of the selected transactions, Goldman Sachs also calculated and
compared the premiums represented by the per share consideration in relation to
the closing share prices of the acquired company's common stock one day prior to
announcement (with the exception of Warner-Lambert Company and Pfizer which was
one day prior to the offer made for Warner-Lambert Company by American Home
Products Corporation), four weeks prior to announcement, and to the 52-week high
closing share price of the acquired company's common stock prior to
announcement.
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CHAPTER ONE -- THE MERGER
The following table presents the results of this analysis:
SELECTED TRANSACTIONS
PREMIUM RANGE PROPOSED TRANSACTION
------- ----------- --------------------
One day prior to announcement.................. 25.8%-50.6% 52.4%
Four weeks prior to announcement............... 44.0%-57.7% 32.2%
52-week high prior to announcement............. 21.4%-42.7% 9.4%
------------------------
Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses of
the financial impact of the merger using earnings estimates for Pharmacia and
Pfizer prepared by their respective managements. For each of the years 2003 and
2004, Goldman Sachs compared the estimated earnings per share of Pharmacia
common stock on a standalone basis and the estimated earnings per share of
Pfizer common stock on a standalone basis, to the estimated earnings per share
of the common stock of the pro forma combined company on a cash earnings per
share basis, which excludes the amortization of intangible assets. Goldman Sachs
performed this analysis based on the exchange ratio of 1.40 and the operating
synergies projected by the management of Pfizer to result from the merger. Based
on such analyses, the proposed transaction would be (1) accretive to Pharmacia
common shareholders on a cash earnings per share basis in the years 2003 and
2004, (2) neither accretive nor dilutive to Pfizer common shareholders on a cash
earnings per share basis in the year 2003 and (3) accretive to Pfizer's common
shareholders on a cash earnings per share basis in the year 2004.
In addition, based on the current 2002 dividend pay-out ratios for
Pharmacia common stock and Pfizer common stock of 35%, or $0.54 per share, and
33%, or $0.52 per share, respectively, Pharmacia common shareholders would
receive an additional $0.22 in dividends on a pro forma per share basis based on
estimated earnings per share in the year 2003 and an additional $0.30 per share
based on estimated earnings per share in the year 2004.
Illustrative Future Value. Using the same earnings estimates described
above for the years 2003 and 2004 and the median of certain Wall Street analyst
estimates for the years 2005 and 2006, Goldman Sachs also calculated
illustrative future values of the merger consideration payable to holders of
Pharmacia common stock (including anticipated synergies and other pro forma
adjustments) for 2003, 2004 and 2005, using one-year forward price/earnings
multiples ranging from 16.0x to 22.0x. Goldman Sachs also used these earnings
estimates to calculate illustrative future values of Pharmacia common stock on a
stand-alone basis for 2003, 2004 and 2005, using the same price/earnings
multiples, and then compared the illustrative future values calculated with
respect to the merger consideration to be paid with the illustrative future
values calculated with respect to the Pharmacia common stock on a stand-alone
basis. In each case, the illustrative future values calculated with respect to
the merger consideration payable to Pharmacia common shareholders were greater
than the corresponding illustrative future values calculated with respect to the
Pharmacia common stock on a stand-alone basis.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all of its analyses and did not
attribute any particular weight to any factor or analysis considered by it.
Rather, Goldman Sachs made its determination as to fairness on the basis of its
experience and professional judgment after considering the results of all of its
analyses. No company or transaction used in the above analyses as a comparison
is directly
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CHAPTER ONE -- THE MERGER
comparable to Pharmacia or Pfizer or the contemplated transaction.
Goldman Sachs prepared these analyses solely for purposes of Goldman Sachs'
providing its opinion to the Pharmacia board of directors as to the fairness
from a financial point of view of the transaction contemplated by the merger
agreement. These analyses do not purport to be appraisals or necessarily reflect
the prices at which businesses or securities actually may be sold. Analyses
based upon forecasts of future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than suggested
by these analyses. Because these analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of Pharmacia, Pfizer, Goldman Sachs or any other
person assumes responsibility if future results are materially different from
those forecast.
As described above, Goldman Sachs' opinion to the Pharmacia board of
directors was one of many factors taken into consideration by the Pharmacia
board of directors in making its determination to approve the merger agreement.
The foregoing summary does not purport to be a complete description of the
analyses performed by Goldman Sachs in connection with the fairness opinion and
is qualified in its entirety by reference to the written opinion of Goldman
Sachs attached as Annex D.
Goldman Sachs, as part of its investment banking business, is continually
engaged in performing financial analyses with respect to businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities and private placements as well as for estate, corporate and
other purposes. Goldman Sachs is familiar with Pharmacia, having provided
certain investment banking services to Pharmacia from time to time, including:
- having acted as its financial advisor in connection with the sale of its
45% stake in Amersham Biosciences to Amersham plc in March 2002 for $1
billion;
- having acted as lead manager of the initial public offering of 35,000,000
shares of common stock of its then wholly owned subsidiary, Monsanto
Company, in October 2000; and
- having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the merger
agreement with Pfizer.
In addition, Goldman Sachs advised Pharmacia on the spin-off of its 84%
interest in Monsanto Company to holders of Pharmacia common stock. Goldman Sachs
may provide investment banking services to Pfizer and its subsidiaries in the
future.
The Pharmacia board of directors selected Goldman Sachs as its financial
advisor because it is an internationally recognized investment banking firm that
has substantial experience in transactions similar to the transaction
contemplated by the merger agreement.
Goldman Sachs provides a full range of financial, advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold positions in the debt or equity securities,
including derivative securities, of Pharmacia or Pfizer for its own account and
for the account of customers.
Pursuant to letter agreements dated May 13, 2002 and July 2, 2002,
Pharmacia engaged Goldman Sachs to act as its financial advisor in connection
with the transaction contemplated by the merger agreement. Pursuant to the terms
of these engagement letters, Pharmacia has agreed to pay Goldman Sachs a
customary transaction fee, which is payable upon completion of the transaction.
In addition, Pharmacia has agreed to reimburse Goldman Sachs for its reasonable
expenses, including attorneys' fees and disbursements, and to indemnify Goldman
Sachs and related persons against various liabilities, including certain
liabilities under the federal securities laws.
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CHAPTER ONE -- THE MERGER
INTERESTS OF CERTAIN PERSONS IN THE MERGER
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Pharmacia's directors and executive officers have interests in the merger
as individuals in addition to, and that may be different from, their interests
as shareholders. Each of the Pfizer board of directors and the Pharmacia board
of directors was aware of these interests of Pharmacia directors and executive
officers and considered them in its decision to approve the merger agreement.
NEW EMPLOYMENT AGREEMENT WITH FRED HASSAN
Pfizer has entered into an employment agreement, dated July 13, 2002, with
Mr. Fred Hassan, the current chief executive officer of Pharmacia, that, upon
completion of the merger, will replace and supersede certain provisions of his
existing employment agreement, dated November 15, 1999 with Pharmacia. Pfizer
has acknowledged that Mr. Hassan may resign for "good reason" (as that term is
defined in the existing employment agreement) at completion of the merger and
receive compensation and benefits under the terms of the existing employment
agreement. Accordingly, Pfizer will pay the compensation and benefits due to Mr.
Hassan under the existing employment agreement as follows:
- three years of base salary and annual target incentive compensation
calculated using the highest annual base salary and the highest annual
target incentive compensation received during the 3 years prior to
termination (estimated to equal approximately $9,922,500), which amount
will be payable at the end of the active employment term under the new
employment agreement as described below;
- additional years service credit (assuming employment continued through
November 30, 2004) towards retirement benefits, which shall be calculated
assuming Mr. Hassan had received such additional years of salary and
incentive compensation equal to the highest annual base salary and
highest annual target incentive compensation received within three years
prior to the date of termination;
- exercisability of options (all of which will become vested) for their
maximum term under the applicable plan;
- lapse of restrictions on any restricted shares granted to Mr. Hassan
under the existing employment agreement;
- pro-rated annual incentive compensation based on portion of year worked
prior to termination;
- three years continued welfare benefits for Mr. Hassan and his dependents,
to the extent they are not offset by benefits from another source; and
- payment for outplacement services up to $100,000.
The term of Mr. Hassan's new employment agreement begins on the completion
of the merger and the term of his active employment with Pfizer terminates on
the earlier of (1) the first anniversary of the completion of the merger or (2)
a termination of employment for any reason or Mr. Hassan's resignation, unless
the term of agreement is extended by Pfizer at its discretion until the second
anniversary of the completion of the merger. Pursuant to Mr. Hassan's employment
agreement, Mr. Hassan will serve as Vice Chairman of Pfizer and as a member of
Pfizer's board of directors. After the expiration of the active employment term,
Mr. Hassan will serve as a consultant until the earlier of (1) five years after
the commencement of his employment as a consultant, or (2) any termination
contemplated by the agreement or Mr. Hassan's resignation.
Pursuant to the terms of the agreement, during the term of his active
employment, Mr. Hassan will receive (1) an annual base salary of $1,500,000, and
(2) an annual incen-
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CHAPTER ONE -- THE MERGER
tive bonus target in an amount of 125% of his base salary. In addition, Mr.
Hassan will be entitled to receive an equity award in the first year of 900,000
options to purchase shares of Pfizer common stock, which options vest according
to Pfizer's stock option plan but which will become fully vested upon the end of
the active employment term and remain exercisable for the duration of their
10-year term. During his employment as a consultant, Mr. Hassan will receive an
annual consulting fee of $850,000 ($1,500,000 for the first year if Pfizer does
not continue the active employment term beyond the first anniversary of the
completion of the merger).
During the term of his active employment, Mr. Hassan will also be entitled
to participate in benefit plans and other benefits arrangements of Pharmacia, as
assumed by Pfizer, including, but not limited to, medical (including retiree
medical), dental, accidental death and disability benefit plans. He will be
credited with all his years of service with Pharmacia and with Pharmacia &
Upjohn for purposes of determining his level of benefits. During the active
employment term and the consulting term, Mr. Hassan will be eligible to
participate in executive perquisite programs on the same basis as comparable
executives.
In the event that during the term of his active employment Mr. Hassan's
employment is terminated by Pfizer without cause (as defined in the agreement)
or by Mr. Hassan for good reason (as such term is defined below), Mr. Hassan
will be entitled to receive a lump-sum payment of (1) his base salary for the
remainder of the originally scheduled active employment term and (2) five years
of his consulting fee (one year of which shall be at $1,500,000 if the active
employment term does not continue beyond the first anniversary of the completion
of the merger).
In the event that Mr. Hassan's employment is terminated without cause or
for good reason during the term of his employment as a consultant, he will be
entitled to a lump-sum payment of the balance of the consulting fees for the
remainder of the originally scheduled consulting term.
Under the agreement, the term "good reason" means:
- reduction of the annual base salary or of the target amount of the annual
incentive bonus;
- reduction of the annual consulting fee;
- change in reporting so that Mr. Hassan no longer reports to Pfizer's
chief executive officer;
- assignment of duties which are materially inconsistent with Mr. Hassan's
duties or materially impair Mr. Hassan's ability to function as a Vice
Chairman (applicable only during the active employment term);
- failure to nominate Mr. Hassan for election (or reelection) to the board
of directors (applicable only during the active employment term);
- relocation of Mr. Hassan's regular place of business outside of New
Jersey; or
- failure of any successor to assume the agreement.
If any amounts payable to Mr. Hassan under the employment agreement would
be determined to constitute a parachute payment (as defined under Section
280G(b)(2) of the Internal Revenue Code), Pfizer will provide for a full
gross-up.
OTHER EXECUTIVE EMPLOYMENT AGREEMENTS
Pharmacia maintains employment agreements with the following executive
officers: Goran Ando, Hakan Astrom, Richard T. Collier, Timothy Cost,
Christopher J. Coughlin, Carrie Cox, Stephen MacMillan, Philip Needleman, and
Timothy Rothwell (together with Mr. Hassan, the "executive officers").
Under the agreements, these executive officers (excluding Mr. Hassan) are
entitled to receive severance benefits upon termination of employment if the
termination is without "cause", as defined in the agreements, or is by the
executive for "good reason". For purposes
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CHAPTER ONE -- THE MERGER
of the agreements, the term "good reason" means:
- a reduction in base salary or target amount of any cash incentive bonus
or any other benefit under any long-term incentive award;
- the failure to retain the executive in his or her position and title;
- during the two-year period after a change in control (as defined in the
agreements), assignment by Pharmacia of any duties materially
inconsistent with, or any other unremedied action taken by Pharmacia
which results in a diminution to, the executive's title, position,
status, reporting relationships, authority, duties or responsibilities as
they existed immediately prior to such two-year period;
- failures by any successor (or subsidiary or affiliate thereof) to assume
Pharmacia's obligations under the agreement;
- a termination which is not in accordance with the terms of the employment
agreement;
- during the two-year period following a change in control, a failure by
Pharmacia to keep in effect any employee benefit plan applicable to the
executive prior to a change in control, unless comparable benefits are
provided; or
- during the two-year period following a change in control, relocation of
the executive out of state or more than 50 miles within the state where
the executive's office was located prior to the change in control or an
increase in required business travel (as compared to pre-change in
control standards).
For purposes of the agreements, completion of the merger will constitute a
change in control.
Upon termination without cause or for good reason, severance benefits
include, in addition to accrued amounts:
(A) a lump sum severance payment equal to three years of base salary and
annual target incentive compensation (calculated using the executive's highest
annual base salary and highest annual target incentive compensation within three
years prior to the executive's date of termination) is payable within 10 days
after termination during the two-year period following a change in control;
(B) three additional years of service credit towards retirement benefits
which shall be calculated as if the executive had received three additional
years of salary and incentive compensation equal to the highest annual base
salary and highest annual incentive compensation received within the three years
prior to such executive's date of termination;
(C) exercisability of all stock options granted prior to the executive's
termination for their maximum period under the terms of the grant;
(D) pro-rated target annual incentive compensation based on the portion of
the year worked prior to termination (payable within 10 days after termination
during the two-year period following a change in control);
(E) three years of continued welfare benefits for the executive and
dependents, to the extent they are not offset by benefits from another source;
(F) payment for outplacement services up to $25,000; and
(G) three years of financial planning assistance.
All of the above clauses are applicable to Goran Ando, Hakan Astrom,
Richard T. Collier, Timothy Cost, Christopher J. Coughlin, Carrie Cox, Stephen
MacMillan, and Timothy Rothwell. In the case of Philip Needleman, clauses B
through G are applicable, but clause (A) does not apply to Mr. Needleman who
instead receives a fixed lump-sum payment of $4,764,006.
In addition, if the executive officer (excluding Mr. Hassan) is terminated
(for any reason other than for death or disability) within two years following a
change in control, the non-compete clause in the employment agreement ceases to
apply.
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CHAPTER ONE -- THE MERGER
The aggregate cash severance payable to the executive officers (excluding
Mr. Hassan) under the employment agreements for a termination without cause or
for good reason would be approximately $[ ].
Currently, each executive officer participates in the Key Executive Pension
Plan. Upon shareholder adoption of the merger agreement, Timothy Cost will
become eligible to participate in the Key Executive Pension Plan as if he had
become eligible beginning with such executive's employment with the company.
Under the terms of the Key Executive Pension Plan, participants fully vest in
their supplemental benefits upon shareholder adoption of the merger agreement.
If (1) the participant's employment is terminated for good reason (as defined in
the individual employment agreement), (2) the termination qualifies as a
termination due to a change in control (as defined in the Separation Benefit
Plan or the Change in Control Severance Benefit Plan) or (3) the participant is
involuntarily terminated other than for cause, in each case, prior to early
retirement at age 60 and within 36 months after shareholder adoption of the
merger agreement, the participant's benefit, which will be paid out in
accordance with the terms of the plan, will be calculated as if he retired at
age 60 assuming that compensation would have increased by 5% per year for each
year between shareholder adoption and the participant's actual attainment of age
60, and in accordance with any applicable employment agreement. The benefit
payable is discounted based on the 30-year Treasury Bond rate in effect at the
time of payment and is offset by certain other Pharmacia and other prior
employer plans.
The aggregate value of the additional supplemental retirement benefit under
the Key Executive Pension Plan pursuant to a termination of the executive
officers under clauses (1), (2) or (3) above would be approximately $[ ].
EXECUTIVE BENEFIT PLANS
Pharmacia maintains various executive benefit plans which provide for the
acceleration or increase of benefits upon either shareholder adoption of the
merger agreement or upon completion of the merger, depending on the terms of the
plan.
OPERATIONS COMMITTEE INCENTIVE PLAN
The executive officers participate in the Operations Committee Incentive
Plan and will vest in their pro-rated awards (being the greater of the target
annual incentive award or the incentive award reflecting year-end projected
performance based on the year-to-date performance) upon completion of the
merger. If an executive officer is terminated other than for cause after
completion of the merger and prior to December 15, 2002, the executive receives
his vested pro-rated annual award within 10 days of such termination.
The aggregate amount of vested awards under the Operations Committee
Incentive Plan payable to the executive officers upon termination following a
change in control would be approximately $[ ].
CASH LONG-TERM INCENTIVE PLAN AND LONG-TERM PERFORMANCE SHARE UNIT INCENTIVE
PLAN
Pursuant to the terms of the Cash Long-Term Incentive Plan and the
Long-Term Performance Share Unit Incentive Plan, pro-rated awards (being the
greater of the participant's target award or the award payable based on the
period-to-date performance calculated as of the date of the change in control)
vest upon the completion of the merger. The award increases to 200% of the
participant's target award (1) if the participant is still employed with the
company two years after a change in control; (2) if such participant is
involuntarily terminated without cause (as defined in the plans) or voluntarily
terminated for good reason (as such term is defined in the executive employment
agreements described above) within two years of the completion of the merger or
(3) if the termination qualifies as a termination due to a change in control (as
defined in the Separation Benefit Plan or the Change in Control Severance
Benefit Plan) only if such amount is greater than the award
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CHAPTER ONE -- THE MERGER
previously calculated pursuant to the parenthetical in the previous sentence.
The amount of vested awards under the Cash Long-Term Incentive Plan payable
to the executive officers upon termination following a change in control would
be approximately $[ ] and the number of performance shares then vested
under the Long-Term Performance Share Unit Incentive Plan and payable to the
executive officers would be approximately [ ].
EXCESS PARACHUTE TAX INDEMNITY PLAN
Under the Excess Parachute Tax Indemnity Plan, a change in control is
described as any event that is a "change" as defined in Section 280G(b)(2)(A)(i)
of the Internal Revenue Code. Upon such a change in control, the plan provides
for an excise tax gross-up to all current and former employees other than
current and former employees and directors of Monsanto Company who do not also
serve on Pharmacia's board of directors.
FOUNDERS PERFORMANCE CONTINGENT SHARES PROGRAM
Upon the completion of the merger during the performance period (as defined
in the program), target awards provided under the Founders Performance
Contingent Shares Program vest at the greater of the target award or the
percentage of the target award payable based on the period-to-date performance
calculated as of the date of the change in control. The award increases to 125%
of the participant's target award if the participant is employed by the company
or an affiliate two years after the change in control, or is involuntarily
terminated other than for cause within two years after change in control and, if
such amount is greater than the calculation above. The concept of "involuntary
termination" includes a termination for good reason (as defined in the executive
employment agreements described above). The estimated number of share units
payable to Fred Hassan, Goran Ando, Christopher J. Coughlin, Carrie Cox, Philip
Needleman, and Timothy Rothwell under the Founders Performance Contingent Shares
Program upon termination for good reason following a change in control would be
approximately [ ].
OWNERSHIP OF COMMON STOCK; STOCK OPTIONS
Security Ownership of Pfizer Executive Officers and Directors
For information regarding beneficial ownership of Pfizer common stock by
each current Pfizer director, certain executive officers of Pfizer and all
directors and executive officers as a group, see Pfizer's proxy statement used
in connection with its 2002 annual meeting of shareholders, a copy of the
relevant portion of which can be found in Exhibit 99.8 to the registration
statement of which this joint proxy statement/prospectus is a part and Pfizer's
Annual Report on 10-K for the year ended December 31, 2001, which is
incorporated by reference into this document.
Security Ownership of Pharmacia Executive Officers and Directors
For information regarding beneficial ownership of Pharmacia common stock by
each current Pharmacia director, certain executive officers of Pharmacia and all
directors and executive officers as a group, see Pharmacia's proxy statement
used in connection with its 2002 annual meeting of shareholders, a copy of the
relevant portion of which can be found as Exhibit 99.9 to the registration
statement of which this joint proxy statement/prospectus is a part.
DIRECTORS AND EXECUTIVE OFFICERS
Biographical information regarding Pfizer's executive officers is included
in Pfizer's Annual Report on Form 10-K for the year ended December 31, 2001,
which is incorporated by reference into this document. For biographical
information regarding Pfizer's directors, information concerning the
compensation paid to the chief executive officer and the other four most highly
compensated executive officers of Pfizer for the 2001 fiscal year as well as any
information regarding certain relationships and related transactions involving
Pfizer's directors and executive officers for the 2001 fiscal year, see
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CHAPTER ONE -- THE MERGER
Pfizer's proxy statement used in connection with its 2002 annual meeting of
shareholders, a copy of the relevant portions of which can be found as Exhibit
99.8 to the registration statement of which this joint proxy
statement/prospectus is a part.
For information regarding Mr. Hassan, who, pursuant to the merger
agreement, will become Vice Chairman of the combined company upon the completion
of the merger, including biographical and compensation information, see
Pharmacia's proxy statement used in connection with its 2002 annual meeting of
shareholders, a copy of the relevant portions of which can be found as Exhibit
99.9 to the registration statement of which this joint proxy
statement/prospectus is a part and "-- New Employment Agreement with Fred
Hassan" on page I-68, respectively.
TREATMENT OF PHARMACIA STOCK OPTIONS AND RESTRICTED STOCK
In the merger, each outstanding Pharmacia stock option for Pharmacia common
stock will be converted into an option to purchase Pfizer common stock. Each
outstanding Pharmacia stock option will become vested and fully exercisable
either upon adoption of the merger agreement by Pharmacia shareholders or upon
completion of the merger, depending on the terms of the applicable stock option
plan, grant, employment agreement or other arrangement under which such option
was issued. The number of shares of Pfizer common stock underlying the new
Pfizer option will equal the number of shares of Pharmacia common stock to which
the corresponding Pharmacia option was subject, multiplied by 1.4. The per share
exercise price of each new Pfizer option will be equal to the exercise price of
the corresponding Pharmacia option divided by 1.4. All other terms of the
Pharmacia stock option will remain unchanged after the conversion. The dollar
amount of in-the-money options held by Pharmacia's executive officers and
directors that will become vested upon such adoption or completion, as the case
may be, is approximately $[ ], based on a closing sale price of
Pharmacia common stock on the NYSE on [ ].
All shares of restricted Pharmacia common stock will vest either upon
adoption of the merger agreement by Pharmacia shareholders or upon completion of
the merger, depending on the terms of the applicable plan, grant, employment
agreement or other arrangement under which such restricted stock was granted,
and will be treated in the merger like other shares of Pharmacia common stock.
Approximately 383,000 shares of restricted Pharmacia common stock held by
executive officers and directors will have their restrictions lapse upon
shareholder adoption of the merger agreement and completion of the merger.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
Pfizer is obligated, for six years after the merger, to maintain in effect
Pharmacia's current directors' and officers' liability insurance and fiduciary
liability insurance covering acts or omissions occurring prior to the completion
of the merger, including for acts and omissions occurring in connection with the
approval of the merger and the merger agreement.
Pfizer is obligated, to the fullest extent permitted by law, to indemnify
and hold harmless, and provide advancement of expenses to, each person who is or
has been an officer, director or employee of Pharmacia or any of its
subsidiaries with respect to acts or omissions by them in their capacities as
officers, directors or employees of Pharmacia or any of its subsidiaries,
including for acts and omissions occurring in connection with the approval of
the merger and the merger agreement. Pfizer will also cause the surviving
corporation in the merger to maintain in its certificate of incorporation or by-
laws the current provisions regarding elimination of liability of directors,
indemnification of officers, directors and employees and advancement of expenses
for a period of six years.
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CHAPTER ONE -- THE MERGER
THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement.
This summary does not purport to describe all the terms of the merger agreement
and is qualified by reference to the complete merger agreement which is attached
as Annex A to this joint proxy statement/prospectus and incorporated by
reference. All shareholders of Pfizer and Pharmacia are urged to read the merger
agreement carefully and in its entirety.
GENERAL
Under the merger agreement, a wholly-owned subsidiary of Pfizer will merge
with and into Pharmacia, with Pharmacia continuing as the surviving corporation.
As a result of the merger, Pharmacia will become a wholly-owned subsidiary of
Pfizer.
CLOSING MATTERS
Closing. Unless the parties agree otherwise, the closing of the merger
will take place on the first business day after all closing conditions have been
satisfied or waived, unless the merger agreement has been terminated or another
time or date is agreed to in writing by the parties. See "-- Conditions" below
for a more complete description of the conditions that must be satisfied or
waived prior to closing.
Completion of the Merger. As soon as practicable after the satisfaction or
waiver of the conditions to the merger, Pfizer and Pharmacia will file a
certificate of merger with the Delaware Secretary of State in accordance with
the relevant provisions of the Delaware General Corporation Law and make all
other required filings or recordings. The merger will become effective when the
certificate of merger is filed or at such later time as Pfizer and Pharmacia
agree and specify in the certificate of merger.
CONSIDERATION TO BE RECEIVED IN THE MERGER; TREATMENT OF STOCK OPTIONS
The merger agreement provides that, at the completion of the merger:
- each share of Pharmacia common stock issued and outstanding immediately
prior to the completion of the merger, together with the associated
rights issued under the Pharmacia shareholder rights plan, but excluding
shares of Pharmacia common stock owned by Pfizer, Pharmacia or any of
their respective subsidiaries, will be converted into 1.4 shares of
Pfizer common stock and associated rights issued under the Pfizer
shareholders rights plan;
- each outstanding share of Pharmacia Series C convertible perpetual
preferred stock (which will be received by the holder in exchange for its
Pharmacia Series B convertible perpetual preferred stock prior to
completion of the merger), other than shares as to which appraisal rights
have been exercised, will, at the completion of the merger, be converted
into one share of Pfizer Series A convertible perpetual preferred stock
having, to the extent possible, terms identical to those of the Pharmacia
Series C convertible perpetual preferred stock; and
- each outstanding and unexercised option or right to purchase shares of
Pharmacia common stock granted under the Pharmacia stock plans will be
assumed by Pfizer and converted into an option or a right to purchase, as
applicable, shares of Pfizer common stock. The number of shares of Pfizer
common stock underlying the new Pfizer option will equal the number of
shares of Pharmacia common stock for which the corresponding Pharmacia
option was exercisable, multiplied by 1.4 (rounded to the nearest whole
share). The per share exercise price of each new Pfizer option will
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CHAPTER ONE -- THE MERGER
equal the exercise price of the corresponding Pharmacia option divided by 1.4.
As soon as practicable after the completion of the merger, but no later
than five business days, Pfizer will deliver notices to the holders of Pharmacia
stock options. Those notices will set forth each holder's rights under the
Pharmacia stock plans, including that, in connection with the merger and
pursuant to the terms of the Pharmacia stock plans, the agreements evidencing
the grants of the Pharmacia stock options will continue in effect on the same
terms and conditions, taking into account provisions providing for full vesting
of those options and the adjustments to the number of shares underlying, and the
exercise price of, the options. To the extent permitted by law, Pfizer will
comply with the terms of the Pharmacia stock plans and will take reasonable
steps to ensure that the stock options which qualified as incentive stock
options prior to the completion of the merger continue to qualify as incentive
stock options of the combined company after the merger.
For a further discussion of the treatment of Pharmacia stock options and
other employee benefit plans under the merger agreement, see
"-- Covenants -- Employee Matters" on page I-80 and "Interests of Certain
Persons in the Merger" beginning on page I-68.
EXCHANGE OF CERTIFICATES IN THE MERGER
Before the closing of the merger, Pfizer will appoint an exchange agent
(which must be reasonably acceptable to Pharmacia) to handle the exchange of
Pharmacia stock certificates for certificates representing shares of Pfizer
common stock and the payment of cash for fractional shares. Promptly after the
closing of the merger, the exchange agent will send a letter of transmittal,
which is to be used to exchange Pharmacia stock certificates for certificates
representing shares of Pfizer common stock, to each former Pharmacia shareholder
who holds one or more stock certificates. The letter of transmittal will contain
instructions explaining the procedure for surrendering Pharmacia stock
certificates. YOU SHOULD NOT RETURN CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Pharmacia shareholders who surrender their stock certificates, together
with a properly completed letter of transmittal, will receive shares of Pfizer
common stock into which the shares of Pharmacia common stock were converted in
the merger or shares of Pfizer Series A convertible perpetual preferred stock
into which the shares of Pharmacia Series C convertible perpetual preferred
stock were converted in the merger.
After the merger, each certificate that previously represented shares of
Pharmacia common stock and Pharmacia Series C convertible perpetual preferred
stock will only represent the right to receive the shares of Pfizer common stock
or Pfizer Series A convertible perpetual preferred stock into which those shares
of Pharmacia common stock or Pharmacia Series C convertible perpetual preferred
stock have been converted, respectively.
Pfizer will not pay dividends with a record date that is 180 days or more
after the completion of the merger to any holder of any Pharmacia stock
certificates until the holder surrenders the Pharmacia stock certificates.
However, once those certificates are surrendered, Pfizer will pay to the holder,
without interest, any dividends that have been declared after the effective date
of the merger on the shares into which those Pharmacia shares have been
converted.
However, for a period of one year following the completion of the merger,
holders of unsurrendered Pharmacia stock certificates will be entitled to vote
at any meeting of Pfizer shareholders the number of whole shares of Pfizer
common stock and Pfizer Series A convertible perpetual preferred stock
represented by such Pharmacia stock certificates.
After the completion of the merger, Pharmacia will not register any
transfers of the shares of Pharmacia common stock.
Pfizer shareholders will not exchange their stock certificates.
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FRACTIONAL SHARES
No fractional shares of Pfizer common stock will be issued in the merger.
Instead, the exchange agent will pay each of those shareholders who would have
otherwise been entitled to a fractional share of Pfizer common stock an amount
in cash determined by multiplying the fractional share interest by the closing
price for a share of Pfizer common stock on the NYSE Composite Transaction Tape
on the date of the completion of the merger or, if such date is not a business
day, on the business day immediately following the date on which the merger
occurs.
LISTING OF PFIZER STOCK
Pfizer has agreed to use its reasonable best efforts to cause the shares of
Pfizer common stock to be issued in the merger and the shares of Pfizer common
stock to be reserved for issuance upon exercise of the Pharmacia stock options
to be approved for listing on the NYSE, subject to official notice of issuance,
prior to the completion of the merger. Pfizer's symbol "PFE" will be used for
such shares, assuming the listing application is approved. Approval for listing
on the NYSE of the shares of Pfizer common stock issuable to the Pharmacia
shareholders in the merger, subject only to official notice of issuance, is a
condition to the obligations of Pfizer and Pharmacia to complete the merger.
COVENANTS
We have each undertaken certain covenants in the merger agreement
concerning the conduct of our respective businesses between the date the merger
agreement was signed and the completion of the merger. The following summarizes
the more significant of these covenants:
No Solicitation. Pharmacia has agreed that Pharmacia, and any of its
subsidiaries, officers or directors, will not, and will use reasonable best
efforts to ensure that their respective employees, agents or representatives do
not:
- initiate, solicit, encourage or knowingly facilitate, including by way of
furnishing information, any inquiries or the making of any proposal or
offer with respect to a third party "acquisition proposal" of the type
described below;
- have any discussion with or provide any confidential information or data
to any person relating to an acquisition proposal;
- engage in negotiations concerning an acquisition proposal;
- knowingly facilitate any effort or attempt to make or implement an
acquisition proposal; or
- subject to Pharmacia's right to terminate the merger agreement under
certain circumstances described in "-- Termination of Merger Agreement"
if Pharmacia receives a superior proposal of the type described below,
accept an acquisition proposal.
However, Pharmacia is permitted to take and disclose to its shareholders
its position with respect to any acquisition proposal as may be required under
the federal securities laws.
In addition, Pharmacia is permitted to engage in discussions and
negotiations with, and provide information to, any person in response to an
unsolicited acquisition proposal, if:
- its meeting of shareholders to vote on the adoption of the merger
agreement has not occurred;
- its board of directors concludes in good faith that there is a reasonable
likelihood that the acquisition proposal could result in a "superior
proposal" of the type described below;
- prior to providing any information or data to any person in connection
with an acquisition proposal, the proposing party first signs a
confidentiality agreement
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with terms, at least as stringent as the confidentiality provisions contained in
the merger agreement; and
- Pharmacia notifies and keeps Pfizer informed of the status and terms of
the acquisition proposal and any discussions or negotiations relating to
the acquisition proposal.
An "acquisition proposal" for Pharmacia is any proposal or offer with
respect to:
- a merger, reorganization, share exchange, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving Pharmacia;
- any purchase or sale of the consolidated assets of Pharmacia and its
subsidiaries, taken as a whole, having an aggregate value equal to 15% or
more of the market capitalization of Pharmacia; or
- any purchase or sale of, or tender offer or exchange offer for, 15% or
more of the equity securities of Pharmacia.
A "superior proposal" for Pharmacia, is a bona fide written proposal made
by a third party which is for:
- a sale, lease, exchange, transfer or other disposition of at least 40% of
the assets of Pharmacia and its subsidiaries, taken as a whole, in a
single transaction or a series of related transactions; or
- the acquisition, directly or indirectly, by such third party of
beneficial ownership of 30% or more of the common stock of Pharmacia
whether by merger, consolidation, share exchange, business combination,
tender or exchange offer or otherwise;
which in either case is on terms which the board of directors of Pharmacia in
good faith concludes after consultation with its financial advisors and outside
counsel, taking into account all legal, financial, regulatory and other aspects
of the proposal and the third party making the proposal:
- would, if consummated, result in a transaction that is more favorable to
its shareholders (in their capacities as shareholders), from a financial
point of view, than the transactions contemplated by the merger
agreement; and
- is reasonably capable of being completed.
Board of Directors' Covenant to Recommend. Pharmacia has agreed that its
board of directors will recommend adoption of the merger agreement to the
Pharmacia shareholders. Similarly, Pfizer has agreed that its board of directors
will recommend the issuance of shares of Pfizer common stock in the merger and
the amendment to the Pfizer certificate of incorporation to its shareholders.
However, Pharmacia's board is permitted to withdraw or to modify or to
qualify in a manner adverse to Pfizer this recommendation, before the Pharmacia
special meeting if either:
- it determines in good faith that a material adverse effect has occurred
with respect to Pfizer; or
- it has received an unsolicited bona fide acquisition proposal from a
third party that its board concludes in good faith is a superior proposal
of the type described above.
Similarly, Pfizer's board is permitted to withdraw or to modify or to
qualify in a manner adverse to Pharmacia its recommendation, before its meeting
if it determines in good faith that a material adverse effect has occurred with
respect to Pharmacia.
Even if the board of either company withdraws, modifies or qualifies its
recommendation of the merger, that company is still required to present the
merger and related proposals at the special meeting of its shareholders for
consideration, unless the merger agreement is otherwise terminated. See
"Termination of Merger Agreement" on page I-83 for
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a discussion of each party's ability to terminate the merger agreement.
Operations of Pfizer and Pharmacia Pending Closing. We have each
undertaken a separate covenant that places restrictions on ourselves and our
respective subsidiaries until either the completion of the merger or the
termination of the merger agreement. In general, we and our respective
subsidiaries are each required to conduct our respective businesses in the
usual, regular and ordinary course in all material respects substantially in the
same manner as conducted prior to the date of the merger agreement and to use
our reasonable efforts to preserve intact our present lines of business and
relationships with third parties. Each of us has agreed to restrictions that,
except as required by law or expressly contemplated by the merger agreement,
prohibit us and our respective subsidiaries from:
- declaring or paying dividends in excess of specified limits (except for,
in the case of Pharmacia (1) any stock dividend or distribution with
respect to the spin-off of Monsanto Company; (2) dividends or
distributions from Monsanto Company to Pharmacia; or (3) dividends or
distribution by wholly owned subsidiaries of Pharmacia);
- amending our respective certificates of incorporation, by-laws or other
governing documents;
- making acquisitions of, or investments in, other entities beyond
specified amounts; or
- changing our respective accounting methods or fiscal year.
In addition, Pharmacia has agreed to additional restrictions that prohibit
it from:
- entering into any new lines of business or incurring or committing to any
capital expenditures or obligations or liabilities in connection with
such capital expenditures beyond specified amounts;
- entering into any pharmaceutical licensing agreements unless under
specified limits;
- with certain exceptions, entering into certain agreements involving
Pharmacia's pharmaceutical and consumer healthcare businesses, for the
sale of products or inventories or for the furnishing of services by
Pharmacia which exceed specified amounts or would involve commitments of
more than one year, unless the agreements can be terminated by giving
less than 60 days' notice and without incurring an obligation to pay any
material premium or penalty or suffering any other material detriment;
- making changes in its share capital, including, among other things, stock
splits, combinations, or reclassifications, except for any transaction by
a wholly-owned subsidiary of Pharmacia which remains a wholly-owned
subsidiary after the completion of the transaction;
- repurchasing or redeeming its capital stock, except in the ordinary
course of business in connection with Pharmacia's benefit plans, for the
redemption or exchange of rights in accordance with the Pharmacia rights
agreement, and the exchange of the Pharmacia Series B convertible
perpetual preferred stock for the Pharmacia Series C convertible
perpetual preferred stock;
- issuing, delivering or selling any shares of its capital stock or other
equity interests, other than, among other exceptions, in connection with
Pharmacia's benefit plans or in connection with the exercise of options
or other stock awards or stock option agreements and other than issuances
by a wholly-owned subsidiary of Pharmacia of capital stock to the
subsidiary's parent or another wholly owned subsidiary of Pharmacia;
- disposing of assets beyond specified amounts, other than, among other
exceptions, inventory in the ordinary course of
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business and except for the sale or disposition of assets or stock of
Monsanto Company or the spin-off of Monsanto Company from Pharmacia, as
described in Pharmacia's filings with the SEC;
- incurring debt, other than, among other exceptions, in the ordinary
course consistent with past practice or pursuant to the credit
facilities, indentures and other arrangements in existence on July 13,
2002, but not beyond specified amounts;
- making loans, advances, capital contributions or investments in any other
entity except for certain specified amounts in the ordinary course and
consistent with past practice, pursuant to a legal obligation not
existing on July 13, 2002, or loans, advances, capital contributions or
investments by Pharmacia to subsidiaries of Pharmacia or from
subsidiaries of Pharmacia to Pharmacia;
- increasing the compensation of directors, executive officers or employees
or increasing employee benefits other than in the ordinary course and
consistent with past practice or as required by an existing agreement;
- making any material tax election, settling or compromising any material
tax liability or changing its fiscal year;
- entering into any agreement or arrangement that would limit or restrict
Pharmacia from competing in any line of business or geographic area if
that resulting restriction would have a material adverse effect on the
combined company and its subsidiaries after the merger;
- amending, modifying, altering or terminating any of the separation
agreements between Pharmacia and Monsanto Company and the protocol
agreement, dated as of July 1, 2002, among Pharmacia, Monsanto Company
and Solutia other than for technical or ministerial amendments necessary
or appropriate to effect the Monsanto Company spin-off; and
- settling or compromising any material suit, action or claim.
Collection of Indebtedness from Monsanto Company. Pharmacia has agreed to
use its reasonable best efforts to collect all outstanding indebtedness from
Monsanto Company and its subsidiaries and the release of all guarantees of
obligations of Monsanto Company to other parties (other than existing agreements
between the parties), although uncollected indebtedness may be extended to a
date no later than one year after the distribution of its interest in Monsanto
Company to the holders of Pharmacia common stock.
Reasonable Best Efforts Covenant. We have agreed to cooperate with each
other and to use our reasonable best efforts to take all actions and do all
things advisable or necessary under the merger agreement and applicable laws to
complete the merger and the other transactions contemplated by the merger
agreement.
Reasonable best efforts include (but are not limited to) taking actions
necessary to obtain regulatory approval, contesting and resisting an action or
proceeding that would otherwise restrict the merger or having vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order that
would otherwise restrict the merger, including:
(1) Pfizer holding separate any portion of its assets or conducting its
business in a specified manner in one or more countries for a period of up to
six months after the completion of the merger;
(2) Pfizer selling, holding separate or disposing of assets, in response to
the requirements imposed by antitrust authorities; and
(3) Pharmacia, at the direction of Pfizer, taking actions, including
selling, holding separate or disposing of assets, in response to the
requirements imposed by antitrust authorities.
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CHAPTER ONE -- THE MERGER
However, neither party will be required for any reason to sell, hold
separate or otherwise dispose of assets in accordance with (2) or (3) above, if
such actions, in the aggregate, (assuming in the case of actions taken by Pfizer
pursuant to clause (2) that such actions were or have been taken by Pharmacia or
its subsidiaries with respect to assets of Pharmacia of similar value or
prospective value) would result in a material adverse effect on Pharmacia taking
into account both quantitative and qualitative factors, including the prospects
of Pharmacia and its subsidiaries taken as a whole.
Employee Matters. In the merger agreement, we have agreed that, following
the merger, Pfizer will:
- for two years following the completion of the merger, provide
compensation and employee benefits to continuing and former Pharmacia
employees at a level that is substantially comparable in the aggregate to
the compensation and benefits provided to such individuals by Pharmacia
prior to the effective time and after such period provide compensation
and employee benefits at a level comparable to similarly situated
employees of Pfizer;
- comply with the terms and conditions of any collective bargaining
agreements covering any Pharmacia employees;
- for two years following the completion of the merger continue the
severance and post retirement medical and dental benefits provided by
Pharmacia immediately prior to the completion of the merger as provided
in the Pharmacia Separation Benefit Plans, as amended through July 9,
2002;
- for two years following the completion of the merger, continue, for all
continuing Pharmacia employees, post retirement medical, dental and life
insurance benefits for eligible former employees at Pharmacia as in
effect prior to the completion of the merger;
- after two years after the completion of the merger, Pfizer will provide
to continuing Pharmacia employees severance benefits that are no less
favorable than those provided to similarly situated employees of Pfizer
and, if Pfizer alters or modifies any retiree welfare benefits provided
to any continuing employee or former Pharmacia employee, such alteration
or modification will result in the employee receiving retiree welfare
benefits that are substantially comparable in the aggregate to those
provided to similarly situated employees and former employees of Pfizer;
- with certain exceptions, waive any pre-existing condition exclusions and
waiting periods with respect to participation and coverage requirements
applicable to continuing and former Pharmacia employees under any Pfizer
or Pharmacia benefit plan;
- provide continuing and former Pharmacia employees with credit for any
co-payments and deductibles paid prior to the completion of the merger
(to the same extent such credit was given under the analogous Pharmacia
benefit plan prior to completion of the merger) in satisfying any
applicable deductible or out-of-pocket requirements under any Pfizer
benefit plan;
- with certain exceptions, grant to continuing and former Pharmacia
employees after the merger full credit for service, eligibility, vesting,
benefit accrual and determination of their level of benefits for their
Pharmacia service under the Pfizer benefit plans in which they
participate after the merger, to the extent Pfizer would recognize such
service under the applicable benefit plan for its similarly situated
employees and former employees; and
- honor, fulfill and discharge all Pharmacia benefit plans and related
funding arrangements in accordance with their terms, including each
employment,
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CHAPTER ONE -- THE MERGER
change in control, severance and termination arrangement.
Payment of Dividends Pending the Merger. We have agreed to coordinate
declaring dividends and the related record dates and payment dates so that
Pfizer and Pharmacia shareholders do not receive two dividends, or fail to
receive one dividend, for any single calendar quarter.
OTHER COVENANTS AND AGREEMENTS
Expenses. We have each agreed to pay our own costs and expenses incurred
in connection with the merger and the merger agreement. Pfizer and Pharmacia,
however, will each pay 50% of any expenses incurred in connection with the
filing with the SEC of the registration statement of which this joint proxy
statement/prospectus forms a part and the costs associated with the printing and
mailing of this joint proxy statement/prospectus.
Election to Pfizer Board of Directors. Prior to the completion of the
merger, Pfizer shall cause Mr. Hassan, Chairman and Chief Executive Officer of
Pharmacia, to be appointed to the board of directors of Pfizer, and elected
Vice-Chairman of the combined company, in each case, effective as of the
completion of the merger.
Exchange of Preferred Stock. Pharmacia has agreed that prior to the
completion of the merger, Pharmacia will exchange all outstanding shares of
Pharmacia Series B convertible perpetual preferred stock, on a one-for-one
basis, for Pharmacia Series C convertible perpetual preferred stock, having
substantially identical terms.
Other Covenants. The merger agreement contains certain other covenants,
including covenants relating to cooperation between Pfizer and Pharmacia in the
preparation of this joint proxy statement/prospectus and other governmental
filings, public announcements, and certain tax matters.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains substantially reciprocal representations and
warranties, certain of which are qualified by material adverse effect, made by
each of us to the other. The representations and warranties relate to:
- corporate existence, qualification to conduct business and corporate
standing and power;
- ownership of subsidiaries;
- capital structure;
- corporate authority to enter into, and carry out the obligations under,
the merger agreement and enforceability of the merger agreement;
- absence of a breach of the certificate of incorporation, by-laws, law or
material agreements as a result of the merger;
- filings with the SEC;
- financial statements;
- information supplied for use in this joint proxy statement/prospectus;
- board of directors approval;
- required shareholder votes;
- litigation;
- compliance with laws;
- absence of certain changes or events;
- environmental matters;
- intellectual property matters;
- payment of fees to finders or brokers in connection with the merger
agreement;
- opinions of financial advisors;
- tax matters;
- employee benefit plans;
- compliance with the Foreign Corrupt Practices Act and international trade
sanctions; and
- inapplicability of anti-takeover statutes.
Representations and warranties made solely by Pharmacia relate to labor
matters, certain material contracts and non-compete agreements, inapplicability
of Pharmacia's shareholder rights
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CHAPTER ONE -- THE MERGER
agreement to the merger, compliance with co-promotion agreements and disclosure
of all material arrangements that Pharmacia has entered into with Monsanto
Company.
The merger agreement also contains certain representations and warranties
of Pfizer with respect to its wholly-owned merger subsidiary, including
organization, corporate authorization, absence of a breach of the certificate of
incorporation and the by-laws, no prior business activities and capitalization
of the merger subsidiary.
As used in the merger agreement, the term "material adverse effect" means:
with respect to either Pfizer or Pharmacia, as applicable, any event, change,
circumstance or effect that is or is reasonably likely to be materially adverse
to:
- the business, financial condition or results of operations of such
company and its subsidiaries, taken as a whole, other than any event,
change or circumstances or effect relating
(1) to the economy or financial markets in general;
(2) in general to the industries in which such company operates and not
specifically relating to (or having the effect of specifically
relating to or having a materially disproportionate effect (relative
to most other industry participants) on) such company;
(3) to changes in applicable law or regulations or in GAAP; or
(4) to the announcement of the merger agreement or the transactions
contemplated by the merger agreement; or
- the ability of such company to complete the transactions contemplated by
the merger agreement.
CONDITIONS
Our respective obligations to complete the merger are subject to the
satisfaction or, to the extent legally permissible, the waiver of the following
conditions:
- the adoption of the merger agreement by the Pharmacia shareholders, and
the approval of the issuance of shares of Pfizer common stock in the
merger and amendment to the Pfizer certificate of incorporation by the
Pfizer shareholders;
- the absence of any law, order or injunction prohibiting completion of the
merger in the United States or European Union;
- the expiration or termination of the applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
- the approval of the merger by the European Commission;
- the approval for listing by the NYSE of the Pfizer stock to be issued in
the merger, subject to official notice of issuance;
- the receipt of all other governmental and regulatory consents, approvals
and authorizations necessary for the merger unless failure to obtain
those consents or approvals would reasonably be expected to have a
material adverse effect on the combined company, taken as a whole;
- the SEC having declared effective the Pfizer registration statement, of
which this joint proxy statement/prospectus forms a part; and
- the receipt of all securities and blue sky permits and approvals
necessary to consummate the transaction.
In addition, individually, our respective obligations to effect the merger
are subject to the satisfaction or, to the extent legally permissible, the
waiver of the following additional conditions:
- the representations and warranties of the other company contained in the
merger agreement which are qualified as to
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material adverse effect, being true and correct as of the date of the
agreement and as of the closing date of the merger, except to the extent
that such representation or warranty speaks as of another date;
- the representations and warranties of the other company which are not
qualified as to material adverse effect being true and correct except
where the failure to be true and correct, individually or in the
aggregate, would not have a material adverse effect on the other party,
as of the date of the agreement and as of the closing date of the merger
as if they were made on that date, except to the extent that such
representation or warranty speaks as of another date;
- the other party having performed or complied with all agreements or
covenants required to be performed by it under the agreement which are
qualified as to material adverse effect and the other party having
performed or complied in all material respects with all other material
agreements or covenants required to be performed by it under the
agreement, in each case, at or prior to the closing date;
- the receipt of an opinion of each company's counsel to the effect that
the merger will qualify as a "reorganization" under the Internal Revenue
Code;
- Pfizer's having received a tax certificate when the Monsanto Company
spin-off occurred, as set forth in the merger agreement;
- no event having occurred which would trigger a distribution under the
other company's shareholder rights plan;
- the other party and its respective subsidiaries not having suffered from
any change that would reasonably be expected to have a material adverse
effect on such party; and
- the Monsanto Company spin-off having occurred (provided, however,
Pharmacia shall not be entitled to assert this condition to closing if it
shall not have distributed its interest in Monsanto Company to its common
shareholders).
TERMINATION OF MERGER AGREEMENT
Right to Terminate. The merger agreement may be terminated at any time
prior to the completion of the merger in any of the following ways:
- by our mutual written consent;
- by either one of us:
-- if the merger has not been completed by April 15, 2003 or, if the
conditions to closing relating to antitrust or other governmental
approvals of the merger, have not been satisfied, but all other
conditions to closing are satisfied or are capable of being
satisfied, this date is automatically extended to July 15, 2003;
except that a party may not terminate the merger agreement if the
cause of the merger not being completed is that party's failure to
fulfill its obligations under the merger agreement;
-- if a governmental authority or a court in the United States or
European Union permanently orders or prohibits the completion of the
merger or a governmental authority in the United States or European
Union fails to grant any necessary approval of the merger, except
that a party may not terminate the merger agreement if the cause of
the prohibition or failure to obtain approval is a result of that
party's failure to fulfill its obligations under the provision of the
merger agreement which, among other requirements, requires each party
to use its reasonable best efforts to obtain government approvals for
the
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CHAPTER ONE -- THE MERGER
completion of the merger and requires each party to divest certain
assets in response to requirements imposed by antitrust authorities,
which divestiture obligations are discussed in "Regulatory Matters
Relating to the Merger" on page I-42; or
-- if either Pfizer's shareholders fail to approve the issuance of
shares of Pfizer common stock in the merger or amendment to the
Pfizer certificate of incorporation, or Pharmacia's shareholders fail
to adopt the merger agreement.
- by Pfizer:
-- if Pharmacia's board of directors either changes its recommendation
in a manner adverse to Pfizer, or fails to call the Pharmacia special
meeting to vote on the merger by January 13, 2003 (which deadline
will be extended if this registration statement has not become
effective by November 14, 2002); or
-- if Pharmacia has breached in any material respect any of its
representations or warranties, or has failed to perform in any
material respect any of its covenants or obligations under the merger
agreement and such breach:
- would result in the failure of certain closing conditions to the
merger being satisfied; and
- is incapable of being cured by or remains uncured at April 15,
2003 (or July 15, 2003, if the termination date is extended).
- by Pharmacia:
-- if Pfizer's board of directors either changes its recommendation in a
manner adverse to Pharmacia, or fails to call the Pfizer special
meeting to vote on the proposal to issue shares of Pfizer common
stock in the merger or the amendment to the Pfizer certificate of
incorporation by January 13, 2003 (which deadline will be extended if
this registration statement has not become effective by November 14,
2002;
-- if Pfizer has breached in any material respect any of its
representations or warranties, or has failed to perform in any
material respect any of its covenants or obligations under the merger
agreement and such breach:
- would result in the failure of certain closing conditions to the
merger being satisfied; and
- is incapable of being cured by or remains uncured at April 15,
2003 or July 15, 2003, if applicable; or
-- if Pharmacia's board of directors authorizes Pharmacia to enter into
a written agreement concerning a transaction that Pharmacia's board
of directors has determined in accordance with the merger agreement
is a superior proposal, except that Pharmacia cannot terminate the
merger agreement for this reason (1) unless Pharmacia provides Pfizer
with notice of the existence and terms of the superior proposal,
including the identity of the person making the superior proposal and
a statement as to whether Pharmacia intends to enter into a
definitive agreement for a business combination, (2) Pfizer, within
five business days of receiving such notice from Pharmacia, does not
make an offer that the board of directors of Pharmacia determines is
at least as favorable to the Pharmacia shareholders as the superior
proposal Pharmacia received from the third party and (3) Pharmacia
pays Pfizer the fee described in "Termination
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CHAPTER ONE -- THE MERGER
Fees Payable by Pharmacia" below at or prior to such termination.
Termination Fees Payable by Pharmacia. Pharmacia has agreed to pay Pfizer a
termination fee of $1.6 billion (within one business day after the earlier of
the date Pharmacia enters into a definitive agreement with respect to, or
consummates, a business combination), if the merger agreement is terminated
under one of the following circumstances:
- the merger agreement is (1) terminated by Pfizer because the board of
directors of Pharmacia withdraws or changes its recommendation in a
manner adverse to Pfizer or for any reason Pharmacia fails to call or
hold its shareholders' meeting by January 13, 2003 or until this
registration statement becomes effective if such date is extended (but
only if, on or before the date the agreement is terminated, there was an
offer or proposal for, or announcement with respect to, a "business
combination" involving Pharmacia) and (2) within twelve months of the
termination, Pharmacia enters into a definitive agreement or completes a
transaction with respect to a business combination with a third party;
- the merger agreement is (1) terminated by Pfizer or Pharmacia because
Pharmacia's shareholders failed to adopt the merger agreement (but only
if, prior to the date of the Pharmacia special meeting. there was made
public to a significant number of Pharmacia's shareholders an offer or
proposal for, or any public announcement with respect to, a business
combination involving Pharmacia) and (2) within twelve months of the
termination, Pharmacia enters into a definitive agreement or completes a
transaction with respect to a business combination with a third party; or
- the merger agreement is (1) terminated by Pfizer or Pharmacia because the
necessary regulatory approvals have not been obtained and the merger has
not been completed by April 15, 2003 (or July 15, 2003 if the termination
date is extended), and at the time of termination Pharmacia has not yet
obtained its shareholder approval and prior to April 15, 2003 (or July
15, 2003 if the termination date is extended), there has been an offer or
proposal for, or announcement with respect to, a business combination
involving Pharmacia and (2) within twelve months of the termination,
Pharmacia enters into a definitive agreement or completes a transaction
with respect to a business combination with a third party.
Pharmacia also has agreed to pay Pfizer a termination fee of $1.6 billion
(at or prior to such termination), if Pharmacia terminates the merger agreement
because Pharmacia's board of directors has authorized Pharmacia to enter into a
written agreement for a superior proposal and Pfizer has not, within five
business days of notice from Pharmacia, made an offer that the board of
directors of Pharmacia determines is at least as favorable as the superior
proposal Pharmacia has received from a third party.
A "business combination" for Pharmacia is:
(1) a merger, reorganization, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving Pharmacia as a result of which:
- Pharmacia's shareholders prior to the transaction in the aggregate
cease to own at least 50% of the voting securities of the ultimate
parent entity of the entity surviving or resulting from the
transaction;
- Any person beneficially owns at least 40% of the voting securities
of the ultimate parent entity of the entity surviving or resulting
from the transaction; or
I-85
CHAPTER ONE -- THE MERGER
- The individuals comprising the board of directors of Pharmacia prior
to the transaction do not constitute a majority of the board of
directors of the ultimate parent entity of the entity surviving or
resulting from the transaction;
(2) a sale, lease, exchange, transfer or other disposition of at least 40%
of the assets of Pharmacia and its subsidiaries, taken as a whole, in a
single transaction or series of transactions; or
(3) the acquisition by a person of beneficial ownership of 40% or more of
the common stock of Pharmacia (other than as an acquisition in which
Pharmacia shareholders prior to the acquisition would beneficially own
greater than 50% of the voting securities of such acquiring person
after the completion of the transaction).
Obligations in Event of Termination. In the event of termination as
provided for above, the merger agreement will become void and of no further
force and effect (except with respect to certain designated sections in the
merger agreement) and there will be no liability on behalf of Pfizer or
Pharmacia, except for liabilities arising from a willful breach of the merger
agreement.
If, however, the merger agreement is terminated for any reason other than a
termination by (1) Pfizer either because Pharmacia's board of directors changes
its recommendation in a manner adverse to Pfizer or (2) Pharmacia because
Pharmacia's board of directors has authorized Pharmacia to enter into a written
agreement for a superior proposal and Pfizer has not, within five business days
of notice from Pharmacia, made an offer that the board of directors of Pharmacia
determines is at least as favorable as the superior proposal Pharmacia has
received from a third party, then Pfizer agrees that it will not purchase or
offer to purchase Pharmacia's common stock for a period of two years starting on
the date of termination of the merger agreement and ending on the date on which
Pharmacia starts discussions or negotiations with, provides information to or
enters into an agreement with, a third party relating to the sale of all or
substantially all of its and its subsidiaries' consolidated assets.
AMENDMENTS, EXTENSIONS AND WAIVERS
The merger agreement may be amended by the parties at any time before or
after the shareholder meetings, except that any amendment after a shareholders'
meeting, which requires approval by shareholders, may not be made without such
approval.
AMENDMENT TO CO-PROMOTION AND CO-MARKETING AGREEMENTS
In connection with the signing of the merger agreement, Pharmacia and
Pfizer entered into an amendment to certain co-promotion and co-marketing
agreements regarding Pharmacia's pain and inflammation drug, Celebrex(R) and
other COX-2 "second generation" drugs, which amendment shall only become
effective if Pharmacia becomes obligated to pay a termination fee to Pfizer
under the terms of the merger agreement (as described above), and Pharmacia, in
addition, consummates the business combination transaction that caused such
termination fee to become due and payable.
If such amendment becomes effective, Pfizer will be able to appoint three
members to the executive management committee and Pharmacia will be able to
appoint two members to the committee, which meets to resolve issues under the
co-promotion agreements as they arise. Pharmacia currently can appoint three of
the five members to the executive management committee and Pfizer can appoint
two members to the committee.
If such amendment becomes effective, Pfizer will also be able to designate
the chairperson of any or all of the six subcommittees which meet to resolve
issues under the co-promotion and co-marketing agreements.
I-86
CHAPTER TWO -- PRO FORMA FINANCIAL DATA
CHAPTER TWO
PRO FORMA FINANCIAL DATA
PFIZER AND PHARMACIA
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Statements of Income combine the
historical consolidated statements of income of Pfizer and Pharmacia, giving
effect to the merger as if it had occurred on January 1 of each period
presented. The Unaudited Pro Forma Condensed Combined Balance Sheet combines the
historical consolidated balance sheet of Pfizer and the historical consolidated
balance sheet of Pharmacia, giving effect to the merger as if it had been
consummated on June 30, 2002. We have adjusted the historical consolidated
financial information to give effect to pro forma events that are (1) directly
attributable to the merger, (2) factually supportable, and (3) with respect to
the statements of income, expected to have a continuing impact on the combined
results. You should read this information in conjunction with the:
- accompanying notes to the Unaudited Pro Forma Condensed Combined
Financial Statements;
- separate historical unaudited financial statements of Pfizer as of and
for the six months ended June 30, 2002 included in Pfizer's Quarterly
Report on Form 10-Q for the six month period ended June 30, 2002, which
is incorporated by reference into this document;
- separate historical financial statements of Pfizer as of and for the year
ended December 31, 2001 included in Pfizer's Annual Report on Form 10-K
for the year ended December 31, 2001, which is incorporated by reference
into this document;
- separate historical unaudited financial statements of Pharmacia as of and
for the six months ended June 30, 2002 included in Pharmacia's Quarterly
Report on Form 10-Q for the six month period ended June 30, 2002, which
is incorporated by reference into this document; and
- separate historical financial statements of Pharmacia as of and for the
year ended December 31, 2001 included in Pharmacia's Annual Report on
Form 10-K for the year ended December 31, 2001, which is incorporated by
reference into this document.
We present the unaudited pro forma condensed combined financial information
for informational purposes only. The pro forma information is not necessarily
indicative of what our financial position or results of operations actually
would have been had we completed the merger at the dates indicated. In addition,
the unaudited pro forma condensed combined financial information does not
purport to project the future financial position or operating results of the
combined company.
We prepared the unaudited pro forma condensed combined financial
information using the purchase method of accounting with Pfizer treated as the
acquiror. Accordingly, Pfizer's cost to acquire Pharmacia will be allocated to
the assets acquired and liabilities assumed based upon their estimated fair
values as of the date of acquisition. The allocation is dependent upon certain
valuations and other studies that have not progressed to a stage where there is
sufficient information to make a definitive allocation. Accordingly, the
purchase price allocation pro forma adjustments are preliminary and have been
made solely for the purpose of providing unaudited pro forma condensed combined
financial information.
II-1
CHAPTER TWO -- PRO FORMA FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
PHARMACIA PRO FORMA PRO FORMA
PFIZER INC. CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Revenues................................ $31,982 13,837 (1,212)(a) 44,607
Costs and expenses:
Cost of sales........................... 5,034 2,949 (21)(a) 7,962
Selling, informational and
administrative expenses............... 11,022 6,034 (1,166)(a) 15,890
Research and development expenses....... 4,847 2,263 24(a) 7,134
Merger-related costs.................... 839 673 -- 1,512
Other (income)/deductions -- net........ (89) 331 1,985(a),(b),(c) 2,227
------- ------ ------ ------
Income from continuing operations before
provision for taxes on income and
minority interests.................... 10,329 1,587 (2,034) 9,882
Provision for taxes..................... 2,561 296 (639)(d) 2,218
Minority interests...................... 16 -- -- 16
------- ------ ------ ------
Income from continuing operations....... 7,752 1,291 (1,395) 7,648
Less preferred stock dividends -- net of
tax................................... -- 13 -- 13
------- ------ ------ ------
Income from continuing operations
available to common shareholders...... $ 7,752 1,278 (1,395) 7,635
======= ====== ====== ======
Income from continuing operations per
common share -- basic................. $ 1.25 .98 .95
======= ====== ======
Income from continuing operations per
common share -- diluted............... $ 1.22 .97 .93
======= ====== ======
Weighted average shares used to
calculate earnings per common share
amounts:
Basic................................. 6,239 1,298 519 8,056
======= ====== ====== ======
Diluted............................... 6,361 1,322 529 8,212
======= ====== ====== ======
Cash dividends paid per common share.... $ .44 .51
======= ======
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements, which are an integral part of these statements.
II-2
CHAPTER TWO -- PRO FORMA FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2002
PHARMACIA PRO FORMA PRO FORMA
PFIZER INC. CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Revenues............................... $16,452 6,680 (604)(a) 22,528
Costs and expenses:
Cost of sales.......................... 2,403 1,476 8(a) 3,887
Selling, informational and
administrative expenses.............. 5,812 2,985 (618)(a) 8,179
Research and development expenses...... 2,458 1,166 14(a) 3,638
Merger-related costs................... 275 31 -- 306
Other (income)/deductions -- net....... (129) (748) 1,110(a)(b)(c) 233
------- ----- ------ ------
Income from continuing operations
before provision for taxes on income
and minority interests............... 5,633 1,770 (1,118) 6,285
Provision for taxes.................... 1,302 495 (337)(d) 1,460
Minority interests..................... 1 -- -- 1
------- ----- ------ ------
Income from continuing operations...... 4,330 1,275 (781) 4,824
Less preferred stock dividends net of
tax.................................. -- 6 -- 6
------- ----- ------ ------
Income from continuing operations
available to common shareholders..... $ 4,330 1,269 (781) 4,818
======= ===== ====== ======
Income from continuing operations per
common share -- basic................ $ .70 .98 .60
======= ===== ======
Income from continuing operations per
common share -- diluted.............. $ .69 .97 .59
======= ===== ======
Weighted average shares used to
calculate earnings per common share
amounts:
Basic................................ 6,195 1,294 518 8,007
======= ===== ====== ======
Diluted.............................. 6,291 1,314 526 8,131
======= ===== ====== ======
Cash dividends paid per common share... $ .26 .27
======= =====
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements, which are an integral part of these statements.
II-3
CHAPTER TWO -- PRO FORMA FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2002
PHARMACIA PRO FORMA PRO FORMA
PFIZER INC. CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ---------
(IN MILLIONS)
ASSETS
Current Assets
Cash and cash equivalents................... $ 1,196 1,645 -- 2,841
Short-term investments...................... 10,140 621 -- 10,761
Accounts receivable, less allowance for
doubtful accounts......................... 6,273 2,753 (337)(a) 8,689
Short-term loans............................ 274 213 -- 487
Inventories................................. 2,805 1,929 980(a)(c) 5,714
Prepaid expenses and taxes.................. 1,698 1,948 (67)(a) 3,579
-------- ------- -------- --------
Total current assets.............. 22,386 9,109 576 32,071
Long-term loans and investments............. 5,118 206 -- 5,324
Property, plant and equipment, less
accumulated depreciation.................. 10,784 5,159 200(c) 16,143
Goodwill.................................... 1,288 1,116 17,380(b)(c) 19,784
Other assets, deferred taxes and deferred
charges................................... 2,992 1,984 25,809(a)(b)(c) 30,785
Net assets of discontinued operations....... -- 4,717 (4,717)(e) --
-------- ------- -------- --------
Total assets...................... $ 42,568 22,291 39,248 104,107
======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings, including current
portion of long-term debt................. $ 8,366 559 -- 8,925
Accounts payable............................ 1,524 847 -- 2,371
Dividends payable........................... 813 178 -- 991
Income taxes payable........................ 1,557 1,130 -- 2,687
Accrued compensation and related items...... 916 414 -- 1,330
Other current liabilities................... 3,141 1,998 (304)(a)(c) 4,835
-------- ------- -------- --------
Total current liabilities......... 16,317 5,126 (304) 21,139
Long-term debt.............................. 3,072 2,642 -- 5,714
Postretirement benefit obligation other than
pension plans............................. 610 400 700(c) 1,710
Deferred taxes on income.................... 355 154 7,942(a)(d) 8,451
Other noncurrent liabilities................ 3,384 1,817 630(a)(c) 5,831
-------- ------- -------- --------
Total liabilities................. 23,738 10,139 8,968 42,845
Shareholders' Equity
Preferred stock............................. -- 254 -- 254
Common stock................................ 340 2,970 (2,870)(f) 440
Additional paid-in capital.................. 9,048 3,585 51,397(f) 64,030
Retained earnings........................... 26,742 11,703 (24,607)(a)(f) 13,838
ESOP-related accounts....................... -- (242) 242(f) --
Accumulated other comprehensive expense..... (1,956) (2,788) 2,788(f) (1,956)
Employee benefit trusts..................... (2,029) -- -- (2,029)
Treasury stock, at cost..................... (13,315) (3,330) 3,330(f) (13,315)
-------- ------- -------- --------
Total shareholders' equity........ 18,830 12,152 30,280 61,262
-------- ------- -------- --------
Total liabilities and
shareholders' equity............ $ 42,568 22,291 39,248 104,107
======== ======= ======== ========
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements, which are an integral part of these statements.
II-4
CHAPTER TWO -- PRO FORMA FINANCIAL DATA
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
1. DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
The merger agreement provides that each outstanding share of Pharmacia
common stock will be exchanged for 1.4 shares of Pfizer common stock in a
tax-free transaction. Pfizer will not issue fractional shares in the merger. As
a result, the total number of shares of Pfizer common stock that each Pharmacia
shareholder will receive in the merger will be rounded down to the nearest whole
number, and each Pharmacia shareholder will receive a cash payment for the
remaining fraction of a share of Pfizer common stock that he or she would
otherwise receive, if any, based on the market value of Pfizer common stock at
the close of business at the date the merger became effective. Each share of
Pharmacia Series C convertible perpetual preferred stock will be exchanged for a
newly created class of Pfizer Series A convertible perpetual preferred stock
with rights substantially similar to the rights of the Pharmacia Series C
convertible perpetual preferred stock. The merger is expected to be completed by
the end of 2002. The merger will be accounted for as a purchase by Pfizer under
accounting principles generally accepted in the United States of America. Under
the purchase method of accounting, the assets and liabilities of Pharmacia will
be recorded as of the acquisition date, at their respective fair values, and
added to those of Pfizer. The reported financial condition and results of
operations of Pfizer after completion of the merger will reflect these values,
but will not be restated retroactively to reflect the historical financial
position or results of operations of Pharmacia. The merger is subject to
customary closing conditions, including regulatory approvals, as well as
approval by Pfizer and Pharmacia shareholders of certain merger-related
proposals.
One of the conditions of the merger agreement is that Pharmacia complete
the distribution of its holding of Monsanto Company common stock to holders of
Pharmacia common stock. The pro forma balance sheet as of June 30, 2002 assumes
that the remaining outstanding shares of Monsanto Company held by Pharmacia were
distributed to the Pharmacia shareholders in a tax-free spin-off transaction
prior to June 30, 2002 (the assumed acquisition date for the pro forma balance
sheet).
II-5
CHAPTER TWO -- PRO FORMA FINANCIAL DATA
2. PURCHASE PRICE
The following is a preliminary estimate of the purchase price for
Pharmacia:
Number of shares of Pharmacia common stock outstanding as
of June 30, 2002 (in thousands)........................ 1,288,617
Exchange ratio 1.4
-----------
1,804,064
Multiplied by Pfizer's average stock price for the period
two days before through two days after the July 15,
2002 announcement of the merger agreement.............. $ 29.81 $ 53,779 million
-----------
Number of shares of Pharmacia Series B preferred stock
which will, prior to the merger, be exchanged for
substantially similar Pharmacia Series C preferred
stock, outstanding and convertible into common stock as
of June 30, 2002....................................... 6,305.195
Conversion feature....................................... 1,839.19
-----------
Number of shares of Pharmacia common stock issuable upon
conversion (in thousands).............................. 11,596.452
Exchange ratio 1.4
-----------
16,235.033
Multiplied by Pfizer's average stock price for the period
two days before through two days after the July 15,
2002 announcement of the merger agreement.............. $ 29.81 484 million
-----------
Estimated fair value of Pharmacia stock options
outstanding as of June 30, 2002 expected to be
exchanged for Pfizer stock options, calculated using
the Black-Scholes option pricing model, modified for
dividends, with model assumptions estimated as of June
30, 2002, and Pfizer's stock price of $29.81, which
represented the average stock price for the period two
days before through two days after the July 15, 2002
announcement of the merger agreement................... 1,073 million
Estimated transaction costs.............................. 100 million
-----------------
Estimated purchase price................................. $ 55,436 million
=================
For the purpose of this pro forma analysis, the above estimated purchase
price has been allocated based on a preliminary estimate of the fair value of
assets and liabilities to be acquired.
---------------------------------------------------------
II-6
CHAPTER TWO -- PRO FORMA FINANCIAL DATA
($ IN
ESTIMATED PURCHASE PRICE: MILLIONS)
------------------------- ---------------
Book value of net assets acquired........................... $12,152
Adjusted for: Monsanto spin-off............................. 4,717
Write-off of existing goodwill and other
intangible assets............................. 2,075
-------
Adjusted book value of net assets acquired.................. $ 5,360
Remaining allocation:
Increase inventory to fair value.......................... 1,000
Increase property plant and equipment to fair value....... 200
In-process research and development charge................ 13,000
Identifiable intangible assets at fair value(1)........... 27,000
Increase benefit plan liabilities to fair value........... (700)
Restructuring costs(2).................................... (1,000)
Deferred taxes on income.................................. (7,920)
Goodwill.................................................. 18,496
-------
Estimated purchase price.................................... $55,436
=======
-------------------------
(1) Included in Other assets, deferred taxes and deferred charges
(2) Included in Other noncurrent liabilities
---------------------------------------------------------
In accordance with the requirements of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), the
goodwill and the acquired indefinite-lived intangibles associated with the
merger will not be amortized.
As required by Financial Accounting Standards Board Interpretation No. 4,
"Applicability of FASB Statement No. 2 to Business Combinations Accounted for by
the Purchase Method" ("FIN 4"), the purchase price allocated to in-process
research and development will be immediately expensed.
3. ACCOUNTING POLICIES AND FINANCIAL STATEMENT CLASSIFICATIONS
Upon completion of the merger, Pfizer and Pharmacia will review their
accounting policies and financial statement classifications. As a result of that
review, it may become necessary to make certain reclassifications to the
combined company's financial statements to conform to those accounting policies
and classifications that are determined to be more appropriate.
4. INTERCOMPANY TRANSACTIONS
Transactions between Pfizer and Pharmacia are primarily limited to the
Celebrex(R) and Bextra(R) marketing agreements. Upon completion of the merger,
transactions that occurred in connection with these arrangements would be
considered intercompany transactions. All significant balances and transactions
related to these arrangements have been eliminated from the Unaudited Pro Forma
Condensed Combined Financial Statements.
5. PRO FORMA ADJUSTMENTS
Adjustments included in the column under the heading "Pro Forma
Adjustments" primarily relate to the following:
(a) To eliminate balances and transactions between Pfizer and Pharmacia
which, upon completion of the merger, would be considered intercompany balances
and transactions. The majority of these transactions occurred under
II-7
CHAPTER TWO -- PRO FORMA FINANCIAL DATA
the Celebrex(R) and Bextra(R) marketing agreements.
TWELVE SIX
MONTHS MONTHS
2001 2002
------- ------
($ IN MILLIONS)
Revenues................ $(1,212) $(604)
Cost of sales........... (21) 8
Selling, informational
and administrative
expenses.............. (1,166) (618)
Research and development
expenses.............. 24 14
Other (income)/
deductions-net
(milestones).......... (125) 5
JUNE 30,
2002
---------
($ IN
MILLIONS)
Accounts receivable, less
allowance for doubtful
accounts....................... $(337)
Inventories...................... (20)
Prepaid expenses and taxes....... (67)
Other assets, deferred taxes and
deferred charges (marketing
rights)........................ (232)
Other current liabilities........ (404)
Deferred taxes on income......... 22
Other noncurrent liabilities
(deferred revenue)............. (370)
Retained earnings................ 96
The entries include:
- the elimination of certain sales, alliance revenue and certain
co-promotion expenses;
- the elimination of the impact of milestone payments made by Pfizer to
Pharmacia;
- the elimination of receivable and payable balances; and
- the elimination of profit in inventory.
(b) To eliminate acquired goodwill ($1,116 million) and acquired intangible
assets ($959 million included in historical "Other assets, deferred taxes and
deferred charges"). Also to eliminate amortization expense recorded by Pharmacia
related to goodwill recorded on previous acquisitions and other intangible
assets of approximately $160 million in 2001 and $30 million in the first six
months of 2002.
(c) To record:
- the allocation of the estimated purchase price to reflect the difference
between the book value and the fair value of net assets acquired. Also,
to record accrual of estimated transaction costs ($100 million). See also
Note 2 to the Unaudited Pro Forma Condensed Combined Financial
Statements.
- amortization expense related to the estimated value of identifiable
intangible assets from the purchase price allocation, which are being
amortized over their estimated useful lives of 12 years, of approximately
$2,250 million in 2001 and $1,125 million in the first six months of
2002;
- additional depreciation expense related to the estimated fair value step
up of the property, plant and equipment from the purchase price
allocation, which is being depreciated over its estimated useful life of
10 years, of approximately $20 million in 2001 and $10 million in the
first six months of 2002; and
(d) To adjust income taxes for pro forma adjustments.
(e) To reflect Pharmacia's distribution of its holding in Monsanto Company
to the holders of Pharmacia common stock. This distribution resulted in a
decrease to retained earnings. See also Note 1 of the Notes to Unaudited Pro
Forma Condensed Combined Financial Statements.
(f) To adjust shareholder's equity for the following:
Preferred stock (net change zero) --
- To remove the historical (par value) balance of Pharmacia ($254 million
decrease)
- To record the estimated par value of the shares to be issued by Pfizer to
effect the combination ($254 million increase)
II-8
CHAPTER TWO -- PRO FORMA FINANCIAL DATA
Common stock ($2,870 million net decrease) --
- To remove the historical (par value) balance of Pharmacia ($2,970 million
decrease)
- To record the estimated par value of the shares to be issued by Pfizer to
effect the combination ($100 million increase)
Additional paid-in capital ($51,397 million net increase) --
- To remove the historical balance of Pharmacia ($3,585 million decrease)
- To record the purchase price of Pharmacia ($55,436 million) net of the
amounts allocated to the par values of the Preferred Stock and Common
Stock ($354 million) and transaction costs ($100 million). (Net impact of
$54,982 million increase)
Retained earnings ($24,607 million net decrease) --
- To record the spin-off of Monsanto ($4,717 million reduction)
- To remove the historical balance of Pharmacia (as adjusted for Monsanto
spin-off) ($6,986 million decrease)
- To record the elimination of transactions between Pfizer and
Pharmacia -- (see pro forma adjustments (a) -- ($96 million increase)
- To record the estimated write-off of in-process research and development,
as required by FIN 4 ($13,000 million decrease). See also Note 2 to the
Unaudited Pro Forma Condensed Combined Financial Statements.
ESOP -- Related Accounts ($242 million decrease) --
- To remove the historical balance of Pharmacia ($242 million decrease)
Accumulated other comprehensive income ($2,788 million increase) --
- To remove the historical balance of Pharmacia ($2,788 million increase)
Treasury stock at cost ($3,330 million increase) --
- To remove the historical balance of Pharmacia ($3,330 million increase)
The pro forma condensed combined financial statements do not present a
combined dividend per share amount. Pfizer's current quarterly dividend is $.13
($.52 per share annualized) and is subject to future lawful approval and
declaration by Pfizer's board of directors. Pharmacia's current quarterly
dividend is $.135 ($.54 per share annualized) and is subject to future lawful
approval and declaration by Pharmacia's board of directors. The dividend policy
of the combined company will be determined by its board of directors following
the merger.
Certain restructuring and integration charges may be recorded subsequent to
the merger that, under purchase accounting, will not be treated as part of the
Pharmacia purchase price. These costs, estimated to range between $2.5 and $3.0
billion, have not been reflected in these unaudited pro forma condensed income
statements because they are not expected to have a continuing impact on the
combined results.
The pro forma combined basic and diluted earnings per share for the
respective periods presented are based on the combined basic and diluted
weighted average shares of Pfizer and Pharmacia. The historical basic and
diluted weighted average shares of Pharmacia were converted at the exchange
ratio of 1.4 shares of Pfizer common stock for each Pharmacia common stock
equivalent.
The pro forma condensed combined financial statements do not reflect the
expected realization of annual cost savings of $2.5 billion by 2005. These
savings are expected to result from, among other things, the reduction of
overhead expenses, changes in corporate infrastructure, the elimination of
duplicative facilities and the leveraging of the combined annual external
purchases. Although management expects that cost savings will result from the
merger, there can be no assurance that these cost savings will be achieved.
II-9
CHAPTER TWO -- PRO FORMA FINANCIAL DATA
6. FORWARD-LOOKING STATEMENTS
The statements contained in this section may be deemed to be
forward-looking statements within the meaning of Section 27A of the Securities
Act. Forward-looking statements are typically identified by the words "believe,"
"expect," "anticipate," "intend," "estimate" and similar expressions. These
forward-looking statements are based largely on management's expectations and
are subject to a number of uncertainties. Actual results could differ materially
from these forward-looking statements. Neither Pfizer nor Pharmacia undertake
any obligation to update publicly or revise any forward-looking statements. For
a more complete discussion of the risks and uncertainties which may affect such
forward-looking statements, please refer to the section entitled
"Forward-Looking Statements" on page I-22.
II-10
CHAPTER TWO -- PRO FORMA FINANCIAL DATA
UNAUDITED FINANCIAL FORECASTS
In connection with the review of the merger, Pfizer and Pharmacia
management each prepared financial forecasts for their respective organizations
on a stand-alone, pre-merger basis. These forecasts were exchanged by Pfizer and
Pharmacia and were presented to, and considered by, the members of each
company's board of directors in its recommendation of the Pfizer/Pharmacia
transaction. We have elected to provide individual forecasts for both Pfizer and
Pharmacia because (i) the information was considered by the Boards of Directors
in determining whether to enter into the Merger Agreement, (ii) they provide
managements' views (as of the time they were developed) of the financial
prospects of each constituent company on a stand-alone basis and (iii) they
clarify the Pfizer view that the earnings forecast for the combined entity is
greater than the sum of the two individual companies' forecasts. See Chapter One
under the heading "Our Reasons for the Merger" beginning on page I-28 for a
discussion of anticipated combined adjusted earnings.
For Pfizer, the major assumptions underlying the Pfizer unaudited financial
forecasts are: (i) product launches in several major markets during this
timeframe; (ii) no loss of significant revenue to generic competition as a
result of expiration or loss of patent protection; (iii) no material changes to
Pfizer's U.S. pharmaceutical pricing and reimbursement practices; (iv) foreign
exchange rates implicit when the forecasts were developed; (v) no material
changes in the U.S. or international tax codes; and (vi) $10 billion in share
repurchases are completed by the end of 2003.
For Pharmacia, the major assumptions underlying the Pharmacia unaudited
financial forecasts are: (i) product launches in several major markets during
this timeframe; (ii) no loss of significant revenue to generic competition as a
result of expiration or loss of patent protection; (iii) no material changes to
Pharmacia's U.S. pharmaceutical pricing and reimbursement practices; (iv) use of
the foreign exchange rates prevailing at the time the forecasts were developed;
and (v) no material changes in the U.S. or international tax codes.
The financial forecasts are "forward-looking statements" and Pfizer's
and/or Pharmacia's actual results may differ materially from those set forth in
the forecasts. See "Forward-Looking Statements" on page I-22 for a discussion of
the risks you should consider in reviewing the forecasts set forth in this joint
proxy statement/ prospectus.
II-11
CHAPTER TWO -- PRO FORMA FINANCIAL DATA
PFIZER
The material portions of the financial forecasts prepared by management of
Pfizer follow:
2002 2003 2004
------ ----- -----
(DOLLARS IN BILLIONS,
EXCEPT PER SHARE DATA)
Total Revenues.............................................. $35.1 39.0 42.9
Income, excluding the cumulative effect of change in
accounting principle, certain significant items and
merger-related costs(1)................................... $ 9.9 11.3 12.7
Earnings per share (EPS) excluding the cumulative effect of
change in accounting principle, certain significant items
and merger-related costs.................................. $1.58 1.84 2.12
Total Revenue Growth...................................... 10% 11% 10%
Income growth excluding the cumulative effect of change in
accounting principle, certain significant items and
merger-related costs................................... 18% 15% 12%
EPS growth excluding the cumulative effect of change in
accounting principle, certain significant items and
merger-related costs................................... 21% 16% 15%
PHARMACIA
The material portions of the financial forecasts prepared by management of
Pharmacia follow:
2002 2003 2004
------ ----- -----
(DOLLARS IN BILLIONS,
EXCEPT PER SHARE DATA)
Total Sales................................................. $14.2 16.0 18.2
Income excluding the cumulative effect of a change in
accounting principle, extraordinary items and discontinued
operations(1)............................................. $ 2.0 2.3 2.6
Earnings per share (EPS) excluding the cumulative effect of
a change in accounting principle, extraordinary items and
discontinued operations................................... $1.55 1.79 2.07
EPS Growth Rate excluding the cumulative effect of a
change in accounting principle, extraordinary items and
discontinued operations................................ 8.4% 15.5% 15.6%
Sales Growth Rate excluding the cumulative effect of a
change in accounting principle, extraordinary items and
discontinued operations................................ 2.3% 12.9% 13.8%
---------------
(1) Income is presented here to provide additional information about the
company's operations. This item should be considered in addition to, but not as
a substitute for or superior to, net earnings, cash flow or other measures of
financial performance prepared in accordance with accounting principles
generally accepted in the United States. Determination of income may vary from
company to company.
---------------------------------------------------------
These forecasts for Pfizer were prepared by the management of Pfizer in
July 2002, and for Pharmacia, by the management of Pharmacia in June 2002. These
forecasts were not prepared with a view to public disclosure or compliance with
published guidelines established by the SEC or the American Institute of
Certified Public Accountants regarding forecasts. None of Pfizer, Pharmacia or
their respective affiliates or Pfizer's or Pharmacia's independent auditors
assume any responsibility for the accuracy of this information. The forecasts
were not prepared with the approval of the Pfizer or Pharmacia boards of
directors. The forecasts are subjective in many respects and thus susceptible to
interpretation and periodic revision based on actual experience and recent
developments. While presented with numeric specificity, the forecasts reflect
numerous assumptions made by the managements of Pfizer and Pharmacia with
respect to industry performance and competition, general business, economic,
market and financial conditions and other matters, all of which are difficult to
predict, many of which
II-12
CHAPTER TWO -- PRO FORMA FINANCIAL DATA
are beyond the control of Pfizer and Pharmacia. For these reasons, the inclusion
of the forecasts in this document should not be regarded as an indication that
Pfizer, Pharmacia, any recipient of the forecasts or their respective affiliates
or representatives, considered or consider the forecasts to be a reliable
prediction of future events, and the forecasts should not be relied upon as
such. Actual results may be higher or lower than those estimated. Pfizer and
Pharmacia do not generally publish their respective business plans and
strategies or make external disclosures of their respective anticipated
financial position or results of operations. Accordingly, Pfizer and Pharmacia
do not intend to, and specifically decline any obligation to, update or
otherwise revise the prospective financial information to reflect circumstances
existing since their preparation or to reflect the occurrence of unanticipated
events, even if any or all the underlying assumptions are shown to be in error.
Also, Pfizer and Pharmacia do not intend to, and specifically decline any
obligation to, update or revise the prospective financial information to reflect
changes in general economic or industry conditions.
Neither Pfizer's auditors nor Pharmacia's auditors, nor any other
independent accountants, have compiled, examined or performed any procedures
with respect to these forecasts, nor have they expressed any opinion or any
other form of assurance on this information or its achievability, and assume no
responsibility for, and disclaim any association with, this prospective
financial information. The independent public accountants' reports incorporated
by reference in this document relate to the respective historical financial
statements of Pfizer and Pharmacia. These reports do not extend to these
unaudited financial forecasts and should not be read to do so.
II-13
CHAPTER THREE -- INFORMATION ABOUT THE MEETINGS AND VOTING
CHAPTER THREE
INFORMATION ABOUT THE MEETINGS AND VOTING
The Pfizer board of directors is using this joint proxy
statement/prospectus to solicit proxies from the holders of Pfizer common stock
for use at the special meeting of Pfizer's shareholders. The Pharmacia board of
directors is using this document to solicit proxies from the holders of
Pharmacia common stock and Pharmacia Series B convertible perpetual preferred
stock for use at the special meeting of Pharmacia's shareholders. We are first
mailing this joint proxy statement/prospectus and accompanying form of proxy to
Pfizer and Pharmacia shareholders on or about [ ].
MATTERS RELATING TO THE MEETINGS
PFIZER MEETING PHARMACIA MEETING
Time and Place: Friday, December 6, 2002 at 9:00 a.m., Monday, December 9, 2002 at 1:00 p.m.,
local time at Hotel du Pont, 11th and local time at Hotel du Pont, 11th and
Market Streets, Wilmington, Delaware Market Streets, Wilmington, Delaware
19801 19801
Admission to If you are a Pfizer shareholder and you If you owned shares on the record date
Meeting: wish to attend the special meeting, you and wish to attend the meeting in
must present, at the door, either an person, you must provide advance notice
admission ticket or proof of your to Pharmacia when you submit your proxy
ownership of Pfizer stock as of the or by writing to the Secretary of
record date. Pharmacia at Pharmacia Corporation, 100
Route 206 North, Peapack, New Jersey
07977 prior to the date of the special
Proof of ownership can be in the form meeting.
of an account statement from your bank,
broker, custodian or other record
holder, a Pfizer Shareholder Investment If you do not hold shares in your own
Program statement, or other transfer name, you must be able to provide proof
agent statement that verifies that you of your beneficial ownership on the
were a Pfizer shareholder as of the record date, such as an account
record date. statement from your bank, broker,
custodian or other recordholder.
If you wish to obtain an admission
ticket in advance, please mail a To gain admittance to the meeting, you
written request, along with a copy of must check-in at the registration desk,
proof of your ownership of Pfizer show government- issued identification,
stock, to Pfizer Shareholder Services, provide proof of beneficial ownership
235 East 42nd Street, 7th Floor, New on the record date if you are not a
York, New York 10017, or call a Pfizer shareholder of record, and be on the
representative toll-free at admission list of individuals who have
1-800-xxx-xxxx for instructions on how notified Pharmacia that they plan to
to fax us your proof of ownership. attend.
Purpose of Meeting 1. To authorize the issuance of shares 1. To adopt the merger agreement; and
is of Pfizer common stock in the
to Vote on the merger;
Following Items: 2. To transact such other business as
III-1
CHAPTER THREE -- INFORMATION ABOUT THE MEETINGS AND VOTING
PFIZER MEETING PHARMACIA MEETING
2. To amend the Pfizer certificate of may properly come before the
incorporation to increase the meeting, and any adjournment or
authorized share capital; and postponement thereof.
3. To transact such other business as
may properly come before the
meeting, and any adjournment or
postponement thereof.
Record Date: The record date for shares entitled to The record date for shares entitled to
vote is October 18, 2002. vote is October 18, 2002.
Outstanding As of October 18, 2002, the record date As of October 18, 2002, the record date
Shares Held: for the Pfizer meeting, there were for the Pharmacia meeting, there were
approximately [ ] shares of approximately [ ] shares of
Pfizer common stock outstanding. Pharmacia common stock and [ ]
shares of Pharmacia Series B
convertible perpetual preferred stock
outstanding. All Pharmacia Series B
convertible perpetual preferred stock
is held of record by Northern Trust
Company, as trustee of the Pharmacia
Corporation Employee Stock Ownership
Trust.
Shares Entitled Shares entitled to vote at the special Shares entitled to vote at the special
to Vote: meeting are Pfizer common stock held as meeting are Pharmacia common stock and
the close of business on the record Pharmacia Series B convertible
date, October 18, 2002. perpetual preferred stock held as the
close of business on the record date,
October 18, 2002.
Each share of Pfizer common stock is
entitled to one vote. Shares held by
Pfizer in its treasury are not voted. Each share of Pharmacia common stock is
entitled to one vote. Each share of
Pharmacia Series B convertible
perpetual preferred stock is entitled
to 1839.19 votes. Shares held by
Pharmacia in its treasury are not
voted.
Quorum Requirement: A quorum of shareholders is necessary A quorum of shareholders is necessary
to hold a valid meeting. The presence to hold a valid meeting. The presence
in person or by proxy at the meeting of in person or by proxy at the meeting of
holders of a majority of the holders of a majority of the votes
outstanding shares of Pfizer common represented by outstanding shares of
stock entitled vote at the meeting is a Pharmacia common stock and Pharmacia
quorum. Abstentions and broker Series B convertible perpetual
non-votes count as present for preferred stock entitled to vote at the
establishing a quorum. Shares held by meeting is a quorum. Abstentions and
Pfizer in its treasury do not count broker non-votes count as present for
toward a quorum. establishing a quorum. Shares held by
Pharmacia in its treasury do not count
toward
III-2
CHAPTER THREE -- INFORMATION ABOUT THE MEETINGS AND VOTING
PFIZER MEETING PHARMACIA MEETING
A broker non-vote occurs on an item a quorum.
when a broker is not permitted to vote
on that item without instruction from
the beneficial owner of the shares and A broker non-vote occurs on an item
no instruction is given. when a broker is not permitted to vote
on that item without instruction from
the beneficial owner of the shares and
no instruction is given.
Shares Beneficially Pfizer directors and officers Pharmacia directors and officers
Owned by Pfizer and beneficially owned [ ] shares of beneficially owned [ ] shares of
Pharmacia Directors Pfizer common stock on the record date, Pharmacia common stock on the record
and Executive including exercisable options. These date, including exercisable options.
Officers as of shares represent in total approximately These shares represent in total
October 18, 2002 [ ]% of the total voting power of approximately [ ]% of the total
Pfizer's voting securities. voting power of Pharmacia's voting
securities.
VOTE NECESSARY TO APPROVE PFIZER AND PHARMACIA PROPOSALS
COMPANY VOTE NECESSARY*
------- ---------------
Pfizer: 1. Approval of the proposal to issue shares of Pfizer common
stock in the merger requires the affirmative vote of at
least a majority of the votes cast by the holders of
Pfizer common stock, provided that the total votes cast
represent a majority of the outstanding shares of Pfizer
stock entitled to vote. Abstentions and broker non-votes
are not counted as votes "for" or "against" the proposal
and are not counted in determining the number of votes
cast on the proposal.
2. Approval of the amendment to the Pfizer certificate of
incorporation to increase the authorized share capital
requires the affirmative vote of at least a majority of
the votes represented by all of the outstanding shares of
Pfizer common stock. Abstentions and broker non-votes
have the same effect as a vote against the proposal.
Pharmacia: 1. Adoption of the merger agreement requires the affirmative
vote of at least a majority of the outstanding votes
represented by the shares of Pharmacia common stock and
Pharmacia Series B convertible perpetual preferred stock,
voting as a single class. Abstentions and broker
non-votes have the same effect as a vote against the
proposal.
-------------------------
* Under New York Stock Exchange rules, if your broker holds your shares in its
name, your broker may not vote your shares on, in the case of Pfizer, the
proposal concerning the issuance of shares of Pfizer common stock in the
merger or the amendment to the Pfizer certificate of incorporation, or, in the
case of Pharmacia, the proposal to adopt the merger agreement, absent
instructions from you. Without your voting instructions on those items, a
broker non-vote will occur.
III-3
CHAPTER THREE -- INFORMATION ABOUT THE MEETINGS AND VOTING
PROXIES
Submitting Your Proxy. You may vote in person by ballot at your special
meeting or by submitting a proxy. We recommend you submit your proxy even if you
plan to attend your special meeting. If you attend the special meeting, you may
vote by ballot, thereby canceling any proxy previously submitted.
Voting instructions are included on your proxy card. If you properly give
your proxy and submit it to us in time to vote, one of the individuals named as
your proxy will vote your shares as you have directed. You may vote for or
against the proposals or abstain from voting.
HOW TO VOTE BY PROXY
PFIZER PHARMACIA
By Mail: If you choose to submit your proxy by To submit your proxy by mail, simply
mail, simply mark your proxy, date and mark your proxy, date and sign it, and
sign it, and if you are a shareholder return it to Mellon Investor Services
of record, return it to EquiServe Trust in the postage-paid envelope provided.
Company, N.A., in the postage-paid If the envelope is missing, please
envelope provided. If the envelope is address your completed proxy card to
missing, please address your completed Pharmacia Corporation c/o Mellon
proxy card to Pfizer Inc. c/o EquiServe Investor Services Proxy Processing-
Trust Company, N.A., P.O. Box 8923, Pharmacia, P.O. Box 3865, South
Edison, New Jersey 08818-9266. Hackensack, NJ 07606-3865.
If you are a beneficial owner, please If you are a beneficial owner, please
refer to your proxy card or the refer to your proxy card or the
information provided to you by your information provided to you by your
bank, broker, custodian or bank, broker, custodian or
recordholder. recordholder.
By Telephone: If you are a shareholder of record, you If you are a shareholder of record, you
can submit your proxy by telephone by can submit your proxy by telephone by
calling the toll-free telephone number calling the telephone number on your
on your proxy card. Telephone voting is proxy card. Telephone voting is
available 24 hours a day and will be available 24 hours a day and will be
accessible until 11:59 p.m. on December accessible until [ ] on [DATE].
5, 2002. Easy-to-follow voice prompts Easy-to-follow voice prompts allow you
allow you to submit your proxy and to submit your proxy and confirm that
confirm that your instructions have your instructions have been properly
been properly recorded. Our telephone recorded. Our telephone voting
voting procedures are designed to procedures are designed to authenticate
authenticate shareholders by using shareholders by using individual
individual control numbers. If you are control numbers. If you are a
a beneficial owner, please refer to beneficial owner, please refer to your
your proxy card or the information proxy card or the information provided
provided by your bank, broker, by your bank, broker, custodian or
custodian or recordholder for recordholder for information on
information on telephone voting. IF YOU telephone voting. IF YOU SUBMIT YOUR
SUBMIT YOUR PROXY BY TELEPHONE YOU DO PROXY BY TELEPHONE YOU DO NOT NEED TO
NOT NEED TO RETURN YOUR PROXY CARD. IF RETURN YOUR PROXY CARD. IF YOU HOLD
YOU ARE LOCATED OUTSIDE THE UNITED SHARES THROUGH A BROKER OR OTHER
STATES, CANADA CUSTODIAN, PLEASE CHECK THE VOTING
III-4
CHAPTER THREE -- INFORMATION ABOUT THE MEETINGS AND VOTING
PFIZER PHARMACIA
AND PUERTO RICO, SEE YOUR PROXY CARD OR FORM USED BY THAT FIRM TO SEE IF IT
OTHER MATERIALS FOR ADDITIONAL OFFERS TELEPHONE VOTING.
INSTRUCTIONS. IF YOU HOLD SHARES
THROUGH A BROKER OR OTHER CUSTODIAN,
PLEASE CHECK THE VOTING FORM USED BY
THAT FIRM TO SEE IF IT OFFERS TELEPHONE
VOTING.
By Internet: You can also choose to submit your You can also choose to submit your
proxy on the Internet. If you are a proxy on the Internet. If you are a
shareholder of record, the web site for shareholder of record, the web site for
Internet voting is on your proxy card. Internet voting is on your proxy card.
Internet voting is available 24 hours a Internet voting is available 24 hours a
day, and will be accessible until 11:59 day, and will be accessible until
p.m. on December 5, 2002. If you are a [ ] on [DATE]. If you are a
beneficial owner, please refer to your beneficial owner, please refer to your
proxy card or the information provided proxy card or the information provided
by your bank, broker, custodian or by your bank, broker, custodian or
recordholder for information on recordholder for information on
Internet voting. As with telephone Internet voting. As with telephone
voting, you will be given the voting, you will be given the
opportunity to confirm that your opportunity to confirm that your
instructions have been properly instructions have been properly
recorded. IF YOU SUBMIT YOUR PROXY ON recorded. IF YOU SUBMIT YOUR PROXY ON
THE INTERNET, YOU DO NOT NEED TO RETURN THE INTERNET, YOU DO NOT NEED TO RETURN
YOUR PROXY CARD. IF YOU HOLD SHARES YOUR PROXY CARD. IF YOU HOLD SHARES
THROUGH A BROKER OR OTHER CUSTODIAN, THROUGH A BROKER OR OTHER CUSTODIAN,
PLEASE CHECK THE VOTING FORM TO SEE IF PLEASE CHECK THE VOTING FORM TO SEE IF
IT OFFERS INTERNET VOTING. IT OFFERS INTERNET VOTING.
PROXIES FOR PFIZER PLAN PARTICIPANTS
You will receive only one proxy card for all the shares you hold:
- In your own name;
- In the Pfizer Inc. Shareholder Investment Program; and
if you are a Pfizer employee,
- In the Pfizer Savings Plan; and
- In the Warner-Lambert Savings and Stock Plans for the United States or
Puerto Rico (the "Warner-Lambert Plans").
If you are a United States Pfizer employee who has received stock options
under the previous or current Pfizer Stock and Incentive Plan, you are entitled
to give voting instructions on a portion of the shares underlying your options
to the trustee of the Pfizer Inc. Employee Benefit Trust. Your proxy card will
serve as a voting instruction to the trustee of the Trust.
If you do not vote your shares or specify voting instructions on your proxy
card, the administrators of the Pfizer Savings Plan or the Warner-Lambert Plans
or the trustee of the Trust will vote your shares in the same proportion as the
shares for which voting instructions have been received. TO ALLOW SUFFICIENT
TIME FOR VOTING BY THE TRUSTEE OF THE TRUST AND THE ADMINISTRATORS OF THE PLANS,
YOUR VOTING INSTRUCTIONS MUST BE RECEIVED BY DECEMBER 2, 2002.
If you hold Pfizer shares through any other Pfizer plans, you will receive
voting instructions from that plan's administrator.
III-5
CHAPTER THREE -- INFORMATION ABOUT THE MEETINGS AND VOTING
HOUSEHOLDING INFORMATION
Pfizer has adopted the procedure approved by the SEC called "householding."
Under this procedure, shareholders of record who have the same address and last
name and do not participate in electronic delivery of proxy materials will
receive only one copy of this joint prospectus/proxy statement unless one or
more of these shareholders notifies Pfizer that they wish to continue receiving
individual copies. This procedure will reduce the printing costs and postage
fees of Pfizer and Pharmacia in connection with this joint prospectus/proxy
statement and of Pfizer and the combined company for future Annual Reports and
Proxy Statements.
Shareholders who participate in householding will continue to receive
separate proxy cards. Also, householding will not in any way affect dividend
check mailings.
If you and other Pfizer shareholders of record with whom you share an
address currently receive multiple copies of Annual Reports and/or Proxy
Statements, or if you hold stock in more than one account and in either case,
you wish to receive only a single copy of future Annual Reports or Proxy
Statements for your household, please contact Pfizer's transfer agent (in
writing: EquiServe Trust Company, N.A., P.O. Box 43069, Providence, Rhode Island
02940-3069; by telephone: 1-800-733-9393) with the names in which all accounts
are registered.
If you participate in householding and wish to receive a separate copy of
this joint prospectus/proxy statement, or if you wish to receive separate copies
of future Pfizer Annual Reports and/or Proxy Statements, please contact
EquiServe at the above address or phone number. Pfizer will deliver the
requested documents to you promptly upon your request.
Beneficial shareholders can request information about householding from
their bank, broker, custodian or recordholder of Pfizer common stock.
PROXIES FOR PHARMACIA PLAN PARTICIPANTS
If you are a participant in the Pharmacia Common Stock Fund, Pharmacia ESOP
Preferred Stock Fund, or Pharmacia ESOP Common Stock Fund, you will receive only
one proxy card for all the shares of Pharmacia common stock or Pharmacia Series
B convertible perpetual preferred stock:
- You hold in your own name; or
- The trustees or custodian of the relevant plan holds on your behalf.
Neither Pharmacia nor the trustee or custodian can exercise discretion as
to the voting of shares in the plans listed above. However, if you own shares in
any of the plans and do not provide instructions, or if your instructions as to
the voting of your shares are
not received in a timely manner, the trustee or custodian of the relevant plan
will vote your shares in such plan in the same proportion to the shares for
which it has received timely instructions from the other participants in such
plan.
Because the trustee or custodian for the relevant plan must process voting
instructions from participants before the date of the special meeting, you are
urged to deliver your instructions well in advance of the special meeting so
that the instructions are received no later than [ ].
If you submit a completed proxy card with instructions on how to vote your
plan shares and then wish to revoke your instructions, you should submit a
notice of revocation to Pharmacia as soon as possible, as described under
"-- Revoking Your Proxy" below.
III-6
CHAPTER THREE -- INFORMATION ABOUT THE MEETINGS AND VOTING
If you submit your proxy but do not make specific choices, your proxy will
follow the respective board of director recommendations and vote your shares:
PFIZER PHARMACIA
------ ---------
- "FOR" the proposal to issue shares of - "FOR" adoption of the merger agreement
Pfizer common stock in the merger
- "FOR" the proposal to amend the Pfizer - "FOR" any proposal by Pharmacia's board
certificate of incorporation to increase of directors to adjourn the Pharmacia
its share capital meeting
- "FOR" any proposal by Pfizer's board of
directors to adjourn the Pfizer meeting
------------------------------------
Revoking Your Proxy. You may revoke your proxy at any time before it is
voted by:
- timely delivery of a valid, later-dated proxy, including a proxy given by
telephone or Internet;
- written notice to your company's Secretary before the meeting that you
have revoked your proxy; or
- voting by ballot at either the Pfizer special meeting or Pharmacia
special meeting.
Voting in Person. If you are a shareholder of record and you wish to vote
in person at the Pfizer or Pharmacia special meeting, we will give you a ballot
at the meeting. However, if your shares are held in the name of your bank,
broker, custodian or other recordholder, you must obtain a proxy, executed in
your favor, from the holder of record to be able to vote at the meeting.
People with Disabilities. We can provide reasonable assistance (including
audio enhancement) to help you participate in the meeting if you tell us about
your disability and your plan to attend. For the Pfizer special meeting, the
Hotel duPont is accessible to disabled persons and, upon request, Pfizer will
provide wireless headsets for hearing amplification. If you require this service
or other special accommodation at the Pfizer special meeting please send a
written request to the address set forth in Pfizer's Notice of Special Meeting
of Shareholders.
Proxy Solicitation. We will each pay our own costs of soliciting proxies.
In addition to this mailing, proxies may be solicited by directors,
officers or employees of Pfizer and Pharmacia in person or by telephone or
electronic transmission. None of the directors, officers or employees will be
directly compensated for such services. Pfizer has retained [ ] to
assist in the distribution and solicitation of proxies. Pfizer will pay
[ ] a fee of $[ ], plus reasonable expenses, for these services.
Pharmacia has retained D.F. King to assist in the distribution and solicitation
of proxies. Pharmacia will pay D.F. King a fee of $20,000, plus reasonable
expenses, for these services.
The extent to which these proxy soliciting efforts will be necessary
depends entirely upon how promptly proxies are submitted. You should submit your
proxy without delay by mail or by telephone or the Internet. We also reimburse
brokers and other nominees for their expenses in sending these materials to you
and getting your voting instructions.
Do not send in any stock certificates with your proxy cards. The exchange
agent will mail transmittal forms with instructions for the surrender of stock
certificates for Pharmacia common stock and Pharmacia Series C convertible
perpetual preferred stock to former Pharmacia shareholders as soon as
practicable after the completion of the merger.
OTHER BUSINESS; ADJOURNMENTS
We are not currently aware of any other business to be acted upon at either
meeting. If, however, other matters are properly brought before either meeting,
or any adjourned meeting, your proxies include discretionary
III-7
CHAPTER THREE -- INFORMATION ABOUT THE MEETINGS AND VOTING
authority on the part of the individuals appointed to vote your shares or act on
those matters according to their best judgment, including to adjourn the
meeting.
Adjournments may be made for the purpose of, among other things, soliciting
additional proxies. Any adjournment may be made from time to time by approval of
the holders of shares representing a majority of the votes present in person or
by proxy at the meeting, whether or not a quorum exists, without further notice
other than by an announcement made at the meeting. Neither of us currently
intends to seek an adjournment of our meeting.
PFIZER SHAREHOLDER ACCOUNT MAINTENANCE
Pfizer's transfer agent is EquiServe Trust Company, N.A. All communications
concerning accounts of Pfizer shareholders of record, including address changes,
name changes, inquiries as to requirements to transfer shares of common stock
and similar issues can be handled by calling the Pfizer Shareholder Services
toll-free number, 1-800-733-9393, or going to EquiServe's web site at
www.equiserve.com. For other information about Pfizer, shareholders can visit
Pfizer's web site at www.pfizer.com.
In addition, Pfizer shareholders of record can access their account through
EquiServe's Internet web site. Pfizer shareholders can view their current
balance, access their account history, sell or request a certificate for shares
held in the Pfizer Shareholder Investment Program and obtain current and
historical stock prices. To access your Pfizer account on the Internet, visit
www.equiserve.com and enter your issue number, account number and password.
These can be found on your account statement or dividend check stub.
PHARMACIA SHAREHOLDER ACCOUNT MAINTENANCE
Pharmacia's transfer agent is Mellon Investor Services. All communications
concerning accounts of Pharmacia shareholders of record, including address
changes, name changes, inquiries as to requirements to transfer shares of common
stock and similar issues can be handled by calling the Pharmacia Shareholder
Services toll-free number, 1-888-312-8333 (U.S.); 1-201-329-8660
(International), or contacting Mellon's web site at www.melloninvestor.com and
then click on Investor Service Direct(sm). For other information about
Pharmacia, shareholders can visit Pharmacia's web site at www.pharmacia.com.
In addition, Pharmacia shareholders can access their account through
Mellon's Internet web site. Pharmacia shareholders can view their current
balance, access their account history, sell or request a certificate for shares
held in the Mellon Investor Services Program and obtain current and historical
stock prices. To access your account on the Internet, visit
www.melloninvestor.com and then click on Investor Service Direct(sm).
III-8
CHAPTER FOUR -- CERTAIN LEGAL INFORMATION
CHAPTER FOUR
CERTAIN LEGAL INFORMATION
COMPARISON OF PFIZER/PHARMACIA
SHAREHOLDER RIGHTS
The rights of Pharmacia shareholders under the Delaware General Corporation
Law, the Pharmacia certificate of incorporation and the Pharmacia by-laws prior
to the completion of the merger are similar to the rights that they will have as
Pfizer shareholders following the completion of the merger under the Delaware
General Corporation Law, the Pfizer certificate of incorporation and the Pfizer
by-laws. The following is a summary of the material differences between the
current rights of Pharmacia shareholders and the rights those shareholders will
have as Pfizer shareholders following the merger.
Copies of the Pharmacia certificate of incorporation, the Pharmacia
by-laws, the Pfizer certificate of incorporation and the Pfizer by-laws are
incorporated by reference and will be sent to holders of shares of Pharmacia
common stock and Pharmacia Series B convertible perpetual preferred stock upon
request. See "Where You Can Find More Information" on page V-3. The summary in
the following chart is not complete and it does not identify all differences
that may, under given situations, be material to shareholders and is subject in
all respects, and is qualified by reference to the Delaware General Corporation
Law, the Pharmacia certificate of incorporation, the Pharmacia by-laws, the
Pfizer certificate of incorporation and the Pfizer by-laws.
SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF PHARMACIA SHAREHOLDERS
AND RIGHTS THOSE SHAREHOLDERS WILL HAVE AS PFIZER SHAREHOLDERS FOLLOWING THE
MERGER
PHARMACIA
PFIZER SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
Corporate Governance: Upon completion of the merger, the The rights of Pharmacia shareholders
rights of Pfizer and former Pharmacia are currently governed by the Delaware
shareholders will be governed by the General Corporation Law, Pharmacia's
Delaware General Corporation Law, certificate of incorporation and
Pfizer's certificate of incorporation Pharmacia's by-laws.
and Pfizer's by-laws. The certificate
of incorporation and by-laws of Pfizer
after the merger will be identical in
all respects to those of Pfizer prior
to the merger, after giving effect to
the amendment to the Pfizer certificate
of incorporation to increase the share
capital.
Authorized The authorized capital stock of Pfizer The authorized capital stock of
Capital Stock: is set forth under "Description of Pharmacia consists of:
Pfizer Capital Stock -- Authorized
Capital Stock" on page IV-8. - 3 billion shares of common stock, par
value $2.00 per share; and
- 10 million shares of preferred stock,
par value $0.01 per share.
IV-1
CHAPTER FOUR -- CERTAIN LEGAL INFORMATION
PHARMACIA
PFIZER SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
Number of Pfizer's board of directors currently Pharmacia's board of directors
Directors: consists of 17 directors. currently consists of 14 directors.
Under Pfizer's certificate of Under Pharmacia's certificate of
incorporation, the number of directors incorporation, the number of directors
shall consist of no less than 10 nor shall not be fewer than five nor
more than 24. greater than 20.
In addition to approval by the board of In addition to approval by the board of
directors, an affirmative vote of the directors, an affirmative vote of the
holders of 80% of the outstanding holders of 80% of the outstanding
shares entitled to vote, voting shares entitled to vote, voting
together as a single class, is required together as a single class, is required
to increase or decrease the minimum and to increase or decrease the minimum and
maximum number of directors. maximum number of directors.
Rights of The rights of preferred shareholders of Pharmacia's certificate of
Preferred Pfizer are set forth under "Description incorporation authorizes the board of
Shareholders: of Pfizer Capital Stock -- Pfizer directors, without further action by
Preferred Stock" below. the shareholders, to issue up to 10
million shares of preferred stock in
multiple series. Prior to issuance, the
board of directors may determine the
number of shares, designation, terms,
preferences, limitations and relative
rights of the preferred shares by
adoption of an amendment to the
Pharmacia certificate of incorporation.
- 7,500 shares of Pharmacia preferred
stock have been designated as Series
B Convertible Perpetual Preferred
Stock, of which approximately 6,206
shares are outstanding as of
September 25, 2002.
- 1.5 million shares of Pharmacia
preferred stock have been designated
Series A Junior Participating
Preferred Stock and reserved for
issuance upon exercise of the rights
distributed to the shareholders of
Pharmacia common stock pursuant to
the Rights Agreement, asset forth
below in "-- Shareholder Rights Plan"
on page IV-7 below.
IV-2
CHAPTER FOUR -- CERTAIN LEGAL INFORMATION
PHARMACIA
PFIZER SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
Nomination of Pfizer's by-laws provide that only Pharmacia's by-laws provide that only
Directors for those persons nominated by the board of those persons nominated by the board of
Election: directors or by a shareholder of record directors or by a shareholder of record
of a class of shares entitled to vote of a class of shares entitled to vote
for the election of directors who for the election of directors who
complies with the notice procedures in complies with the notice procedures in
Pfizer's by-laws may be elected as Pharmacia's by-laws may be elected as
directors. The notice procedure in directors. The notice procedure in
Pfizer's by-laws require shareholders Pharmacia's by-laws require
to give written notice to Pfizer as shareholders to give written notice to
follows: Pharmacia as follows:
For an election to be held at an annual For an election to be held at an annual
meeting, notice must be received: meeting, notice must be received:
- not less than 60 days in advance of - not less than 60 days nor more than
the meeting if the meeting is to be 90 days prior to the first
held on a day which is within 30 days anniversary of the preceding year's
preceding the anniversary of the annual meeting; or
previous year's annual meeting; or
- if the date of the annual meeting has
- not less than 90 days in advance of been advanced by more than 30 days or
the meeting if the meeting is to be delayed by more than 60 days from the
held on or after the anniversary of previous year's annual meeting, in
the previous year's annual meeting. which case notice must be received
not earlier than 90 days and not
With respect to any other annual later than the close of business on
meeting or special meeting of the the 60th day before the annual
shareholders, notice must be received meeting, or not later than the tenth
by the close of business on the tenth day following the day on which public
day following the date on which public announcement of the date of the
announcement of the date of the meeting meeting and of the nominees proposed
was first made. by the board of directors to be
elected at the meeting is first made.
The notice must include, among other
things, information on the nominating For an election to be held at a special
shareholder and information regarding meeting, notice must be received:
the nominee required by the proxy rules
of the SEC. - no earlier than the 90th day prior to
the special meeting and not later
than the close of business on the
later of the 60th day prior to the
special meeting or the tenth day
following the day on which public
announcement of the date of the
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CHAPTER FOUR -- CERTAIN LEGAL INFORMATION
PHARMACIA
PFIZER SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
meeting and of the nominees proposed
by the board of directors to be
elected at the special meeting is
first made.
The notice must include, among other
things, information on the nominating
shareholder and information regarding
the nominee required by the proxy
rules of the SEC.
Vacancies on the The Pfizer by-laws provide that The Pharmacia by-laws provide that
Board of Directors: vacancies of the board of directors may vacancies of the board of directors may
be filled solely by the board of be filled only by the affirmative vote
directors, acting by not less than a of a majority of the remaining
majority of the directors then in directors after the director has been
office, though less than a quorum of nominated by the nominating committee,
the board of directors. If the board of though less than a quorum of the board
directors fills a vacancy, the of directors. If the board of directors
director's term expires at the annual fills a vacancy, the director's term
meeting of shareholders at which the expires at the annual meeting of
term of office of the class to which shareholders at which the term of
the director has been elected expires. office of the class to which the
director has been elected expires.
Call of Pfizer's by-laws provide that a special Pharmacia's by-laws provide that a
Special Meetings meeting of Pfizer's shareholders may be special meeting of shareholders may be
of Shareholders: called by the Chairman of the Board and called by the Chairman of the Board or
must be called by the Chairman or the the Chief Executive Officer, or
Secretary at the request in writing of pursuant to resolution of the Board.
a majority of the board of directors.
Shareholders Pfizer's by-laws provide that in order Pharmacia's by-laws provide that in
Proposals: for a shareholder to bring business order for a shareholder to bring
before the annual meeting, the business before the annual meeting, the
shareholder must give the corporation shareholder must give the corporation
timely written notice. To be timely, a timely written notice. To be timely, a
shareholders' notice in writing must be shareholders' notice in writing must be
delivered or mailed to the secretary of delivered or mailed to the secretary of
the corporation. Any such notice must the corporation. Any such notice must
be received: be received:
- 60 days in advance of the meeting if - not less than 90 days nor more than
the meeting is to be held on a day 120 days prior to the first
that is within 30 days preceding the anniversary of the preceding year's
anniversary of the previous year's annual meeting; or
annual meeting or 90 days in advance
of the meeting - if the date of the meeting is
IV-4
CHAPTER FOUR -- CERTAIN LEGAL INFORMATION
PHARMACIA
PFIZER SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
if the meeting is to be held on or advanced by more than 30 days or
after the anniversary of the previous delayed by more than 60 days from the
year's annual meeting; or first anniversary of the preceding
year's annual meeting, not earlier
with respect to any other annual than 120 days before the date of the
meeting of shareholders not addressed meeting and not later than the close
in the clause above, by the close of of business on the later of the 90th
business on the tenth day following the day prior to the annual meeting or
date of public disclosure of the date the tenth day following the day on
of the meeting. which public announcement of the date
of the annual meeting is first made.
Pfizer's by-laws provide that a
shareholder may not bring business Pharmacia's by-laws provide that a
before a special meeting. shareholder may not bring business
before a special meeting.
Anti-takeover Pfizer's certificate of incorporation None.
Provisions of the restricts certain actions or
Governing Documents: transactions (including the sale,
lease, exchange or other disposition of
all or any substantial part of the
assets of the corporation or any of its
majority-owned subsidiaries) involving
a related person (defined as any person
or entity which beneficially owns or
controls directly or indirectly 10% or
more of the outstanding shares of
voting stock of Pfizer).
Otherwise prohibited actions or
transactions with a related person must
be authorized by the affirmative vote
of at least 80% of all of the
outstanding shares of voting stock,
voting together as a single class,
after having received a proxy statement
responsive to the requirements of the
Securities Exchange Act of 1934, as
amended, and including any
recommendations of the board of
directors as to the advisability of the
transaction.
The 80% voting requirement is not
applicable if:
- the action or transaction is approved
by the board of directors
IV-5
CHAPTER FOUR -- CERTAIN LEGAL INFORMATION
PHARMACIA
PFIZER SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
and by a majority of the continuing
directors (defined as directors who
were serving prior to the time that
the related person involved in the
transaction became a related person
or who were nominated by a majority
of the continuing directors),
provided that such exception for
approval by the board of directors
does not apply if there are not at
least 5 continuing directors; or
- in the action or transaction, the
shareholders would be entitled to
receive consideration per share which
is not less than the greater of the
highest price per share paid by the
related person in acquiring any of
its holdings of capital stock of
Pfizer or the highest closing sale
price on any day either since the
related person acquired its first
share of capital stock of Pfizer
which it continues to own or control
or during the five years preceding
the date of consideration of the
transaction by Pfizer's board of
directors, whichever is shorter.
In addition to the restrictions
described above, after becoming a
related person and prior to any such
transaction, the related person:
- with certain exceptions, may not
acquire from Pfizer or its majority-
owned subsidiaries any newly issued
or treasury shares of capital stock
or any newly issued securities
convertible into or exchangeable for
capital stock of Pfizer or any of its
majority-owned subsidiaries, directly
or indirectly;
- may not receive the benefit, directly
or indirectly (except proportionately
as a shareholder), of any loans,
advances or other financial
assistance or tax credits
IV-6
CHAPTER FOUR -- CERTAIN LEGAL INFORMATION
PHARMACIA
PFIZER SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
provided by Pfizer or any of its
majority owned subsidiaries'
businesses or capital structures, or
reduce the current rate of dividends
payable on Pfizer's capital stock
below the rate in effect immediately
prior to the time the related person
became a related person; and
- must take all required actions to
ensure that Pfizer's board of
directors includes representation by
continuing directors at least
proportionate to the stockholdings of
Pfizer's remaining public
shareholders, with at least one
continuing director to serve on the
board of directors so long as there
are any remaining public
shareholders.
Amendment to Pfizer's certificate of incorporation Pharmacia's certificate of
Certificate of generally may be amended by the incorporation generally may be amended
Incorporation affirmative vote of the majority of the by the affirmative vote of the majority
and By-laws: outstanding shares; however the of the outstanding shares; however the
affirmative vote of 80% of the affirmative vote of 80% of the votes
outstanding shares is necessary to represented by outstanding shares is
amend certain sections of Article necessary, in addition to approval by
Seventh (related to the management and the board of directors to amend certain
affairs of the company) and the entire sections of Article Eight (related to
Article Eighth (related to restrictions directors), certain sections of Article
on actions and transactions by Pfizer Ten (related to the powers of the board
and a related person (as defined of directors) and Article Eleven
above)). (related to action by shareholders).
Pfizer's by-laws may be amended by a Pharmacia's by-laws may be amended by a
vote of a majority of the outstanding vote of the holders of at least 80% of
shares of Pfizer common stock, or by a the voting power of the corporation,
majority of the board of directors. voting as a single class, or by a
majority of the board of directors.
Shareholder Rights Pfizer entered into a Rights Agreement, Pharmacia entered into a Rights
Plan: dated as of October 6, 1997, between Agreement, amended and restated as of
Pfizer and ChaseMellon Shareholders February 20, 2001 between Pharmacia and
Services L.L.C., as Rights Agent, as Mellon Investor Services LLC, as Rights
amended, pursuant to which Pfizer has Agent, as amended, pursuant to which
issued rights, exercisable only Pharmacia has issued rights,
IV-7
CHAPTER FOUR -- CERTAIN LEGAL INFORMATION
PHARMACIA
PFIZER SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
upon the occurrence of certain events, exercisable only upon the occurrence of
to purchase its Series A Junior certain events, to purchase its Series
Preferred Stock. A Junior Participating Preferred Stock.
DESCRIPTION OF PFIZER CAPITAL STOCK
The following summary of the terms of the capital stock of Pfizer before
and after the merger is not meant to be complete and is qualified by reference
to Pfizer's certificate of incorporation and Pfizer's by-laws. Copies of
Pfizer's certificate of incorporation and Pfizer's by-laws are incorporated by
reference and will be sent to shareholders of Pfizer and Pharmacia upon request.
See "Where You Can Find More Information," on page V-3.
AUTHORIZED CAPITAL STOCK
Prior to Completion of the Merger. Under Pfizer's certificate of
incorporation, Pfizer's authorized capital stock consists of nine (9) billion
shares of Pfizer common stock, $.05 par value, and twelve (12) million shares of
preferred stock, without par value. As of [ ], there were issued
and outstanding [ ] shares of common stock and no shares of preferred
stock were issued and outstanding.
After Completion of the Merger. At the Pfizer special meeting, holders of
Pfizer common stock will be asked to approve an amendment to the Pfizer
certificate of incorporation increasing the authorized number of shares of
common stock to twelve (12) billion and the number of shares of preferred stock
to twenty seven (27) million.
PFIZER COMMON STOCK
Pfizer Common Stock Outstanding. The outstanding shares of Pfizer common
stock are, and the shares of Pfizer common stock issued under the merger will
be, duly authorized, validly issued, fully paid and non-assessable.
Voting Rights. Each holder of Pfizer common stock is entitled to one vote
for each share of Pfizer common stock held of record on the applicable record
date on all matters submitted to a vote of shareholders.
Dividend Rights; Rights Upon Liquidation. The holders of Pfizer common
stock are entitled to receive, from funds legally available for the payment
thereof, dividends when and as declared by resolution of Pfizer's board of
directors, subject to any preferential dividend rights granted to the holders of
any outstanding Pfizer preferred stock. In the event of liquidation, each share
of Pfizer common stock is entitled to share pro rata in any distribution of
Pfizer's assets after payment or providing for the payment of liabilities and
the liquidation preference of any outstanding Pfizer preferred stock.
Preemptive Rights. Holders of Pfizer common stock have no preemptive
rights to purchase, subscribe for or otherwise acquire any unissued or treasury
shares or other securities.
Preferred Stock Purchase Rights. Each holder of Pfizer common stock is
also the holder of one preferred stock purchase right for each share of common
stock of Pfizer. Each right represents the right to purchase one thousandth of a
share of Series A Junior Preferred Stock of Pfizer at a price of $275 and is
exercisable upon the occurrence of certain specified events.
PFIZER PREFERRED STOCK
Pfizer Preferred Stock Outstanding. As of the date of this joint proxy
statement/ prospectus, no shares of Pfizer preferred stock were issued and
outstanding.
Three (3) million shares of Pfizer preferred stock have been designated
Series A Junior
IV-8
CHAPTER FOUR -- CERTAIN LEGAL INFORMATION
Preferred Stock and reserved for issuance upon exercise of the rights
distributed to the shareholders of Pfizer common stock pursuant to the Rights
Agreement, as set forth in the table above under the heading "-- Shareholder
Rights Plan" on page IV-7.
Blank Check Preferred Stock. Under Pfizer's certificate of incorporation,
Pfizer's board of directors has the authority, without shareholder approval, to
create one or more classes or series within a class of preferred stock, to issue
shares of preferred stock in such class or series up to the maximum number of
shares of the relevant class or series of preferred stock authorized, and to
determine the preferences, rights, privileges and restrictions of any such class
or series, including the dividend rights, voting rights, the rights and terms of
redemption, the rights and terms of conversion, liquidation preferences, the
number of shares constituting any such class or series and the designation of
such class or series.
NEW CONVERTIBLE PERPETUAL PREFERRED STOCK TO BE ISSUED IN THE MERGER
Designation and Amount. The new convertible perpetual preferred stock for
which Pharmacia's Series C convertible perpetual preferred stock will be
exchangeable will have no par value and a stated value and a liquidation
preference of $40,300 per share, plus accrued and unpaid dividends. The new
convertible perpetual preferred stock will be designated as Series A convertible
perpetual preferred stock. The authorized number of shares of the Series A
convertible perpetual preferred stock will be 7,500. The terms of the Series A
convertible perpetual preferred stock are substantially similar to the Pharmacia
Series C convertible perpetual preferred stock that will be issued to the
trustee of Pharmacia's employee stock ownership trust in exchange for the Series
B convertible perpetual preferred stock it currently holds except that the
conversion ratio for the new convertible perpetual preferred stock will be
changed to take account of the exchange ratio; accordingly, and the number of
votes per share will increase from [ ] to [ ].
Rank. With respect to dividend rights and rights on liquidation,
dissolution and winding-up, the Series A convertible perpetual preferred stock
will rank senior to all classes of stock of the combined company except those
classes of preferred stock expressly designated as ranking senior or on a parity
with the new convertible perpetual preferred stock.
Dividends. The holders of Pfizer Series A convertible perpetual preferred
stock will be entitled to receive, when, as and if declared by the board of
directors of the combined company out of funds legally available therefor, cash
dividends in an amount per share not to exceed $2,518.75 per annum, payable
quarterly in arrears. No interest shall accrue on accumulated but unpaid
dividends of the Pfizer Series A convertible perpetual preferred stock. Holders
of shares of Pfizer Series A convertible perpetual preferred stock will not be
entitled to any other dividends. Pfizer is prohibited from paying dividends on
any stock ranking pari passu with the Series A convertible perpetual preferred
stock, unless the Series A convertible perpetual preferred stock is paid a
proportionate amount of such dividends. In addition, Pfizer is prohibited from
making any dividend payment on stock ranking junior to the Series A convertible
perpetual preferred stock if any dividends on the Series A convertible perpetual
preferred stock remain unpaid. In the event that Pfizer has not paid a dividend,
Pfizer will not be restricted from redeeming the Series A convertible perpetual
preferred stock.
Redemption. Upon the giving of specified notice, the combined company, at
its option, will be entitled to redeem any or all shares of Pfizer Series A
convertible perpetual preferred stock, at a redemption price of $40,300 per
share, plus an amount equal to all accrued and unpaid dividends thereon to and
including the date of redemption.
The combined company must redeem all shares of Pfizer Series A convertible
perpetual preferred stock at the redemption price plus an amount equal to all
accrued and unpaid dividends thereon to and including the date of redemption in
the event that Pharmacia's
IV-9
CHAPTER FOUR -- CERTAIN LEGAL INFORMATION
employee stock ownership trust or Pharmacia's employee stock ownership plan is
terminated or Pharmacia's employee stock ownership plan is eliminated from
Pharmacia's employee stock ownership trust.
In addition, the combined company must redeem the Pfizer Series A
convertible perpetual preferred stock at the redemption price plus accrued and
unpaid dividends thereon to the date fixed for redemption if either of the
following events occur: (1) when and to the extent necessary for such holder to
make any payments of principal, interest or premium due and payable under the
promissory note from the trustee of the employee stock ownership plan to the
combined company or any indebtedness, expenses or costs incurred by the holder
for the benefit of the plan, or (2) in the event that the plan is not initially
determined by the Internal Revenue Service to be "qualified employer
securities."
In lieu of paying the redemption price in cash, the combined company will
be entitled, at its sole option, to make payment of the redemption price in
shares of common stock of the combined company, or in a combination of common
stock and cash.
Conversion Rights. The holders of shares of Pfizer Series A convertible
perpetual preferred stock will have the right, at their option, to convert any
or all of such preferred shares into shares of common stock of the combined
company initially at a conversion price equal to [$ ] per share of common
stock, with each share of Series A convertible perpetual preferred stock being
valued at $40,300 for such purpose. The conversion price will be subject to
anti-dilution adjustments.
Voting Rights. Each share of Pfizer Series A convertible perpetual
preferred stock has voting rights equal to that number of shares of common stock
of the combined company into which such Pfizer Series A convertible perpetual
preferred stock could be converted on the record date for determining the
shareholders entitled to vote, voting together with the holders of shares of
Pfizer common stock as one class. Initially, the number of votes per share of
Pfizer Series A convertible perpetual preferred stock will be [ ].
The vote of at least 66 2/3% of the outstanding Series A convertible
perpetual preferred stock, voting separately as a series, will be required to
adopt any alteration, amendment or repeal of any provision of the combined
company's certificate of incorporation, if such amendment, alteration or repeal
would alter or change the powers, preferences or special rights of the Series A
convertible perpetual preferred stock so as to affect them adversely.
Liquidation Rights. Upon any voluntary or involuntary liquidation,
dissolution or winding-up of the combined company, the holders of Series A
convertible perpetual preferred stock will be entitled to receive liquidating
distributions in the amount of $40,300 per share, plus an amount equal to all
accrued and unpaid dividends thereon to the date fixed for distribution, before
any distribution or payment is made to holders of common stock of the combined
company or on any other class of the company stock ranking junior to the Series
A convertible perpetual preferred stock.
Consolidation, Merger. In the event the combined company consummates any
consolidation or merger or similar business combination, pursuant to which the
common stock of the combined company is exchanged solely for or changed,
reclassified or converted solely into stock of any successor or resulting
corporation that constitutes "qualifying employer securities" with respect to a
holder of Series A convertible perpetual preferred stock within the meaning of
the Internal Revenue Code and the Employee Retirement Income Security Act, the
Series A convertible perpetual preferred stock will be assumed by and will
become preferred stock of such successor or resulting corporation, having in
respect of such corporation the same powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions that the Pfizer Series A convertible perpetual
preferred stock had immediately prior to such transaction.
In the event the combined company consummates any business combination of
the
IV-10
CHAPTER FOUR -- CERTAIN LEGAL INFORMATION
type described in the preceding paragraph pursuant to which the common stock of
the combined company is exchanged for consideration that does not constitute
"qualifying employer securities", the outstanding shares of Pfizer Series A
convertible perpetual preferred stock will be automatically converted into the
number of shares of common stock of the combined company into which such shares
of Series A convertible perpetual preferred stock could have been converted at
such time.
A form of the Certificate of Designations for Pfizer Series A convertible
perpetual preferred stock is included as Annex E to this document.
PHARMACIA SHAREHOLDERS RIGHTS AGREEMENT
The following is a summary description of the rights issued under the
Pharmacia rights agreement, as amended. The following description of the
Pharmacia rights agreement is subject to, and is qualified in its entirety by
reference to, the text of the Pharmacia rights agreement, as amended, and the
description thereof, which are incorporated by reference into this document. See
"Where You Can Find More Information" on page V-3.
The Pharmacia rights agreement provides for the issuance of one preferred
share purchase right for each outstanding share of common stock of Pharmacia.
Each right entitles the registered holder to purchase from Pharmacia one
one-thousandth of a share of Pharmacia's Series A junior participating preferred
stock, no par value, at a price of $250 (subject to adjustment as provided in
the rights agreement). The rights, which are attached to and trade with the
common stock of Pharmacia until they are exercisable, may not be exercised until
the earlier to occur of (the earlier of such date being a "Distribution Date"):
(1) the 10th day after the first date of a public announcement (by
Pharmacia or any "Acquiring Person") that a person or a group of affiliated or
associated persons (referred to as an "Acquiring Person") have acquired
beneficial ownership of 20% or more of the outstanding common stock of
Pharmacia; or
(2) the 10th business day (or such later date as the board of directors of
Pharmacia may specify prior to such time as any person or group of affiliated
persons becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
completion of which would result in the beneficial ownership by a person or
group of 20% or more of the outstanding common stock of Pharmacia.
The holder of a right may exercise the right at any time after the
occurrence of a Distribution Date. In the event that any person becomes an
Acquiring Person, each holder of a right, other than rights beneficially owned
by the Acquiring Person (which will then be void), shall thereafter have a right
to receive, for the exercise price and upon exercise of the right, a number of
shares of common stock of Pharmacia equal to the exercise price of the right
divided by one-half of the market price of a share of common stock.
The Pharmacia rights agreement further provides that if Pharmacia is
acquired in a merger or other business combination transaction, or 50% or more
of its consolidated assets or earning power are sold after a person or group has
become an Acquiring Person, then each holder of a right, other than rights
beneficially owned by the Acquiring Person (which will then be void), will then
have the right to receive, for the exercise price and upon exercise of the
right, a number of shares of common stock of the Acquiring Person equal to the
exercise price of the right divided by one-half of the market price of a share
of the common stock of the Acquiring Person.
In connection with the entering into of the merger agreement, Pharmacia and
Mellon Investor Services LLC, as rights agent, entered into an amendment to the
rights agreement, dated as of July 12, 2002, pursuant to which neither Pfizer
nor Pilsner Acquisition Sub Corp., a Delaware corporation which is a direct
wholly-owned subsidiary of Pfizer formed for
IV-11
CHAPTER FOUR -- CERTAIN LEGAL INFORMATION
the purpose of completing the merger, nor any of Pfizer's affiliates or
associates, will become or be deemed to be an Acquiring Person as a result of:
(1) the approval, execution, delivery or performance of the merger
agreement,
(2) the completion of the merger,
(3) the completion of any other transaction contemplated by the merger
agreement, including the exchange of the common stock of Pharmacia thereunder,
or
(4) the public announcement of any of the foregoing.
In addition, a Distribution Date will not occur or be deemed to have
occurred as a result of any of these events.
TRANSFER AGENT AND REGISTRAR
EquiServe Trust Company, N.A., is the transfer agent and registrar for the
Pfizer common stock.
LEGAL MATTERS
The validity of the Pfizer common stock to be issued to Pharmacia
shareholders in the merger will be passed upon by Cadwalader, Wickersham & Taft,
counsel to Pfizer. It is a condition to the completion of the merger that each
of Pfizer and Pharmacia receive an opinion from their respective counsel with
respect to the tax treatment of the merger.
EXPERTS
The consolidated financial statements of Pfizer Inc. and subsidiary
companies as of December 31, 2001 and 2000, and for each of the years in the
three-year period ended December 31, 2001, have been incorporated by reference
in this joint proxy statement/ prospectus from the Pfizer Inc. December 31,
2001, Annual Report on Form 10-K filed March 28, 2002, in reliance upon the
report of KPMG LLP, independent accountants, also incorporated by reference in
this joint proxy statement/prospectus, and upon the authority of said firm as
experts in accounting and auditing.
The audited financial statements of Warner-Lambert Company, not separately
presented in this joint proxy statement/ prospectus, have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report thereon is
incorporated by reference herein. Such financial statements, to the extent they
have been included in the financial statements of Pfizer Inc., have been
incorporated by reference in reliance on the report of such independent
accountants given on the authority of said firm as experts in auditing and
accounting.
The audited financial statements of Pharmacia Corporation incorporated by
reference in this joint proxy statement/prospectus, except as they relate to
Monsanto Company and subsidiaries and the former Monsanto Company and
subsidiaries, have been audited by PricewaterhouseCoopers LLP, independent
accountants, and insofar as they relate to Monsanto Company and subsidiaries and
former Monsanto Company and subsidiaries, by Deloitte & Touche LLP, independent
accountants, whose reports thereon have also been incorporated by reference.
Such financial statements have been so incorporated in reliance on the reports
of such accountants given on the authority of such firms as experts in auditing
and accounting.
IV-12
CHAPTER FIVE -- ADDITIONAL INFORMATION FOR SHAREHOLDERS
CHAPTER FIVE
ADDITIONAL INFORMATION FOR SHAREHOLDERS
FUTURE SHAREHOLDER PROPOSALS
PFIZER
Under the rules of the SEC, if a shareholder wants Pfizer to include a
proposal in its proxy statement and form of proxy for presentation at Pfizer's
2003 annual meeting of shareholders, the proposal must be received by Pfizer by
November 14, 2002, attention: Ms. Margaret M. Foran, Vice President -- Corporate
Governance and Secretary, at 235 East 42nd Street, New York, New York
10017-5755; provided, however, if the date of the 2003 annual meeting of
shareholders is changed by more than 30 days from the date of the previous
year's meeting (April 25, 2002), then the deadline is a reasonable time before
Pfizer begins to print and mail its proxy materials.
Under Pfizer's by-laws, and as permitted by the rules of the SEC, certain
procedures are provided which a shareholder must follow to nominate persons for
election as directors or to introduce an item of business at an annual meeting
of shareholders. These procedures provide that nominations for director nominees
and/or an item of business to be introduced at an annual meeting of shareholders
must be submitted in writing to the Secretary of Pfizer at the address noted
above. Pfizer must receive the notice of your intention to introduce a
nomination or proposed item of business at Pfizer's 2003 annual meeting no later
than:
- 60 days in advance of the 2003 annual meeting if it is being held within
30 days preceding the anniversary date (April 25, 2002) of this year's
meeting; or
- 90 days in advance of such meeting if it is being held on or after the
anniversary date of this year's meeting.
For any other annual or special meeting, the nomination or item of business
must be received by the tenth day following the date of public disclosure of the
date of the meeting.
Pfizer's annual meeting of shareholders is generally held on the fourth
Thursday of April. Assuming that Pfizer's 2003 annual meeting is held on
schedule, Pfizer must receive notice of your intention to introduce a nomination
or other item of business at that meeting by February 23, 2003. If Pfizer does
not receive notice by that date, or if we meet other requirements of the SEC
rules, the persons named as proxies in the proxy materials relating to that
meeting will use their discretion in voting the proxies when these matters are
raised at the meeting.
The nomination must contain the following information about the nominee:
- name;
- age;
- business and residence addresses;
- principal occupation or employment;
- the number of shares of common stock held by the nominee;
- the information that would be required under the rules of the SEC in a
proxy statement soliciting proxies for the election of such nominee as a
director; and
- a signed consent of the nominee to serve as a director of Pfizer, if
elected.
Notice of a proposed item of business must include:
- a brief description of the substance of, and the reasons for, conducting
such business at the annual meeting;
- the shareholder's name and address;
- the number of shares of common stock held by the shareholder (with
supporting documentation where appropriate); and
- any material interest of the shareholder in such business.
V-1
CHAPTER FIVE -- ADDITIONAL INFORMATION FOR SHAREHOLDERS
The Pfizer board of directors is not aware of any matters that are expected
to come before the special meeting other than those referred to in this joint
proxy statement/prospectus. If any other matter should come before the special
meeting, the persons named in the accompanying proxy intend to vote the proxies
in accordance with their best judgment.
The chairman of the meeting may refuse to allow the transaction of any
business not presented beforehand, or to acknowledge the nomination of any
person not made in compliance with the foregoing procedures.
PHARMACIA
Pharmacia does not currently expect to hold a 2003 annual meeting of
shareholders because Pharmacia will not be a separate public company if the
merger has been completed at that time. If the merger is not consummated and
such a meeting is held, shareholders may propose matters to be presented at the
2003 annual meeting of shareholders and may also nominate persons to be
directors.
Shareholder nominations of candidates for election to the board of
directors at Pharmacia's 2003 annual meeting must be received by the Pharmacia's
Secretary at 100 Route 206 North, Peapack, NJ 07977 not earlier than January 30,
2003 and not later than March 1, 2003; provided, however, that in the event that
the date of the meeting is advanced by more than 30 days or delayed by more than
60 days from the anniversary date of the preceding year's annual meeting, notice
by the shareholder must be received not earlier than 90 days prior to such
annual meeting and not later than the close of business on the later of 60 days
prior to such annual meeting or on the tenth day following the day on which the
public announcement of the date of the meeting is first made, together with the
information that would be required under the rules of the SEC in a proxy
statement soliciting proxies for the election of such recommended person as a
director, a statement of the recommended person's willingness to stand for
election and to serve if elected. Nominations satisfying these requirements will
be considered by the board of director's nominating and corporate governance
committee.
Shareholder proposals that are intended to be presented at Pharmacia's 2003
annual meeting and be included in Pharmacia's proxy materials must be received
by Pharmacia's Secretary, 100 Route 206 North, Peapack, NJ 07977 not later than
November 25, 2002; provided, however, if the date of the 2003 annual meeting of
shareholders is changed by more than 30 days from the date of the previous
year's meeting (April 30, 2002), then the deadline is a reasonable time before
the company begins to print and mail its proxy materials. Upon timely receipt of
any such proposal, Pharmacia will determine whether to include such proposal in
the proxy materials in accordance with applicable SEC regulations.
Shareholder proposals that are intended to be presented at the Pharmacia's
2003 annual meeting but not be included in the Pharmacia's proxy materials must
be received by Pharmacia's Secretary, 100 Route 206 North, Peapack, NJ 07977 not
earlier than December 31, 2002 and not later than January 30, 2003; provided,
however, that in the event that the date of the meeting is advanced by more than
30 days or delayed by more than 60 days from the anniversary date of the
preceding year's annual meeting date, notice by the shareholder must be received
not earlier than 120 days prior to such annual meeting and not later than the
close of business on the later of 90 days prior to such annual meeting or on the
tenth day following the day on which the public announcement of the date of the
meeting is first made. Upon timely receipt of any such proposal, Pharmacia will
determine whether to present such proposal at the meeting, in accordance with
the rules of the meeting. These time limits also apply for determining whether
notice is timely under the SEC rules relating to the exercise of discretionary
voting authority.
V-2
CHAPTER FIVE -- ADDITIONAL INFORMATION FOR SHAREHOLDERS
Notice of a proposed item of business must include:
- a brief description of the substance of, and reasons for, conducting such
business at the annual meeting;
- the shareholder's name and address;
- the number of shares of common stock held by the shareholder (with
supporting documentation where appropriate); and
- any material interest of the shareholder in such business.
WHERE YOU CAN FIND MORE INFORMATION
Pfizer and Pharmacia file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms located at 450 Fifth Street, N.W., Washington D.C. 20549 and at Northwest
Atrium Center, 5000 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, U.S.A. Please call the SEC at l-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from commercial document retrieval services and at the web site maintained by
the SEC at www.sec.gov.
Pfizer has filed a registration statement on Form S-4 to register with the
SEC the Pfizer common stock and Pfizer Series A convertible perpetual preferred
stock to be issued to Pharmacia common shareholders and Pharmacia preferred
shareholder, respectively, upon completion of the merger. This joint proxy
statement/prospectus is a part of that registration statement and constitutes a
prospectus of Pfizer in addition to being a proxy statement of Pfizer and
Pharmacia for their respective meetings. As allowed by SEC rules, this joint
proxy statement/prospectus does not contain all the information you can find in
the registration statement or the exhibits to the registration statement.
The SEC allows us to "incorporate by reference" information into this joint
proxy statement/prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
joint proxy statement/prospectus, except for any information superseded by
information in, or incorporated by reference in, this joint proxy
statement/prospectus. This joint proxy statement/prospectus incorporates by
reference the documents set forth below that we have previously filed with the
SEC. These documents contain important information about our companies and their
finances.
V-3
CHAPTER FIVE -- ADDITIONAL INFORMATION FOR SHAREHOLDERS
PFIZER SEC FILINGS (FILE NO. 001-03619) PERIOD
--------------------------------------- ------
Annual Report on Form 10-K..................... Fiscal Year ended December 31, 2001
Quarterly Report on Form 10-Q/A................ Quarter ended March 31, 2002
Quarterly Report on Form l0-Q.................. Quarter ended June 30, 2002
Current Reports on Form 8-K.................... Filed on July 16, 2002, August 13, 2002 and
September 6, 2002
Proxy Statement on Schedule 14A................ Filed on March 14, 2002
The description of the rights agreement,
contained in the Registration Statement on Form
8-A filed pursuant to Section 12 of the
Securities Exchange Act, including any
amendment or report filed with the SEC for the
purpose of updating this description........... Filed on October 6, 1997
PHARMACIA SEC FILINGS (FILE NO. 001-02516) PERIOD
------------------------------------------ ------
Annual Report on Form 10-K..................... Fiscal Year ended December 31, 2001
Quarterly Reports on Form l0-Q................. Quarters ended March 31, 2002 and June 30, 2002
Proxy Statement on Schedule 14A................ Filed on March 25, 2002
Current Reports on Form 8-K.................... Filed on April 30, 2002, July 16, 2002, August
2, 2002, August 13, 2002 and August 16, 2002
The description of the rights agreement,
contained in Amendment No. 2 to the
Registration Statement on Form 8-A filed
pursuant to Section 12 of the Securities
Exchange Act, including any amendment or report
filed with the SEC for the purpose of updating
this description............................... Filed on July 16, 2002
------------------------
We are also incorporating by reference additional documents that we file
with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act between
the date of this joint proxy statement/prospectus and the date of the meetings.
All information contained or incorporated by reference in this joint proxy
statement/ prospectus relating to Pfizer has been supplied by Pfizer, and all
information about Pharmacia has been supplied by Pharmacia.
V-4
CHAPTER FIVE -- ADDITIONAL INFORMATION FOR SHAREHOLDERS
If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this joint proxy statement/prospectus. Shareholders may obtain
documents incorporated by reference in this joint proxy statement/ prospectus by
requesting them in writing or by telephone from the appropriate party at the
following address:
Pfizer Inc.
245 East 42nd Street
New York, New York 10017
Attention: Corporate Secretary
(212) 573-2323
Pharmacia Corporation
100 Route 206 North
Peapack, New Jersey 07977
Attention: Corporate Secretary
(908) 901-8000
If you are a Pfizer shareholder and would like to request documents from
Pfizer, please do so by [ ] to receive them before the Pfizer special
meeting. If you are a Pharmacia shareholder and would like to request documents
from Pharmacia, please do so by [ ] to receive them before the
Pharmacia special meeting.
You can also get more information by visiting Pfizer's web site at
www.pfizer.com and Pharmacia's web site at www.pharmacia.com. Web site materials
are not part of this joint proxy statement/prospectus.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE PROPOSALS TO
PFIZER'S AND PHARMACIA'S SHAREHOLDERS IN CONNECTION WITH THE MERGER, AS THE CASE
MAY BE. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS
JOINT PROXY STATEMENT/PROSPECTUS IS DATED [ ]. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/ PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THIS
JOINT PROXY STATEMENT/PROSPECTUS TO SHAREHOLDERS NOR THE ISSUANCE OF SHARES OF
PFIZER COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
V-5
ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 13, 2002
AMONG
PFIZER INC.,
PILSNER ACQUISITION SUB CORP.
AND
PHARMACIA CORPORATION
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
ARTICLE I
THE MERGER; CERTAIN RELATED MATTERS
Section 1.1 The Merger.................................................. A-1
Section 1.2 Closing..................................................... A-2
Section 1.3 Effective Time.............................................. A-2
Section 1.4 Effects of the Merger....................................... A-2
Section 1.5 Certificate of Incorporation................................ A-2
Section 1.6 Bylaws...................................................... A-2
Section 1.7 Officers and Directors...................................... A-2
Section 1.8 Effect on Capital Stock..................................... A-2
Section 1.9 Company Stock Options and Other Equity-Based Awards......... A-3
Section 1.10 Certain Adjustments......................................... A-5
Section 1.11 Associated Rights........................................... A-5
Section 1.12 Appraisal Rights............................................ A-5
ARTICLE II
EXCHANGE OF CERTIFICATES
Section 2.1 Exchange Fund............................................... A-5
Section 2.2 Exchange Procedures......................................... A-6
Section 2.3 Distributions with Respect to Unexchanged Shares; Voting.... A-6
Section 2.4 No Further Ownership Rights in Company Common Stock......... A-7
Section 2.5 No Fractional Shares of Parent Common Stock................. A-7
Section 2.6 Termination of Exchange Fund................................ A-7
Section 2.7 No Liability................................................ A-8
Section 2.8 Investment of the Exchange Fund............................. A-8
Section 2.9 Lost Certificates........................................... A-8
Section 2.10 Withholding Rights.......................................... A-8
Section 2.11 Further Assurances.......................................... A-8
Section 2.12 Stock Transfer Books........................................ A-9
Section 2.13 Affiliates.................................................. A-9
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of Parent.................... A-9
Section 3.2 Representations and Warranties of the Company............... A-18
Section 3.3 Representations and Warranties of Parent and Merger Sub..... A-26
i
PAGE
----
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Covenants of Parent......................................... A-27
Section 4.2 Covenants of the Company.................................... A-28
Section 4.3 Monsanto Indebtedness....................................... A-31
Section 4.4 Governmental Filings........................................ A-32
Section 4.5 Control of Other Party's Business........................... A-32
Section 4.6 Actions to Company Benefit Plans............................ A-32
Section 4.7 Exchange of Preferred Stock................................. A-32
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Preparation of Proxy Statement; Stockholders Meetings....... A-32
Section 5.2 Access to Information/Employees............................. A-35
Section 5.3 Reasonable Best Efforts..................................... A-36
Section 5.4 Acquisition Proposals....................................... A-37
Section 5.5 Employee Benefits Matters................................... A-38
Section 5.6 Fees and Expenses........................................... A-40
Section 5.7 Directors' and Officers' Indemnification and Insurance...... A-40
Section 5.8 Public Announcements........................................ A-41
Section 5.9 Accountant's Letters........................................ A-41
Section 5.10 Listing of Shares of Parent Common Stock.................... A-41
Section 5.11 Dividends................................................... A-42
Section 5.12 Affiliates.................................................. A-42
Section 5.13 Section 16 Matters.......................................... A-42
Section 5.14 Tax Treatment............................................... A-42
Section 5.15 Tax Certificates............................................ A-42
Section 5.16 Completion of Spin-off or Sale of Monsanto.................. A-43
Section 5.17 Restructure of Transaction.................................. A-43
Section 5.18 Election to Parent's Board of Directors..................... A-43
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-43
Section 6.2 Additional Conditions to Obligations of Parent and Merger
Sub......................................................... A-44
Section 6.3 Additional Conditions to Obligations of the Company......... A-45
ii
PAGE
----
ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.1 General..................................................... A-46
Section 7.2 Obligations in Event of Termination......................... A-47
Section 7.3 Amendment................................................... A-49
Section 7.4 Extension; Waiver........................................... A-49
Section 7.5 No Effect on Existing Agreements............................ A-49
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations, Warranties and
Agreements.................................................. A-49
Section 8.2 Notices..................................................... A-49
Section 8.3 Interpretation.............................................. A-50
Section 8.4 Counterparts................................................ A-50
Section 8.5 Entire Agreement; No Third Party Beneficiaries.............. A-50
Section 8.6 Governing Law............................................... A-51
Section 8.7 Severability................................................ A-51
Section 8.8 Assignment.................................................. A-51
Section 8.9 Submission to Jurisdiction; Waivers......................... A-51
Section 8.10 Enforcement................................................. A-51
Section 8.11 Definitions................................................. A-52
iii
LIST OF EXHIBITS
EXHIBIT TITLE
------- -----
1.8(b) Certificate of Designations for Parent Convertible Preferred
Stock
5.12 Form of Affiliate Letter
5.15 Form of the Company Spin-Off Representations Letter to
Cadwalader, Wickersham & Taft
6.2(c)(1) Form of Tax Opinion of Cadwalader, Wickersham & Taft
6.2(c)(2) Form of Parent Tax Representations Letter
6.2(c)(3) Form of the Company Tax Representations Letter
6.3(c)(1) Form of Tax Opinion of Sullivan & Cromwell
iv
AGREEMENT AND PLAN OF MERGER, dated as of July 13, 2002 (this "Agreement"),
among PFIZER INC., a Delaware corporation ("Parent"), PILSNER ACQUISITION SUB
CORP., a Delaware corporation and a direct wholly-owned subsidiary of Parent
("Merger Sub"), and PHARMACIA CORPORATION, a Delaware corporation (the "Company"
and collectively with Parent and Merger Sub, the "parties").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of the Company and Parent deem
it advisable and in the best interests of each corporation and its respective
stockholders that the Company and Parent engage in a business combination in
order to advance the long-term strategic business interests of the Company and
Parent;
WHEREAS, the combination of the Company and Parent shall be effected by the
terms of this Agreement through a merger as outlined below (the "Merger");
WHEREAS, in furtherance thereof, the respective Boards of Directors of the
Company and Parent have approved the Merger, upon the terms and subject to the
conditions set forth in this Agreement, pursuant to which each share of common
stock, par value $2.00 per share, of the Company ("Company Common Stock") issued
and outstanding immediately prior to the Effective Time (as defined in Section
1.3), other than shares owned or held directly or indirectly by Parent or
directly or indirectly by the Company, together with the associated Company
Rights (as defined in Section 3.2(b)) will be converted into the right to
receive shares of common stock, par value $0.05 per share, of Parent ("Parent
Common Stock") as set forth in Section 1.8 and each share of preferred stock
that has been issued (as contemplated and permitted by Sections 4.2(c) and 4.7)
in exchange for the then outstanding shares of Series B Convertible Perpetual
Preferred Stock, par value $0.01 per share, of the Company (the currently
existing preferred stock being the "Series B Preferred Stock" and the newly
issued shares of preferred stock being the "Company Convertible Preferred
Stock") issued and outstanding immediately prior to the Effective Time will be
converted into the right to receive one share of a new series of convertible
preferred stock to be issued by Parent at the Effective Time and to be
designated as Series A Convertible Perpetual Preferred Stock ("Parent
Convertible Preferred Stock") as set forth in Section 1.8;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder; and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
THE MERGER; CERTAIN RELATED MATTERS
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Merger Sub shall be merged with and into the Company at the
Effective Time. Following the Merger, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation").
SECTION 1.2 CLOSING. Upon the terms and subject to the conditions set
forth in Article VI, and the termination rights set forth in Article VII, the
closing of the Merger (the "Closing") will take place on the first Business Day
after the satisfaction or waiver (subject to applicable law) of the conditions
(excluding conditions that, by their nature, cannot be satisfied until the
Closing Date, but subject to the fulfillment or waiver of those conditions) set
forth in Article VI, unless this Agreement has been previously terminated
pursuant to its terms or unless another time or date is agreed to in writing by
the parties (the actual time and date of the Closing being referred to herein as
the "Closing Date"). The Closing shall be held at the offices of Cadwalader,
Wickersham & Taft, 100 Maiden Lane, New York, New York, 10038, unless another
place is agreed to in writing by the parties.
SECTION 1.3 EFFECTIVE TIME. As soon as practicable following the
satisfaction or waiver (subject to applicable law) of the conditions set forth
in Article VI, at the Closing the parties shall (i) file a certificate of merger
(the "Certificate of Merger") in such form as is required by, and executed in
accordance with, the relevant provisions of the DGCL and (ii) make all other
filings or recordings required under the DGCL. The Merger shall become effective
at such time as the Certificate of Merger is duly filed with the Delaware
Secretary of State or at such subsequent time as Parent and the Company shall
agree and as shall be specified in the Certificate of Merger (the date and time
the Merger becomes effective being the "Effective Time").
SECTION 1.4 EFFECTS OF THE MERGER. At and after the Effective Time, the
Merger will have the effects set forth in the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of the Company and Merger
Sub shall be vested in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 1.5 CERTIFICATE OF INCORPORATION. The certificate of
incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the certificate of incorporation of the Surviving Corporation,
until thereafter changed or amended as provided therein or by applicable law.
SECTION 1.6 BYLAWS. The bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the bylaws of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable law.
SECTION 1.7 OFFICERS AND DIRECTORS. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of Merger Sub at the Effective Time shall be
the directors of the Surviving Corporation and (ii) the officers of the Company
at the Effective Time shall be the officers of the Surviving Corporation.
SECTION 1.8 EFFECT ON CAPITAL STOCK.
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of
Company Common Stock owned by Parent or Merger Sub or held by the Company, all
of which shall be canceled as provided in Section 1.8(d)), together with the
associated Company Rights (as defined in Section 3.2(b)), shall be converted
into 1.4 validly issued, fully paid and non-assessable shares of Parent Common
Stock (the "Exchange Ratio") and the associated Parent Rights (as defined in
Section 3.1(b)) (together with any cash in lieu of fractional shares of Parent
Common Stock to be paid pursuant to Section 2.5, the "Common Stock Merger
Consideration").
(b) At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof, each share of Company Convertible Preferred
Stock issued and outstanding
A-2
immediately prior to the Effective Time shall, except as provided in Section
1.12 with respect to the shares of Company Convertible Preferred Stock as to
which appraisal rights have been exercised, be converted into the right to
receive one share of Parent Convertible Preferred Stock (the "Preferred Merger
Consideration" and together with the Common Stock Merger Consideration, the
"Merger Consideration") having terms substantially as set forth in the form of
the Series A Convertible Perpetual Preferred Stock Certificate of Designations
attached as Exhibit 1.8(b) hereto. Prior to the Closing, Parent shall take all
corporate action necessary to reserve for issuance a sufficient number of shares
of Parent Common Stock for delivery upon conversion of the Parent Convertible
Preferred Stock.
(c) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of Company Common Stock
(together with the associated Company Rights) and Company Convertible Preferred
Stock shall cease to be outstanding and shall be canceled and retired and shall
cease to exist, and each holder of a certificate or certificates which
immediately prior to the Effective Time represented any such shares of Company
Common Stock ("Common Certificates") or of Company Convertible Preferred Stock
("Preferred Certificates" and together with the Common Certificates, the
"Certificates") shall thereafter cease to have any rights with respect to such
shares of Company Common Stock (together with the associated Company Rights) or
Company Convertible Preferred Stock, respectively, except as provided herein or
by law.
(d) Each share of Company Common Stock and Company Convertible Preferred
Stock owned by Parent, Merger Sub or any other wholly-owned Subsidiary of Parent
or held by the Company at the Effective Time shall, by virtue of the Merger,
cease to be outstanding and shall be canceled and retired and no stock of Parent
or other consideration shall be delivered in exchange therefor.
(e) At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof, each share of common stock, par value $0.01
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time, shall be converted into one validly issued, fully paid and
non-assessable share of common stock, par value $2.00 per share, of the
Surviving Corporation.
SECTION 1.9 COMPANY STOCK OPTIONS AND OTHER EQUITY-BASED AWARDS.
(a) Each Company Stock Option (as defined in Section 3.2(b)) that was
granted pursuant to the Company Stock Option Plans (as defined in Section
3.2(b)) prior to the Effective Time and which remains outstanding immediately
prior to the Effective Time shall cease to represent a right to acquire shares
of Company Common Stock and shall be converted, at the Effective Time, into an
option to acquire, on the same terms and conditions as were applicable under the
Company Stock Option (but taking into account any changes thereto provided for
in the Company Stock Option Plans or in such option by reason of this Agreement
or the transactions contemplated hereby), that number of shares of Parent Common
Stock determined by multiplying the number of shares of Company Common Stock
subject to such Company Stock Option by the Exchange Ratio, rounded, if
necessary, to the nearest whole share of Parent Common Stock, at a price per
share (rounded to the nearest one-hundredth of a cent) equal to the per share
exercise price specified in such Company Stock Option divided by the Exchange
Ratio; provided, however, that in the case of any Company Stock Option to which
Section 421 of the Code applies by reason of its qualification under Section 422
of the Code, the option price, the number of shares subject to such option and
the terms and conditions of exercise of such option shall be determined in a
manner consistent with the requirements of Section 424(a) of the Code. On or
prior to the Effective Time, the Company will take all actions necessary such
that all Company Stock Options outstanding prior to the Effective Time under the
Company Stock Option Plans are treated in accordance with the immediately
A-3
preceding sentences, including, but not limited to, precluding the holder of
each Company Stock Option from receiving any cash payments in respect of such
Option in connection with the Merger.
(b) Effective at the Effective Time, Parent shall assume each Company Stock
Option in accordance with the terms of the Company Stock Option Plan under which
it was issued and the stock option agreement by which it is evidenced. As soon
as practicable after the Effective Time, but no later than five (5) Business
Days after the Effective Time, Parent shall deliver to the holders of Company
Stock Options appropriate notices setting forth such holders' rights pursuant to
the Company Stock Option Plans (including that, in connection with the Merger
and pursuant to the terms of the Company Stock Option Plans, the Company Stock
Options of such holders have become fully vested and exercisable) and the
agreements evidencing the grants of such Company Stock Options shall continue in
effect on the same terms and conditions. To the extent permitted by law, Parent
shall comply with the terms of the Company Stock Option Plans and shall take
such reasonable steps as are necessary or required by, and subject to the
provisions of, such Company Stock Option Plans, to have the Company Stock
Options which qualified as incentive stock options prior to the Effective Time
continue to qualify as incentive stock options of Parent after the Effective
Time.
(c) Prior to the Closing, Parent shall take all corporate action necessary
to reserve for issuance a sufficient number of shares of Parent Common Stock for
delivery upon exercise of Company Stock Options or in connection with restricted
shares or in connection with the settlement of stock accounts in accordance with
this Section 1.9 or in connection with any other Company Benefit Plan for which
shares of Parent Common Stock are required to be reserved for issuance. Promptly
after the Effective Time, but no later than five (5) Business Days after the
Effective Time, Parent shall file a registration statement on Form S-3 or Form
S-8, as the case may be (or any successor or other appropriate forms), with
respect to the shares of Parent Common Stock subject to such options or
restricted shares or stock accounts or Company Benefit Plans for which
registration of shares of Parent Common Stock is required and shall use
commercially reasonable efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options, restricted shares or stock accounts remain outstanding or for so long
as such registration statement is required with respect to any other Company
Benefit Plan. With respect to those individuals who subsequent to the Merger
will be subject to the reporting requirements under Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), where
applicable, Parent shall administer the Company Stock Option Plans in a manner
consistent with the exemptions provided by Rule 16b-3 promulgated under the
Exchange Act.
(d) Each restricted share of Company Common Stock, and other Company stock
awards granted pursuant to the Company Stock Option Plans or Company Benefit
Plans which are outstanding immediately prior to the Effective Time shall be
converted, as of the Effective Time, into a number of shares of Parent Common
Stock equal to the product of (1) the number of shares subject to the award and
(2) the Exchange Ratio; and the number of shares of Parent Common Stock as so
determined shall be delivered to the holder of each such award as soon as
practicable following the Effective Time. Such converted awards shall otherwise
be subject to the same terms, conditions and restrictions, if any, as were
applicable to such awards under the relevant Company Stock Option Plan or
Company Benefit Plan. Similarly, all Company Stock Option Plans and Company
Benefit Plans (and awards thereunder, including stock appreciation rights)
providing for cash payments measured by the value of Company Common Stock shall
be deemed to refer to the number of shares of Parent Common Stock equal to the
result of multiplying such number of shares of Company Common Stock by the
Exchange Ratio, and such cash payments shall otherwise be
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made on the same terms, conditions and restrictions, if any, as were applicable
under the relevant Company Stock Option Plan or Company Benefit Plan.
SECTION 1.10 CERTAIN ADJUSTMENTS. If, between the date of this Agreement
and the Effective Time, the outstanding Parent Common Stock or Company Common
Stock shall have been changed into a different number of shares or different
class by reason of any reclassification, recapitalization, stock split,
split-up, combination or exchange of shares or a stock dividend or dividend
payable in any other securities shall be declared with a record date within such
period, or any similar event shall have occurred, the Exchange Ratio shall be
appropriately adjusted to provide to the holders of Company Common Stock the
same economic effect as contemplated by this Agreement prior to such event;
provided, however, that there shall be no adjustment as a result of any dividend
or distribution to the Company's stockholders of the stock of Monsanto Company
("Monsanto") pursuant to the spin-off of Monsanto as described in the Company's
Annual Report on Form 10-K for the year ended December 31, 2001 (the "Monsanto
Spin-Off").
SECTION 1.11 ASSOCIATED RIGHTS. References in Article I and Article II of
this Agreement to Company Common Stock shall include, unless the context
requires otherwise, the associated Company Rights and references in Article I
and Article II of this Agreement to Parent Common Stock shall include, unless
the context requires otherwise, the associated Parent Rights.
SECTION 1.12 APPRAISAL RIGHTS.
(a) Notwithstanding Section 1.8, shares of Company Convertible Preferred
Stock outstanding immediately prior to the Effective Time and held by a holder
who has not voted in favor of the Merger or consented thereto in writing and who
has demanded appraisal for such shares of Company Convertible Preferred Stock in
accordance with the DGCL shall not be converted into a right to receive the
Preferred Merger Consideration, unless such holder fails to perfect or withdraws
or otherwise loses his right to appraisal in accordance with the DGCL. If, after
the Effective Time, such holder fails to perfect or withdraws or loses his right
to appraisal, such shares of Company Convertible Preferred Stock shall be
treated as if they had been converted as of the Effective Time into a right to
receive the Preferred Merger Consideration.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any other
instruments served pursuant to the DGCL and received by the Company and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the DGCL. The Company shall not, except with the prior
written consent of Parent, make any payment with respect to any demands for
appraisal or offer to settle or settle any such demands.
ARTICLE II
EXCHANGE OF CERTIFICATES
SECTION 2.1 EXCHANGE FUND. Prior to the Effective Time, Parent shall
appoint a commercial bank or trust company to act as exchange agent hereunder
(which entity shall be reasonably acceptable to the Company) for the purpose of
exchanging Certificates for the Merger Consideration (the "Exchange Agent"). At
or prior to the Effective Time, Parent shall deposit with the Exchange Agent, in
trust for the benefit of holders of shares of Company Common Stock and Company
Convertible Preferred Stock, certificates representing the Parent Common Stock
issuable pursuant to Section 1.8 in exchange for outstanding shares of Company
Common Stock and certificates representing the Parent Convertible Preferred
Stock issuable pursuant to Section 1.8 in exchange for outstanding shares of
Company Convertible Preferred Stock. Parent agrees to make available directly
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or indirectly to the Exchange Agent from time to time as needed, cash sufficient
to pay cash in lieu of fractional shares pursuant to Section 2.5 and any
dividends and other distributions pursuant to Section 2.3. Any cash and
certificates of Parent Common Stock and Parent Convertible Preferred Stock
deposited with the Exchange Agent shall hereinafter be referred to as the
"Exchange Fund."
SECTION 2.2 EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Surviving Corporation shall cause the Exchange Agent to mail to each holder of
record of a Certificate (i) a letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent, and
which letter shall be in customary form and have such other provisions as Parent
may reasonably specify (such letter to be reasonably acceptable to the Company
prior to the Effective Time) and (ii) instructions for effecting the surrender
of such Certificates in exchange for the applicable Merger Consideration. Upon
surrender of a Certificate to the Exchange Agent together with such letter of
transmittal, duly executed and completed in accordance with the instructions
thereto, and such other documents as may reasonably be required by the Exchange
Agent, the holder of such Certificate shall be entitled to receive in exchange
therefor (i) in the case of holders of Common Certificates (A) one or more
shares of Parent Common Stock (which shall be in uncertificated book-entry form
unless a physical certificate is requested) representing, in the aggregate, the
whole number of shares that such holder has the right to receive pursuant to
Section 1.8 (after taking into account all shares of Company Common Stock then
held by such holder) and (B) a check in the amount equal to the cash that such
holder has the right to receive pursuant to the provisions of this Article II,
consisting of cash in lieu of any fractional shares of Parent Common Stock
pursuant to Section 2.5 and dividends and other distributions pursuant to
Section 2.3 and (ii) in the case of holders of Preferred Certificates (A) one or
more shares of Parent Convertible Preferred Stock (which shall be in
uncertificated book-entry form unless a physical certificate is requested)
representing, in the aggregate, the number of shares that such holder has the
right to receive pursuant to Section 1.8 and (B) a check in the amount equal to
the cash that such holder has the right to receive pursuant to the provisions of
this Article II, consisting of dividends and other distributions pursuant to
Section 2.3. No interest will be paid or will accrue on any cash payable
pursuant to Section 2.3 or Section 2.5. In the event of a transfer of ownership
of Company Common Stock or Company Convertible Preferred Stock which is not
registered in the transfer records of the Company, one or more shares of Parent
Common Stock or Parent Convertible Preferred Stock evidencing, in the aggregate,
the proper number of shares of Parent Common Stock or Parent Convertible
Preferred Stock, a check in the proper amount of cash in lieu of any fractional
shares of Parent Common Stock pursuant to Section 2.5 and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.3, may be
issued with respect to such Company Common Stock or Company Convertible
Preferred Stock to such a transferee if the Certificate representing such shares
of Company Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
SECTION 2.3 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES; VOTING.
(a) All shares of Parent Common Stock and Parent Convertible Preferred
Stock to be issued pursuant to the Merger shall be deemed issued and outstanding
as of the Effective Time and whenever a dividend or other distribution is
declared by Parent in respect of the Parent Common Stock or Parent Convertible
Preferred Stock, as the case may be, the record date for which is at or after
the Effective Time, that declaration shall include dividends or other
distributions in respect of all shares issuable pursuant to this Agreement;
provided that no dividends or other distributions declared or made in respect of
the Parent Common Stock or Parent Convertible Preferred Stock, as the case may
be, with a record date that is 180 days or more after the Effective Time shall
be paid to the holder of any unsurrendered Certificate until the holder of such
Certificate shall surrender such
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Certificate in accordance with this Article II. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to such holder of shares of Parent Common Stock or Parent Convertible
Preferred Stock issuable in exchange therefor, without interest, (a) promptly
after the time of such surrender, the amount of any cash payable in lieu of
fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 2.5 and the amount of dividends or other distributions with
a record date after the Effective Time theretofore paid with respect to such
whole shares of Parent Common Stock, and (b) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and a payment date subsequent to such
surrender payable with respect to such shares of Parent Common Stock.
(b) For a period of one year following the Closing, holders of
unsurrendered Certificates shall be entitled to vote at any meeting of Parent
stockholders the number of whole shares of Parent Common Stock and Parent
Convertible Preferred Stock represented by such Certificates, regardless of
whether such holders have exchanged their Certificates.
SECTION 2.4 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
shares of Parent Common Stock and Parent Convertible Preferred Stock issued and
cash paid upon conversion of shares of Company Common Stock or Company
Convertible Preferred Stock in accordance with the terms of Article I and this
Article II (including any cash paid pursuant to Section 2.3 or 2.5) shall be
deemed to have been issued or paid in full satisfaction of all rights pertaining
to the shares of Company Common Stock and Company Convertible Preferred Stock,
as the case may be.
SECTION 2.5 NO FRACTIONAL SHARES OF PARENT COMMON STOCK.
(a) No certificates or scrip or shares of Parent Common Stock representing
fractional shares of Parent Common Stock or book-entry credit of the same shall
be issued upon the surrender for exchange of Certificates and such fractional
share interests will not entitle the owner thereof to vote or to have any rights
of a stockholder of Parent or a holder of shares of Parent Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of Company Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Parent Common
Stock (after taking into account all Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
the product of (i) such fractional part of a share of Parent Common Stock
multiplied by (ii) the closing price for a share of Parent Common Stock on the
New York Stock Exchange, Inc. ("NYSE") Composite Transactions Tape on the date
of the Effective Time or, if such date is not a Business Day, the Business Day
immediately following the date on which the Effective Time occurs. Such payment
of cash consideration in lieu of fractional shares of Parent Common Stock is not
expected to exceed, in the aggregate, 1% of the total Merger Consideration.
(c) As promptly as practicable after the determination of the amount of
cash, if any, to be paid to holders of fractional interests, the Exchange Agent
shall so notify Parent, and Parent shall deposit or cause the Surviving
Corporation to deposit such amount with the Exchange Agent and shall cause the
Exchange Agent to forward payments to such holders of fractional interests
subject to and in accordance with the terms hereof.
SECTION 2.6 TERMINATION OF EXCHANGE FUND. Any portion of the Exchange
Fund which remains undistributed to the holders of Certificates for six months
after the Effective Time shall be delivered to Parent or otherwise on the
instruction of Parent, and any holders of the Certificates who have not
theretofore complied with this Article II shall thereafter look only to Parent
for the Merger Consideration with respect to the shares of Company Common Stock
or Company Convertible Preferred Stock, as the case may be, formerly represented
thereby to which such holders are entitled
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pursuant to Section 1.8 and Section 2.2, any cash in lieu of fractional shares
of Parent Common Stock to which such holders are entitled pursuant to Section
2.5 and any dividends or distributions with respect to shares of Parent Common
Stock or Parent Convertible Preferred Stock to which such holders are entitled
pursuant to Section 2.3. Any such portion of the Exchange Fund remaining
unclaimed by holders of shares of Company Common Stock or Company Convertible
Preferred Stock five years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any Governmental Entity (as defined in Section 3.1(c)(iii))
shall, to the extent permitted by law, become the property of the Surviving
Corporation free and clear of any claims or interest of any Person previously
entitled thereto.
SECTION 2.7 NO LIABILITY. None of Parent, Merger Sub, the Company, the
Surviving Corporation or the Exchange Agent shall be liable to any Person in
respect of any Merger Consideration from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
SECTION 2.8 INVESTMENT OF THE EXCHANGE FUND. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by Parent on a daily
basis; provided, that no such gain or loss thereon shall affect the amounts
payable to the Company stockholders pursuant to Article I and the other
provisions of this Article II. Any interest and other income resulting from such
investments shall promptly be paid to Parent.
SECTION 2.9 LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will deliver in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration with respect to the shares of
Company Common Stock or Company Convertible Preferred Stock, as the case may be,
formerly represented thereby, any cash in lieu of fractional shares of Parent
Common Stock to which such holders are entitled pursuant to Section 2.5, and
unpaid dividends and distributions on shares of Parent Common Stock or Parent
Convertible Preferred Stock to which such holders are entitled pursuant to
Section 2.3, as the case may be, deliverable in respect thereof, pursuant to
this Agreement.
SECTION 2.10 WITHHOLDING RIGHTS. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock, Company Convertible Preferred Stock, Company Stock Options or any other
equity rights in the Company such amounts as it is required to deduct and
withhold with respect to the making of such payment under the Code and the rules
and regulations promulgated thereunder, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by the Surviving
Corporation or Parent, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares of Company Common Stock or Company Convertible Preferred Stock, as
the case may be, in respect of which such deduction and withholding was made by
the Surviving Corporation or Parent, as the case may be.
SECTION 2.11 FURTHER ASSURANCES. After the Effective Time, the officers
and directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of the Company or Merger Sub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and on
behalf of the Company or Merger Sub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in,
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to and under any of the rights, properties or assets acquired or to be acquired
by the Surviving Corporation as a result of, or in connection with, the Merger.
SECTION 2.12 STOCK TRANSFER BOOKS. The stock transfer books of the
Company shall be closed immediately upon the Effective Time and there shall be
no further registration of transfers of shares of Company Common Stock or
Company Convertible Preferred Stock thereafter on the records of the Company. On
or after the Effective Time, any Certificates presented to the Exchange Agent or
Parent for any reason shall be converted into the Merger Consideration with
respect to the shares of Company Common Stock or Company Convertible Preferred
Stock, as the case may be, formerly represented thereby (including any cash in
lieu of fractional shares of Parent Common Stock to which the holders thereof
are entitled pursuant to Section 2.5) and any dividends or other distributions
to which the holders thereof are entitled pursuant to Section 2.3.
SECTION 2.13 AFFILIATES. Notwithstanding anything to the contrary herein,
to the fullest extent permitted by law, no certificates representing shares of
Parent Common Stock or cash shall be delivered to a Person who may be deemed an
"affiliate" of the Company in accordance with Section 5.12 hereof for purposes
of Rule 145 under the Securities Act of 1933, as amended (the "Securities Act"),
and applicable rules and regulations of the Securities and Exchange Commission
(the "SEC") until such Person has executed and delivered an Affiliate Agreement
(as defined in Section 5.12) to Parent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF PARENT. Except as set forth
in the Parent disclosure schedule delivered by Parent to the Company prior to
the execution of this Agreement (the "Parent Disclosure Schedule") (each section
of which qualifies the correspondingly numbered representation and warranty or
covenant and any other representation or warranty, if the disclosure set forth
in the Parent Disclosure Schedule is readily applicable to such other
representation or warranty), Parent represents and warrants to the Company as
follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Each of Parent and each of its Subsidiaries (as defined in
Section 8.11) is duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization, has
the requisite corporate (or similar) power and authority to own, lease
and operate its properties and to carry on its business as now being
conducted, except where the failures to be so organized, existing and in
good standing or to have such power and authority, in the aggregate,
would not reasonably be expected to have a Material Adverse Effect (as
defined in Section 8.11) on Parent, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the
failures so to qualify or to be in good standing, in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on
Parent. The copies of the certificate of incorporation and bylaws of
Parent which were previously furnished or made available to the Company
are true, complete and correct copies of such documents as in effect on
the date of this Agreement.
(ii) Exhibit 21 to Parent's Annual Report on Form 10K for the year
ended December 31, 2001 ("Parent Exhibit 21") includes all the
Subsidiaries of Parent which as of the date of this Agreement are
Significant Subsidiaries (as defined in Rule 1-02 of
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Regulation S-X of the SEC). All the outstanding shares of capital stock
of, or other equity interests in, each such Significant Subsidiary have
been validly issued and are fully paid and non-assessable and are,
except as set forth in Parent Exhibit 21, owned directly or indirectly
by Parent, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively "Liens") and free of any other restriction (including any
restriction on the right to vote, sell or otherwise dispose of such
capital stock or other ownership interests), except for restrictions
imposed by applicable securities laws. Except as set forth in the Parent
SEC Reports (as defined in Section 3.1(d)) filed prior to the date
hereof, neither Parent nor any of its Subsidiaries directly or
indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any corporation,
partnership, joint venture or other business association or entity
(other than Subsidiaries), that is or would reasonably be expected to be
material to Parent and its Subsidiaries taken as a whole.
(b) Capital Structure.
(i) As of March 31, 2002, the authorized capital stock of Parent
consisted of (A) 9,000,000,000 shares of Parent Common Stock of which
6,254,532,591 shares were outstanding and 539,225,789 shares were held
in the treasury of Parent and (B) 12,000,000 shares of Preferred Stock,
no par value, of which 3,000,000 shares have been designated Series A
Junior Preferred Stock and reserved for issuance upon exercise of the
rights (the "Parent Rights") distributed to the holders of Parent Common
Stock pursuant to the Rights Agreement, dated as of October 6, 1997
between Parent and ChaseMellon Shareholder Services, L.L.C. (the "Parent
Rights Agreement"). Since March 31, 2002 to the date of this Agreement,
there have been no issuances of shares of the capital stock of Parent or
any other securities of Parent other than issuances of shares of Parent
Common Stock pursuant to options or rights outstanding as of March 31,
2002 under the Benefit Plans (as defined in Section 8.11) of Parent. All
issued and outstanding shares of the capital stock of Parent are, and
when shares of Parent Common Stock and Parent Convertible Preferred
Stock are issued in the Merger or upon exercise of stock options
converted in the Merger pursuant to Section 1.9, such shares will be,
duly authorized, validly issued, fully paid and non-assessable and free
of any preemptive rights. There were outstanding as of March 31, 2002 no
options, warrants or other rights to acquire capital stock from Parent
other than (x) the Parent Rights and (y) options, restricted stock and
other rights to acquire capital stock from Parent representing in the
aggregate the right to purchase approximately 475,613,737 shares of
Parent Common Stock (collectively, the "Parent Stock Options") under
Parent's Stock and Incentive Plan, Parent's Performance-Contingent Share
Award Program, Parent's 2001 Performance-Contingent Share Award Plan,
Parent's Annual Retainer Unit Award Plan (for non-employee Directors),
Parent's Nonfunded Deferred Compensation and Unit Award Plan for
Non-Employee Directors and Parent's Restricted Stock Plan for
Non-Employee Directors, the Company 1996 Stock Plan (collectively, the
"Parent Stock Option Plans"). Section 3.1(b) of the Parent Disclosure
Schedule sets forth a complete and correct list, as of March 31, 2002,
of the number of shares of Parent Common Stock subject to Parent Stock
Options or other rights to purchase or receive Parent Common Stock
granted under the Parent Benefit Plans or otherwise, the dates of grant
and the exercise prices thereof. No options or warrants or other rights
to acquire capital stock from Parent have been issued or granted since
March 31, 2002 to the date of this Agreement.
(ii) No bonds, debentures, notes or other indebtedness of Parent
having the right to vote (or convertible into or exercisable for
securities having the right to vote) on any
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matters on which holders of capital stock of Parent may vote ("Parent
Voting Debt") are issued or outstanding.
(iii) Except as otherwise set forth in this Section 3.1(b) and as
contemplated by Section 1.8 and Section 1.9, as of the date of this
Agreement, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to
which Parent or any of its Subsidiaries is a party or by which any of
them is bound obligating Parent or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of Parent or any of
its Subsidiaries or obligating Parent or any of its Subsidiaries to
issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking. As of
the date of this Agreement, there are no outstanding obligations of
Parent or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of Parent or any of its
Subsidiaries. There are not outstanding any stock-appreciation rights,
security-based performance units, "phantom" stock or other security
rights or other agreements, arrangements or commitments of any character
(contingent or otherwise) pursuant to which any Person is or may be
entitled to receive any payment or other value based on the revenues,
earnings or financial performance, stock price performance or other
attribute of Parent or any of its Subsidiaries or assets or calculated
in accordance therewith (other than ordinary course payments or
commissions to sales representatives of Parent based upon revenues
generated by them without augmentation as a result of the transactions
contemplated hereby) or to cause Parent or any of its Subsidiaries to
file a registration statement under the Securities Act or which
otherwise relate to the registration of any securities of Parents or its
Subsidiaries.
(c) Authority; No Conflicts.
(i) Parent has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated
hereby, subject to obtaining the requisite stockholder approval of the
issuance of the shares of Parent Common Stock to be issued in the Merger
(the "Share Issuance") and the amendment to the Parent Restated
Certificate of Incorporation to increase the authorized share capital
(the "Certificate Amendment"), in each case, by the votes set forth in
Section 3.1(g) hereof (such votes as set forth in such Section 3.1(g)
collectively being the "Parent Stockholder Approval"). The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Parent, subject to obtaining the Parent
Stockholder Approval. This Agreement has been duly executed and
delivered by Parent and constitutes a valid and binding agreement of
Parent, enforceable against it in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting
creditors generally or by general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or
at law).
(ii) The execution and delivery of this Agreement by Parent does
not or will not, as the case may be, and the consummation by Parent of
the Merger and the other transactions contemplated hereby will not,
conflict with, or result in any violation of, or constitute a default
(with or without notice or lapse of time, or both) under, or give rise
to a right of, or result by its terms in the, termination, amendment,
cancellation or acceleration of any obligation or the loss of a material
benefit under, or the creation of a lien, pledge, security interest,
charge or other encumbrance on, or the loss of, any assets, including
Intellectual Property (as defined in Section 3.1(p)) (any such conflict,
violation, default, right of termination, amendment, cancellation or
acceleration, loss or creation, a "Violation")
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pursuant to: (A) any provision of the certificate of incorporation or
bylaws of Parent or any Significant Subsidiary (as defined in Rule 1-02
of Regulation S-X of the SEC) of Parent, or (B) except as, in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect on Parent, or subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and
filings referred to in paragraph (iii) below, any loan or credit
agreement, note, mortgage, bond, indenture, lease, benefit plan or other
agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or any Subsidiary of Parent or their
respective properties or assets.
(iii) No consent, approval, order or authorization of, clearance
by, or registration, declaration or filing with, any supranational,
national, state, municipal, local or foreign government, any
instrumentality, subdivision, court, administrative agency or commission
or other authority thereof, or any quasi-governmental or private body
exercising any regulatory, taxing, importing or other governmental or
quasi-governmental authority (a "Governmental Entity"), is required by
or with respect to Parent or any Subsidiary of Parent in connection with
the execution and delivery of this Agreement by Parent or Merger Sub or
the consummation of the Merger and the other transactions contemplated
hereby, except for those required under or in relation to (A) the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (B) state securities or "blue sky" laws (the "Blue Sky
Laws"), (C) the Securities Act, (D) the Exchange Act, (E) the DGCL with
respect to the filing of the Certificate of Merger, (F) rules and
regulations of the NYSE, (G) antitrust or other competition laws, of the
European Union or other jurisdictions, and (H) such other consents,
approvals, orders, authorizations, registrations, declarations and
filings the failures of which to make or obtain, in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on Parent.
Consents, approvals, orders, authorizations, registrations, declarations
and filings required under or in relation to any of the foregoing
clauses (A) through (G) are hereinafter referred to as "Necessary
Consents."
(d) Reports and Financial Statements.
(i) Parent has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents
required to be filed by it with the SEC since January 1, 2000
(collectively, including all exhibits thereto, the "Parent SEC
Reports"). No Subsidiary of Parent is required to file any form, report,
registration statement, prospectus or other document with the SEC. None
of the Parent SEC Reports, as of their respective dates (and, if amended
or superseded by a filing prior to the date of this Agreement or the
Closing Date, then on the date of such filing), contained or will
contain any untrue statement of a material fact or omitted or will omit
to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading. Each of the financial statements
(including the related notes and schedules) included or incorporated by
reference in the Parent SEC Reports presents fairly, or will present
fairly, in all material respects, the consolidated financial position
and consolidated results of operations, retained earnings and cash flows
of Parent and its consolidated Subsidiaries as of the respective dates
or for the respective periods set forth therein, all in conformity with
generally accepted accounting principles ("GAAP") consistently applied
during the periods involved except as otherwise noted therein, and
subject, in the case of the unaudited interim financial statements, to
the absence of notes and normal year-end adjustments that have not been
and are not expected to be material in amount. All of such Parent SEC
Reports, as of their respective dates (and as of the date of any
amendment to the respective Parent SEC Report), complied as to
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form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder.
(ii) Except as disclosed in the Parent SEC Reports filed prior to
the date hereof, Parent and its Subsidiaries have not incurred any
liabilities that are of a nature that would be required to be disclosed
on a balance sheet of Parent and its Subsidiaries or the footnotes
thereto prepared in conformity with GAAP, other than (A) liabilities
incurred in the ordinary course of business or (B) liabilities that, in
the aggregate, would not reasonably be expected to have a Material
Adverse Effect on Parent.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by Parent
for inclusion or incorporation by reference in (A) the Form S-4 (as
defined in Section 5.1) will, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
(B) the Joint Proxy Statement/Prospectus (as defined in Section 5.1)
will, on the date it is first mailed to the Company stockholders or
Parent stockholders or at the time of the Company Stockholders Meeting
or the Parent Stockholders Meeting (each as defined in Section 5.1),
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. The Form S-4 and the Joint Proxy
Statement/Prospectus will comply as to form in all material respects
with the requirements of the Exchange Act and the Securities Act and the
rules and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section
3.1(e), no representation or warranty is made by Parent with respect to
statements made or incorporated by reference in the Form S-4 or the
Joint Proxy Statement/Prospectus based on information supplied by the
Company for inclusion or incorporation by reference therein.
(f) Board Approval. The Board of Directors of Parent, by resolutions duly
adopted by unanimous vote at a meeting duly called and held and not subsequently
rescinded or modified in any way (the "Parent Board Approval"), has duly (i)
determined that this Agreement and the Merger are advisable and are fair to and
in the best interests of Parent and its stockholders, (ii) approved this
Agreement, the Merger, the Certificate Amendment and the Share Issuance and
(iii) recommended that the stockholders of Parent approve the Share Issuance and
Certificate Amendment and directed that the Share Issuance and the Certificate
Amendment be submitted for consideration by Parent's stockholders at the Parent
Stockholders Meeting.
(g) Vote Required. The affirmative vote of a majority of the votes cast by
the holders of Parent Common Stock, provided that the total votes cast
represents a majority of the outstanding shares of Parent Common Stock, is the
only vote of the holders of any class or series of Parent capital stock
necessary to consummate the Share Issuance. The affirmative vote of a majority
of the outstanding shares of Parent Common Stock is the only vote of the holders
of any class or series of Parent capital stock necessary to consummate the
Certificate Amendment. Other than the votes set forth in this Section 3.1(g),
there are no votes of the holders of any class or series of Parent capital stock
necessary to consummate any of the transactions contemplated hereby.
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(h) Litigation; Compliance with Laws.
(i) Except as disclosed in the Parent SEC Reports filed prior to
the date of this Agreement, there are no suits, actions or proceedings
(collectively "Actions") pending or, to the knowledge of Parent,
threatened, against or affecting Parent or any Subsidiary of Parent
which, in the aggregate, would reasonably be expected to have a Material
Adverse Effect on Parent, nor are there any judgments, decrees,
injunctions, rules or orders of any Governmental Entity or arbitrator
outstanding against Parent or any Subsidiary of Parent which, in the
aggregate, would reasonably be expected to have a Material Adverse
Effect on Parent.
(ii) Except as disclosed in the Parent SEC Reports filed prior to
the date of this Agreement and except as, in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on Parent,
Parent and its Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities which are
necessary for the operation of the businesses of Parent and its
Subsidiaries, taken as a whole (the "Parent Permits"). Parent and its
Subsidiaries are in compliance with the terms of the Parent Permits,
except where the failures to so comply, in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on Parent.
Except as disclosed in the Parent SEC Reports filed prior to the date of
this Agreement, neither Parent nor any of its Subsidiaries is in
violation of, and Parent and its Subsidiaries have not received any
notices of violations with respect to, any laws, ordinances or
regulations of any Governmental Entity, except for violations which, in
the aggregate, would not reasonably be expected to have a Material
Adverse Effect on Parent.
(i) Absence of Certain Changes or Events. Except for liabilities incurred
in connection with this Agreement or the transactions contemplated hereby,
except as disclosed in the Parent SEC Reports filed prior to the date of this
Agreement, and except as permitted by Section 4.1, since March 31, 2002, (i)
Parent and its Subsidiaries have conducted their business only in the ordinary
course; (ii) through the date hereof, there has not been any declaration,
setting aside or payment of any dividend or other distribution in cash, stock or
property in respect of Parent's capital stock, except for dividends or other
distributions on its capital stock publicly announced prior to the date hereof;
(iii) there has not been any action taken by Parent or any of its Subsidiaries
during the period from March 31, 2002 through the date of this Agreement that,
if taken during the period from the date of this Agreement through the Effective
Time would constitute a breach of Section 4.1; and (iv) except as required by
GAAP, there has not been any change by Parent in accounting principles,
practices or methods. Except as disclosed in the Parent SEC Reports filed prior
to the date of this Agreement, since March 31, 2002, there have not been any
changes, circumstances or events (including changes, circumstances or events
involving, impacting or related to development stage products of Parent) which,
in the aggregate, have had, or would reasonably be expected to have, a Material
Adverse Effect on Parent.
(j) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, based upon arrangements made by
or on behalf of Parent, except Lazard Freres & Co. LLC and Bear, Stearns & Co.
Inc., whose fees and expenses will be paid by Parent.
(k) Opinions of Parent Financial Advisors. Parent has received the
opinions of Lazard Freres & Co. LLC and Bear, Stearns & Co. Inc., each dated the
date of this Agreement, to the effect that, as of such date, the Exchange Ratio
is fair to Parent, from a financial point of view, copies of which
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opinions will be promptly delivered to the Company in connection with the
preparation of the necessary regulatory filings.
(l) Employee Benefit Plans. Except as disclosed in the Parent SEC Reports,
there are no Benefit Plans maintained by Parent covering only Parent executive
officers. Each Benefit Plan maintained by Parent has been operated and
administered in accordance with its terms and applicable law, except where
failure to do so would not reasonably be expected to have a Material Adverse
Effect on Parent. The execution of this Agreement and the consummation of the
Merger will not constitute an event under any Benefit Plan maintained by Parent
that will or may result in any payment, acceleration, forgiveness of
indebtedness, vesting, distribution, increase in compensation or benefits or
obligation to fund benefits with respect to any Parent employee which, in the
aggregate, have had, or would reasonably be expected to have, a Material Adverse
Effect on Parent.
(m) Foreign Corrupt Practices and International Trade Sanctions. To
Parent's knowledge, neither Parent, nor any of its Subsidiaries, nor any of
their respective directors, officers, agents, employees or any other Persons
acting on their behalf has, in connection with the operation of their respective
businesses, (i) used any corporate or other funds for unlawful contributions,
payments, gifts or entertainment, or made any unlawful expenditures relating to
political activity to government officials, candidates or members of political
parties or organizations, or established or maintained any unlawful or
unrecorded funds in violation of Section 104 of the Foreign Corrupt Practices
Act of 1977, as amended, (the "FCPA") or any other similar applicable foreign,
Federal or state law, (ii) paid, accepted or received any unlawful
contributions, payments, expenditures or gifts, or (iii) violated or operated in
noncompliance with any export restrictions, anti-boycott regulations, embargo
regulations or other applicable domestic or foreign laws and regulations,
except, in each case, which will not have a Material Adverse Effect on Parent.
(n) No Restrictions on the Merger; Takeover Statutes. The Board of
Directors of Parent has taken all necessary action to render Section 203 of the
DGCL, and any other potentially applicable anti-takeover or similar statute or
regulation or provision of the certificate of incorporation or by-laws, or other
organizational or constitutive document or governing instruments of Parent or
any of its Subsidiaries, inapplicable to this Agreement and the transactions
contemplated hereby.
(o) Environmental Matters.
(i) Except as, in the aggregate, would not reasonably be expected
to have a Material Adverse Effect on Parent and except as disclosed in
the Parent SEC Reports filed prior to the date of this Agreement, (i)
the operations of Parent and its Subsidiaries have been and are in
compliance with all Environmental Laws and with all licenses required by
Environmental Laws, (ii) there are no pending or, to the knowledge of
Parent, threatened, Environmental Claims under or pursuant to
Environmental Laws against Parent or its Subsidiaries or involving any
real property currently or, to the knowledge of Parent, formerly owned,
operated or leased by Parent or its Subsidiaries, (iii) to the knowledge
of Parent, Parent and its Subsidiaries have not incurred any
Environmental Liabilities and no facts, circumstances or conditions
relating to, arising from, associated with or attributable to any real
property currently or, to the knowledge of Parent, formerly owned,
operated or leased by Parent or its Subsidiaries or operations thereon
would reasonably be expected to result in Environmental Liabilities,
(iv) all real property owned and, to the knowledge of Parent, all real
property operated or leased by Parent or its Subsidiaries is free of
contamination from Hazardous Material that would have an adverse effect
on human health or the environment and (v) other than in compliance with
any Environmental Laws, there is not now, nor, to the knowledge of
Parent, has there been in the past, on, in or under any real property
owned, leased or operated by Parent or any of its predecessors (A) any
underground storage
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tanks, regulated pursuant to 40 C.F.R. Part 280 or delegated state
programs, dikes or impoundments containing more than a reportable
quantity of Hazardous Materials, (B) any friable asbestos-containing
materials or (c) any polychlorinated biphenyls.
(ii) For purposes of this Section 3.1(o) and Section 3.2(j) the
following terms shall have the following meanings:
"Environmental Claim" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
directives, orders, claims, liens, investigations, requests for
information, proceedings, or notices of noncompliance or violation
(written or oral) by any person (including, without limitation, any
governmental authority) alleging liability or potential liability
arising out of, based on or resulting from (A) the presence release or
disposal or threatened release or disposal, of any Hazardous Materials
at any location, or (B) circumstances forming the basis of any violation
or alleged violation of any Environmental Law or permit thereunder, or
(C) any and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief
resulting from exposure to or the presence, release, or disposal or
threat thereof of any Hazardous Materials.
"Environmental Law" means any applicable law, regulation, code,
license, permit, order, judgment, decree or injunction promulgated by
any Governmental Entity, (A) for the protection of the environment
(including air, water, soil and natural resources) or (B) regulating the
use, storage, handling, release or disposal of any chemical, material,
waste or hazardous substance.
"Hazardous Material" means any substance listed, defined,
designated or regulated pursuant to any applicable Environmental Law
including petroleum products and byproducts, asbestos and
polychlorinated biphenyls.
"Environmental Liabilities" means all liabilities, actions,
remedial obligations, losses, damages, fines, penalties and sanctions
arising under any Environmental Law.
(p) Intellectual Property. Except as, in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on Parent and except as
disclosed in the Parent SEC Reports filed prior to the date of this Agreement,
(i) Parent and each of its Subsidiaries owns, or is licensed to use (in each
case, free and clear of any Liens), all Intellectual Property used in or
necessary for the conduct of its business as currently conducted; (ii) to the
knowledge of Parent, the use of any Intellectual Property by Parent and its
Subsidiaries does not infringe on or otherwise violate the rights of any Person
and is in accordance with any applicable license pursuant to which Parent or any
Subsidiary acquired the right to use any Intellectual Property; (iii) to the
knowledge of Parent, no Person is challenging, infringing on or otherwise
violating any right of Parent or any of its Subsidiaries with respect to any
Intellectual Property owned by and/or licensed to Parent or its Subsidiaries;
and (iv) neither Parent nor any of its Subsidiaries has received any written
notice or otherwise has knowledge of any pending claim, order or proceeding with
respect to any Intellectual Property used by Parent and its Subsidiaries and to
its knowledge no Intellectual Property owned and/or licensed by Parent or its
Subsidiaries is being used or enforced in a manner that would reasonably be
expected to result in the abandonment, cancellation or unenforceability of such
Intellectual Property. For purposes of this Agreement, "Intellectual Property"
shall mean trademarks, service marks, brand names, certification marks, trade
dress and other indications of origin, the goodwill associated with the
foregoing and registrations in any domestic or foreign jurisdiction of, and
applications in any such jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable
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or not, in any domestic or foreign jurisdiction; patents, applications for
patents (including, without limitation, divisions, continuations, continuations
in part and renewal applications), and any renewals, extensions or reissues
thereof, in any such jurisdiction; nonpublic information, trade secrets and
confidential information and rights in any domestic or foreign jurisdiction to
limit the use or disclosure thereof by any person; writings and other works,
whether copyrightable or not, in any such jurisdiction; and registrations or
applications for registration of copyrights in any domestic or foreign
jurisdiction, and any renewals or extensions thereof; and any similar
intellectual property or proprietary rights.
(q) Taxes
(i) Parent and each of its Subsidiaries has timely filed, or has
caused to be timely filed, all Tax Returns required to be filed, and all
such Tax Returns are true, complete and accurate, except to the extent
any failure to file or any inaccuracies in any filed Tax Returns would
not, individually or in the aggregate, have a Material Adverse Effect on
Parent. All Taxes shown to be due on such Tax Returns, or otherwise
owed, have been or will be timely paid, except to the extent that any
failure to pay, individually or in the aggregate, has not had and would
not reasonably be expected to have a Material Adverse Effect on Parent.
(ii) The most recent financial statements contained in the Parent
SEC Reports reflect an adequate reserve for all Taxes payable by Parent
and its Subsidiaries for all Taxable periods and portions thereof
through the date of such financial statements. No deficiency with
respect to any Taxes has been proposed, asserted or assessed against
Parent or any of its Subsidiaries, and no requests for waivers of the
time to assess any such Taxes are pending, except to the extent any such
deficiency or request for waiver, individually or in the aggregate, has
not had and would not reasonably be expected to have a Material Adverse
Effect on Parent.
(iii) The Federal income Tax Returns of Parent and each of its
Subsidiaries consolidated in such Returns have been examined by and
settled with the United States Internal Revenue Service for all years
through 1995. All material assessments for Taxes due with respect to
such completed and settled examinations or any concluded litigation have
been fully paid.
(iv) There are no material Liens for Taxes (other than for current
Taxes not yet due and payable) on the assets of Parent or any of its
Subsidiaries. Neither Parent nor any of its Subsidiaries is bound by any
Tax sharing agreements with third parties.
(v) Prior to the date of this Agreement, neither Parent nor any of
its Subsidiaries has constituted either a "distributing corporation" or
a "controlled corporation" (within the meaning of Section 355(a)(1)(A)
of the Code) in a distribution intended to qualify for tax-free
treatment under Section 355 of the Code (i) within the one-year period
ending on the date of this Agreement or (ii) which could otherwise
constitute part of a "plan" or "series of related transactions" (within
the meaning of Section 355(e) of the Code) in conjunction with the
Merger.
(vi) For purposes of this Agreement:
(A) "Taxes" includes all forms of taxation, whenever created or
imposed, and whether of the United States or elsewhere, and whether
imposed by a local, municipal, governmental, state, foreign, Federal
or other Governmental Entity, or in connection with any agreement
with respect to Taxes, including all interest, penalties and
additions imposed with respect to such amounts.
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(B) "Tax Return" means all Federal, state, local, provincial and
foreign Tax returns, declarations, statements, reports, schedules,
forms and information returns and any amended Tax return relating to
Taxes.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set
forth in the Company Disclosure Schedule delivered by the Company to Parent
prior to the execution of this Agreement (the "Company Disclosure Schedule")
(each section of which qualifies the correspondingly numbered representation and
warranty or covenant and any other representation or warranty, if the disclosure
set forth in the Company Disclosure Schedule is readily applicable to such other
representation or warranty), the Company represents and warrants to Parent as
follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Each of the Company and each of its Subsidiaries is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has the requisite
corporate (or similar) power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, except
where the failures to be so organized, existing and in good standing or
to have such power and authority, in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on the Company, and is
duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership or leasing of its
properties makes such qualification necessary other than in such
jurisdictions where the failures so to qualify or to be in good standing
in the aggregate would not reasonably be expected to have a Material
Adverse Effect on the Company. The copies of the certificate of
incorporation and bylaws of the Company which were previously furnished
or made available to Parent are true, complete and correct copies of
such documents as in effect on the date of this Agreement. The copies of
the certificate of incorporation and bylaws of the Company which were
previously furnished or made available to Parent are true, complete and
correct copies of such documents as in effect on the date of this
Agreement.
(ii) Exhibit 21 to the Company's Annual Report on Form 10K for the
year ended December 31, 2001 ("Company Exhibit 21") includes all the
Subsidiaries of the Company which as of the date of this Agreement are
Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X of
the SEC). All the outstanding shares of capital stock of, or other
equity interests in, each such Significant Subsidiary have been validly
issued and are fully paid and non-assessable and are, except as set
forth in Company Exhibit 21, owned directly or indirectly by the
Company, free and clear of all Liens and free of any other restriction
(including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests), except for
restrictions imposed by applicable securities laws. Except as set forth
in the Company SEC Reports (as defined in Section 3.2(d)) filed prior to
the date hereof, neither the Company nor any of its Subsidiaries
directly or indirectly owns any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or
entity (other than Subsidiaries), that is or would reasonably be
expected to be material to the Company and its Subsidiaries taken as a
whole.
(b) Capital Structure.
(i) As of March 31, 2002, the authorized capital stock of the
Company consisted of (A) 3,000,000,000 shares of Company Common Stock,
of which 1,295,761,753 shares were outstanding and 189,041,409 shares
were held in the treasury of the Company, (B) 10,000,000 shares of
Preferred Stock, par value $0.01 per share, of which 7,500 have
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been designated as Series B Convertible Perpetual Preferred Stock, of
which 6,357 shares were outstanding and (C) 1,500,000 shares of
Preferred Stock, no par value, which have been designated Series A
Junior Participating Preferred Stock and reserved for issuance upon
exercise of the rights (the "Company Rights") distributed to the holders
of Company Common Stock pursuant to the Amended and Restated Rights
Agreement dated as of February 20, 2001, between the Company and Mellon
Investor Services LLC (the "Company Rights Agreement"). Since March 31,
2002 to the date of this Agreement, there have been no issuances of
shares of the capital stock of the Company or any other securities of
the Company other than issuances of shares of Company Common Stock (and
accompanying Company Rights) pursuant to options or rights outstanding
as of March 31, 2002 under the Benefit Plans of the Company. All issued
and outstanding shares of the capital stock of the Company are duly
authorized, validly issued, fully paid and non-assessable, and no class
of capital stock is entitled to preemptive rights. There were
outstanding as of March 31, 2002 no options, warrants or other rights to
acquire capital stock from the Company other than (x) Company Rights and
(y) options and other rights to acquire capital stock of the Company
representing in the aggregate the right to purchase 76,396,436 shares of
Company Common Stock (collectively, the "Company Stock Options") under
The Pharmacia & Upjohn, Inc. Long-Term Incentive Plan, The Pharmacia
Corporation Management Incentive Plan, 2000 Operations Committee
Incentive Plan, The Pharmacia Corporation 2001 Long Term Incentive Plan,
The Operations Committee Incentive Plan -- 2001 Long Term Incentive Plan
and the Employee Stock Purchase Plan -- 2001 Long Term Incentive Plan
(collectively, the "Company Stock Option Plans"). Section 3.2(b) of the
Company Disclosure Schedule sets forth a complete and correct list, as
of March 31, 2002, of the number of shares of Company Common Stock
subject to Company Stock Options or other rights to purchase or receive
Company Common Stock granted under the Company Benefit Plans or
otherwise, the dates of grant and the exercise prices thereof. No
options or warrants or other rights to acquire capital stock from the
Company have been issued or granted since March 31, 2002 to the date of
this Agreement.
(ii) No bonds, debentures, notes or other indebtedness of the
Company having the right to vote (or convertible into or exercisable for
securities having the right to vote) on any matters on which holders of
capital stock of the Company may vote ("Company Voting Debt") are issued
or outstanding.
(iii) Except as otherwise set forth in this Section 3.2(b), as of
the date of this Agreement, there are no securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of
any kind to which the Company or any of its Subsidiaries is a party or
by which any of them is bound obligating the Company or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock or other voting securities
of the Company or any of its Subsidiaries or obligating the Company or
any of its Subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. As of the date of this Agreement, there are
no outstanding obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of
the Company or any of its Subsidiaries. There are not outstanding any
stock-appreciation rights, security-based performance units, "phantom"
stock or other security rights or other agreements, arrangements or
commitments of any character (contingent or otherwise) pursuant to which
any Person is or may be entitled to receive any payment or other value
based on the revenues, earnings or financial performance, stock price
performance or other attribute of the Company or any of its Subsidiaries
or assets or calculated in accordance therewith (other than ordinary
course payments or commissions to
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sales representatives of the Company based upon revenues generated by
them without augmentation as a result of the transactions contemplated
hereby) or to cause the Company or any of its Subsidiaries to file a
registration statement under the Securities Act or which otherwise
relate to the registration of any securities of the Company or its
Subsidiaries.
(c) Authority; No Conflicts.
(i) The Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions
contemplated hereby, subject in the case of the consummation of the
Merger to the adoption of this Agreement by the Company Stockholder
Approval (as defined in Section 3.2(g)). The execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on
the part of the Company, subject in the case of the consummation of the
Merger to the adoption of this Agreement by the Company Stockholder
Approval. This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding agreement of the Company,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally
or by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement by the Company
does not or will not, as the case may be, and the consummation by the
Company of the Merger and the other transactions contemplated hereby
will not, conflict with, or result in a Violation pursuant to: (A) any
provision of the certificate of incorporation or bylaws of the Company
or any Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
of the SEC) of the Company or (B) except as, in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the Company
or, subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in
paragraph (iii) below, any loan or credit agreement, note, mortgage,
bond, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the
Company or any Subsidiary of the Company or their respective properties
or assets.
(iii) No consent, approval, order or authorization of, clearance
by, or registration, declaration or filing with, any Governmental Entity
is required by or with respect to the Company or any Subsidiary of the
Company in connection with the execution and delivery of this Agreement
by the Company or the consummation of the Merger and the other
transactions contemplated hereby, except the Necessary Consents and such
other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain, in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect on the Company.
(d) Reports and Financial Statements.
(i) The Company has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents
required to be filed by it with the SEC since January 1, 2000
(collectively, including all exhibits thereto, the "Company SEC
Reports"). No Subsidiary of the Company is required to file any form,
report, registration statement or prospectus or other document with the
SEC. None of the Company SEC Reports, as of their respective dates (and,
if amended or superseded by a filing prior to the date of this Agreement
or the Closing Date, then on the date of such filing), contained or
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will contain any untrue statement of a material fact or omitted or will
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading. Each of the financial statements
(including the related notes and schedules) included or incorporated by
reference in the Company SEC Reports presents fairly, or will present
fairly, in all material respects, the consolidated financial position
and consolidated results of operations, retained earnings and cash flows
of the Company and its consolidated Subsidiaries as of the respective
dates or for the respective periods set forth therein, all in conformity
with GAAP consistently applied during the periods involved except as
otherwise noted therein, and subject, in the case of the unaudited
interim financial statements, to the absence of notes and normal and
recurring year-end adjustments that have not been and are not expected
to be material in amount. All of such Company SEC Reports, as of their
respective dates (and as of the date of any amendment to the respective
Company SEC Report), complied as to form in all material respects with
the applicable requirements of the Securities Act and the Exchange Act
and the rules and regulations promulgated thereunder.
(ii) Except as disclosed in the Company SEC Reports filed prior to
the date hereof, the Company and its Subsidiaries have not incurred any
liabilities that are of a nature that would be required to be disclosed
on a balance sheet of the Company and its Subsidiaries or the footnotes
thereto prepared in conformity with GAAP, other than (A) liabilities
incurred in the ordinary course of business, or (B) liabilities that, in
the aggregate, would not reasonably be expected to have a Material
Adverse Effect on the Company.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by the
Company for inclusion or incorporation by reference in (A) the Form S-4
will, at the time the Form S-4 is filed with the SEC, at any time it is
amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and (B) the Joint Proxy
Statement/Prospectus will, on the date it is first mailed to the Company
stockholders or Parent stockholders or at the time of the Company
Stockholders Meeting or the Parent Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The Form S-4 and the Joint Proxy Statement/
Prospectus will comply as to form in all material respects with the
requirements of the Exchange Act and the Securities Act and the rules
and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section
3.2(e), no representation or warranty is made by the Company with
respect to statements made or incorporated by reference in the Form S-4
or the Joint Proxy Statement/Prospectus based on information supplied by
Parent or Merger Sub for inclusion or incorporation by reference
therein.
(f) Board Approval. The Board of Directors of the Company, by resolutions
duly adopted by unanimous vote of those voting at a meeting duly called and held
and not subsequently rescinded or modified in any way (the "Company Board
Approval"), has duly (i) determined that this Agreement and the Merger are
advisable and are fair to and in the best interests of the Company and its
stockholders, (ii) approved this Agreement and the Merger and (iii) recommended
that the stockholders of the Company adopt this Agreement and directed that this
Agreement and the transactions contemplated hereby be submitted for
consideration by the Company's stockholders at the Company Stockholders Meeting.
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(g) Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Company Common Stock and Company Convertible Preferred
Stock (voting together with the Company Common Stock on an as converted basis)
to adopt this Agreement (the "Company Stockholder Approval") is the only vote of
the holders of any class or series of the Company capital stock necessary to
consummate the transactions contemplated hereby.
(h) Litigation; Compliance with Laws.
(i) Except as disclosed in the Company SEC Reports filed prior to
the date of this Agreement, there are no Actions pending or, to the
knowledge of the Company, threatened, against or affecting the Company
or any Subsidiary of the Company which, in the aggregate, would
reasonably be expected to have a Material Adverse Effect on the Company,
nor are there any judgments, decrees, injunctions, rules or orders of
any Governmental Entity or arbitrator outstanding against the Company or
any Subsidiary of the Company which, in the aggregate, would reasonably
be expected to have a Material Adverse Effect on the Company.
(ii) Except as disclosed in the Company SEC Reports filed prior to
the date of the Agreement and except as would, in the aggregate, not
reasonably be expected to have a Material Adverse Effect on the Company,
the Company and its Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities which are
necessary for the operation of the businesses of the Company and its
Subsidiaries, taken as a whole (the "Company Permits"). The Company and
its Subsidiaries are in compliance with the terms of the Company
Permits, except where the failures to so comply, in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on the
Company. Except as disclosed in the Company SEC Reports filed prior to
the date of this Agreement, neither the Company nor any of its
Subsidiaries is in violation of, and the Company and its Subsidiaries
have not received any notices of violations with respect to, any laws,
ordinances or regulations of any Governmental Entity, except for
violations which, in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on the Company.
(i) Absence of Certain Changes or Events. Except for liabilities incurred
in connection with this Agreement or the transactions contemplated hereby,
except as disclosed in the Company SEC Reports filed prior to the date of this
Agreement, and except as permitted by Section 4.2, since March 31, 2002, (i) the
Company and its Subsidiaries have conducted their business only in the ordinary
course; (ii) through the date hereof, there has not been any declaration,
setting aside or payment of any dividend or other distribution in cash, stock or
property in respect of the Company's capital stock, except for dividends or
other distributions on its capital stock publicly announced prior to the date
hereof; (iii) there has not been any action by the Company or any of its
Subsidiaries during the period from March 31, 2002 through the date of this
Agreement that, if taken during the period from the date of this Agreement
through the Effective Time would constitute a breach of Section 4.2; and (iv)
except as required by GAAP, there has not been any change by the Company in
accounting principles, practices or methods. Except as disclosed in the Company
SEC Reports filed prior to the date of this Agreement, since March 31, 2002,
there have not been any changes, circumstances or events (including changes,
circumstances or events involving, impacting or related to development stage
products of the Company) which, in the aggregate, have had, or would reasonably
be expected to have, a Material Adverse Effect on the Company.
(j) Environmental Matters. Except as, in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the Company and
except as disclosed in the Company SEC Reports filed prior to the date of this
Agreement, (i) the operations of the Company and its
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Subsidiaries have been and are in compliance with all Environmental Laws and
with all licenses required by Environmental Laws, (ii) there are no pending or,
to the knowledge of the Company, threatened, Environmental Claims under or
pursuant to Environmental Laws against the Company or its Subsidiaries or
involving any real property currently or, to the knowledge of the Company,
formerly owned, operated or leased by the Company or its Subsidiaries, (iii) to
the knowledge of the Company, the Company and its Subsidiaries have not incurred
any Environmental Liabilities and no facts, circumstances or conditions relating
to, arising from, associated with or attributable to any real property currently
or, to the knowledge of the Company, formerly owned, operated or leased by the
Company or its Subsidiaries or operations thereon would reasonably be expected
to result in Environmental Liabilities, (iv) all real property owned and, to the
knowledge of the Company, all real property operated or leased by the Company or
its Subsidiaries is free of contamination from Hazardous Material that would
have an adverse effect on human health or the environment and (v) other than in
compliance with any Environmental Laws, there is not now, nor, to the knowledge
of the Company, has there been in the past, on, in or under any real property
owned, leased or operated by the Company or any of its predecessors (A) any
underground storage tanks, regulated pursuant to 40 C.F.R. Part 280 or delegated
state programs, dikes or impoundments containing more than a reportable quantity
of Hazardous Materials, (B) any friable asbestos-containing materials or (c) any
polychlorinated biphenyls.
(k) Intellectual Property. Except as, in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the Company and
except as disclosed in the Company SEC Reports filed prior to the date of this
Agreement, (i) the Company and each of its Subsidiaries owns, or is licensed to
use (in each case, free and clear of any Liens), all Intellectual Property used
in or necessary for the conduct of its business as currently conducted; (ii) to
the knowledge of the Company, the use of any Intellectual Property by the
Company and its Subsidiaries does not infringe on or otherwise violate the
rights of any Person and is in accordance with any applicable license pursuant
to which the Company or any Subsidiary acquired the right to use any
Intellectual Property; (iii) to the knowledge of the Company, no Person is
challenging, infringing on or otherwise violating any right of the Company or
any of its Subsidiaries with respect to any Intellectual Property owned by
and/or licensed to the Company or its Subsidiaries; and (iv) neither the Company
nor any of its Subsidiaries has received any written notice or otherwise has
knowledge of any pending claim, order or proceeding with respect to any
Intellectual Property used by the Company and its Subsidiaries and to its
knowledge no Intellectual Property owned and/or licensed by the Company or its
Subsidiaries is being used or enforced in a manner that would reasonably be
expected to result in the abandonment, cancellation or unenforceability of such
Intellectual Property.
(l) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, based upon arrangements made by
or on behalf of the Company, except Goldman, Sachs & Co., whose fees and
expenses will be paid by the Company.
(m) Opinions of the Company Financial Advisor. The Company has received
the opinion of Goldman, Sachs & Co., dated the date of this Agreement, to the
effect that, as of such date, the Exchange Ratio is fair, from a financial point
of view, to the holders of Company Common Stock, copies of which opinions will
promptly be provided to Parent.
(n) Taxes.
(i) The Company and each of its Subsidiaries has timely filed, or
has caused to be timely filed, all Tax Returns required to be filed, and
all such Tax Returns are true, complete and accurate, except to the
extent any failure to file or any inaccuracies in any
A-23
filed Tax Returns would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. All Taxes shown to be due on
such Tax Returns, or otherwise owed, have been or will be timely paid,
except to the extent that any failure to pay, individually or in the
aggregate, has not had and would not reasonably be expected to have a
Material Adverse Effect on the Company.
(ii) The most recent financial statements contained in the Company
SEC Reports reflect an adequate reserve for all Taxes payable by the
Company and its Subsidiaries for all Taxable periods and portions
thereof through the date of such financial statements. No deficiency
with respect to any Taxes has been proposed, asserted or assessed
against the Company or any of its Subsidiaries, and no requests for
waivers of the time to assess any such Taxes are pending, except to the
extent any such deficiency or request for waiver, individually or in the
aggregate, has not had and would not reasonably be expected to have a
Material Adverse Effect on the Company.
(iii) The Federal income Tax Returns of the Company and each of its
Subsidiaries consolidated in such Returns have been examined by and
settled with the United States Internal Revenue Service for all years
through 1995. All material assessments for Taxes due with respect to
such completed and settled examinations or any concluded litigation have
been fully paid.
(iv) There are no material Liens for Taxes (other than for current
Taxes not yet due and payable) on the assets of the Company or any of
its Subsidiaries. Neither the Company nor any of its Subsidiaries is
bound by any Tax sharing agreements with third parties.
(v) Prior to the date of this Agreement, neither the Company nor
any of its Subsidiaries has constituted either a "distributing
corporation" or a "controlled corporation" (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution intended to qualify
for tax-free treatment under Section 355 of the Code (i) within the
one-year period ending on the date of this Agreement or (ii) which could
otherwise constitute part of a "plan" or "series of related
transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
(vi) The Company's aggregate adjusted Federal income tax basis in
its shares of Monsanto common stock is currently, and at the time of the
Monsanto Spin-Off or Monsanto Sale Transaction (as defined in Section
5.16) occurs, will be, no less than $ 7 billion.
(o) Certain Contracts. As of the date hereof, except as set forth in the
Company SEC Reports filed prior to the date of this Agreement or set forth on
Section 3.2(o) of the Company Disclosure Schedule, neither the Company nor any
of its Subsidiaries is a party to or bound by any "material contracts" (as such
term is defined in Item 601(b)(10) of Regulation S-K of the SEC). Except as set
forth on Schedule 3.2(o) of the Company Disclosure Schedule, neither the Company
nor any of its Subsidiaries is a party to or bound by any non-competition
agreements or any other agreements or arrangements that limit or otherwise
restrict the Company or any of its Subsidiaries or any of their respective
affiliates or any successor thereto or that would, after the Effective Time, to
the knowledge of the Company, limit or restrict Parent or any of its affiliates
(including the Surviving Corporation) or any successor thereto, from engaging or
competing in any line of business or in any geographic area or, in the case of
the pharmaceutical business, any therapeutic area, class of drugs or mechanism
of action, that relate to the top 25 marketed products or any development stage
product currently in Phase III.
A-24
(p) Employee Benefit Plans. Section 3.2(p) of the Company Disclosure
Schedule, sets forth all U.S. Benefit Plans maintained by the Company or any of
its Subsidiaries; all Benefit Plans maintained by the Company or any of its
Subsidiaries outside the U.S. will be listed on Schedule 3.2(p) by the Company
within seven (7) Business Days of the date of this Agreement. Except as
disclosed in the Company SEC Reports, there are no Benefit Plans maintained by
the Company (each, a "Company Benefit Plan") covering only the Company executive
officers. Each Company Benefit Plan has been operated and administered in
accordance with its terms and applicable law, except where failure to do so
would not reasonably be expected to have a Material Adverse Effect on the
Company. The execution of this Agreement and the consummation of the Merger will
not constitute an event under any Company Benefit Plan that will or may result
in any payment, acceleration, termination, forgiveness of indebtedness, vesting,
distribution, increase in compensation or benefits or obligation to fund
benefits with respect to any Company employee which, in the aggregate, have had,
or would reasonably be expected to have, a Material Adverse Effect on the
Company.
(q) Labor Matters. Except where failure to comply would not reasonably be
expected to have a Material Adverse Effect on the Company, the Company is and
has been in compliance with all applicable laws of the United States, or of any
state or local government or any subdivision thereof or of any foreign
government respecting employment and employment practices, terms and conditions
of employment and wages and hours, including, without limitation, ERISA, the
Code, the Immigration Reform and Control Act, the WARN Act, any laws respecting
employment discrimination, sexual harassment, disability rights or benefits,
equal opportunity, plant closure issues, affirmative action, workers'
compensation, employee benefits, severance payments, COBRA, labor relations,
employee leave issues, wage and hour standards, occupational safety and health
requirements and unemployment insurance and related matters, and is not engaged
in any unfair labor practices.
(r) Foreign Corrupt Practices and International Trade Sanctions. To the
Company's knowledge, neither the Company, nor any of its Subsidiaries, nor any
of their respective directors, officers, agents, employees or any other Persons
acting on their behalf has, in connection with the operation of their respective
businesses, (i) used any corporate or other funds for unlawful contributions,
payments, gifts or entertainment, or made any unlawful expenditures relating to
political activity to government officials, candidates or members of political
parties or organizations, or established or maintained any unlawful or
unrecorded funds in violation of Section 104 of the FCPA or any other similar
applicable foreign, Federal or state law, (ii) paid, accepted or received any
unlawful contributions, payments, expenditures or gifts, or (iii) violated or
operated in noncompliance with any export restrictions, anti-boycott
regulations, embargo regulations or other applicable domestic or foreign laws
and regulations except, in each case, which will not have a Material Adverse
Effect on the Company.
(s) Company Stockholder Rights Plan. The Board of Directors of the Company
has amended the Company Rights Agreement (the "Rights Agreement Amendment") in
accordance with its terms to render it inapplicable to the transactions
contemplated by this Agreement. The Company has delivered to the Parent a true
and correct copy of the Rights Agreement Amendment.
(t) Compliance with Co-Promotion Agreements. The Company has delivered to
Parent all material documents filed with governmental authorities as required to
be provided to Parent pursuant to the terms of the U.S. Collaboration Agreement
(Second Generation), dated as of February 18, 1998, by and among, Parent, the
Company (as successor to Monsanto Company) and G.D. Searle & Co., the U.S.
Collaboration Agreement (Celecoxib), dated as of February 18, 1998, by and
among, Parent, the Company (as successor to Monsanto Company) and G.D. Searle &
Co., and any other agreements among Parent, the Company and G.D. Searle & Co.
with respect to Cox-2 Second Generation drugs and Celocoxib (collectively, the
"Co-Promotion Agreements"). To the knowledge
A-25
of the Company, these documents comprise all information that would be material
to an evaluation of the safety and efficacy of the Cox-2 Second Generation drugs
and Celocoxib.
(u) Monsanto Documents. All material agreements (whether written or oral)
between the Company and Monsanto have been disclosed in the Company SEC Reports
and there has not been any material amendment or change to any such agreements
and the Company has not entered into any new material agreements (whether
written or oral) with Monsanto since March 31, 2002.
(v) No Restrictions on the Merger; Takeover Statutes. The Board of
Directors of the Company has taken all necessary action to render Section 203 of
the DGCL, and any other potentially applicable anti-takeover or similar statute
or regulation or provision of the certificate of incorporation or by-laws, or
other organizational or constitutive document or governing instruments of the
Company or any of its Subsidiaries, inapplicable to this Agreement and the
transactions contemplated hereby.
SECTION 3.3 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB. Parent and Merger Sub represent and warrant to the Company as follows:
(a) Organization. Merger Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware. Merger Sub is a direct
wholly-owned subsidiary of Parent.
(b) Corporate Authorization. Merger Sub has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Merger Sub of
this Agreement and the consummation by Merger Sub of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Merger Sub. This Agreement has been duly executed and delivered
by Merger Sub and constitutes a valid and binding agreement of Merger Sub,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors generally
or by general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law). The copies of the certificate
of incorporation and bylaws of Merger Sub which were previously furnished or
made available to the Company are true, complete and correct copies of such
documents as in effect on the date of this Agreement.
(c) Non-Contravention. The execution, delivery and performance by Merger
Sub of this Agreement and the consummation by Merger Sub of the transactions
contemplated hereby do not and will not contravene or conflict with the
certificate of incorporation or bylaws of Merger Sub or any law binding on
Merger Sub.
(d) No Business Activities. Merger Sub has not conducted any activities
other than in connection with the organization of Merger Sub, the negotiation
and execution of this Agreement and the consummation of the transactions
contemplated hereby. Merger Sub has no Subsidiaries.
(e) Capitalization of Merger Sub. The authorized capital stock of Merger
Sub consists of 1,000 shares of common stock, par value $0.01 per share, all of
which are validly issued and outstanding. All of the issued and outstanding
capital stock of Merger Sub is, and at the Effective Time will be, owned by
Parent, and there are (i) no other shares of capital stock or voting securities
of Merger Sub, (ii) no securities of Merger Sub convertible into or exchangeable
for shares of capital stock or voting securities of Merger Sub and (iii) no
options or other rights to acquire from Merger Sub, and no obligations of Merger
Sub to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of Merger Sub.
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ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 COVENANTS OF PARENT. During the period from the date of this
Agreement and continuing until the Effective Time, Parent agrees as to itself
and its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as disclosed in the Parent Disclosure Schedule or as required by a
Governmental Entity of competent jurisdiction or to the extent that the Company
shall otherwise consent in writing):
(a) Ordinary Course. Parent and its Subsidiaries shall carry on their
respective businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and shall
use reasonable best efforts to preserve intact their present lines of business,
maintain their rights and franchises and preserve their relationships with
customers, suppliers and others having business dealings with them; provided,
however, that no action by Parent or its Subsidiaries with respect to matters
specifically permitted by any other provision of this Section 4.1 shall be
deemed a breach of this Section 4.1(a) unless such action would constitute a
breach of one or more of such other provisions.
(b) Dividends. Parent shall not, and shall not permit any of its
Subsidiaries to, and shall not propose to, declare or pay any dividends or
distributions on or make other distributions in respect of any of its capital
stock, except (i) the declaration and payment of regular quarterly cash
dividends not in excess of the amount set forth in Section 4.1(b) of the Parent
Disclosure Schedule per share of Parent Common Stock with usual record and
payment dates for such dividends in accordance with past dividend practice and
(ii) for dividends by wholly owned Subsidiaries of Parent.
(c) Governing Documents. Except to the extent required to comply with
applicable law or their obligations hereunder, Parent and Merger Sub shall not
amend or propose to so amend their respective certificates of incorporation,
bylaws or other governing documents.
(d) No Acquisitions. Other than (i) acquisitions disclosed on the Parent
Disclosure Schedule and (ii) acquisitions for cash in existing or related lines
of business of Parent the fair market value of the total consideration
(including the value of indebtedness acquired or assumed) for which does not
exceed the amount that would be material to the business and assets of the
Parent and its Subsidiaries, taken as a whole, Parent shall not, and shall not
permit any of its Subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business
(including by acquisition of assets) or any corporation, partnership,
association or business organization or division thereof; provided, however,
that acquisitions that would otherwise be permitted under clause (ii) of this
Section 4.1(d) shall be prohibited if they, individually or in the aggregate,
present (x) a risk of making it materially more difficult to obtain any approval
or authorization required in order to meet the conditions set forth in Sections
6.1(c) and 6.1(f) or (y) a risk of materially delaying or impairing the
consummation of the Merger; and provided, further, however, that nothing in this
Section 4.1(d) shall prohibit (x) internal reorganizations or consolidations
involving existing Subsidiaries of Parent or (y) the creation of new
Subsidiaries of Parent organized to conduct or continue activities otherwise
permitted by this Agreement. Parent and its Subsidiaries shall not enter into
any joint venture, license or alliance or jointly promote, market or develop any
products with any other Person if such actions, individually or in the
aggregate, present (x) a risk of making it materially more difficult to obtain
any approval or authorization required in order to meet the conditions set forth
in Sections 6.1(c) and 6.1(f) or (y) a risk of materially delaying or impairing
the consummation of the Merger.
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(e) Accounting Methods. Except as disclosed in Parent SEC Reports filed
prior to the date of this Agreement, or as required by a Governmental Entity,
Parent shall not change its methods of accounting in effect at March 31, 2002,
except as required by changes in GAAP as concurred in by Parent's independent
public accountants.
(f) No Related Actions. Parent will not, and will not permit any of its
Subsidiaries to, agree or commit to do any of the foregoing.
SECTION 4.2 COVENANTS OF THE COMPANY. During the period from the date of
this Agreement and continuing until the Effective Time, the Company agrees as to
itself and its Subsidiaries that (except as expressly contemplated or permitted
by this Agreement, as disclosed in the Company Disclosure Schedule or as
required by a Governmental Entity of competent jurisdiction or to the extent
that Parent shall otherwise consent in writing):
(a) Ordinary Course.
(i) The Company and its Subsidiaries shall carry on their
respective businesses in the usual, regular and ordinary course in all
material respects, in substantially the same manner as heretofore
conducted, and shall use reasonable best efforts to preserve intact
their present lines of business, maintain their rights and franchises
and preserve their relationships with customers, suppliers and others
having business dealings with them; provided, however, that no action by
the Company or its Subsidiaries with respect to matters specifically
permitted by any other provision of this Section 4.2 shall be deemed a
breach of this Section 4.2(a)(i) unless such action would constitute a
breach of one or more of such other provisions.
(ii) Other than in connection with acquisitions and activities
permitted by Section 4.2(e), the Company shall not, and shall not permit
any of its Subsidiaries to, (A) enter into any licensing agreement,
except for licensing agreements set forth in Section 4.2(a)(ii) of the
Company Disclosure Schedule and, subject to Section 4.2(e), any
licensing agreement relating to the non-pharmaceutical licenses of the
Company entered into in the ordinary course of business, (B) enter into
or terminate any "material contract" as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC or agreement or make any change
in any material lease or contract, other than in the ordinary course of
business; (C) enter into any new line of business; (D) incur or commit
to any capital expenditures or any obligations or liabilities in
connection therewith other than Permitted Capital Expenditures (as
defined below) and obligations or liabilities in connection therewith,
(E) with respect to the pharmaceutical and consumer healthcare
businesses, enter into any contract, agreement or other arrangement for
the sale of products or inventories or for the furnishing of services by
the Company or any of its Subsidiaries which contract, agreement or
other arrangement involves amounts or expenditures in excess of $20
million or which may give rise to commitments which may extend beyond
twelve months from the date of such contract, agreement or arrangement,
unless, such contract, agreement or arrangement can be terminated by the
Company or its Subsidiary, as the case may be, by giving less than 60
days' notice and without incurring an obligation to pay any material
premium or penalty or suffering any other material detriment, or (F)
with respect to the pharmaceutical business, enter into an agreement to
provide rebates or discounts to public, governmental, or private
entities, unless such agreement is able to be terminated within one year
without penalty and the rebates or discounts therein do not differ
significantly from prior arrangements or agreements. As used herein, a
"Permitted Capital Expenditure" is a capital expenditure which (i) is
set forth on a Capital Expenditure Schedule to be delivered by the
Company as contemplated by the Company Disclosure Schedule or (ii) is
(A) less than $20 million in the case of any single expenditure or
A-28
related series of expenditures and (B) $100 million in the aggregate for
all capital expenditures incurred pursuant to this clause (ii) and not
clause (i). The Company will deliver to Parent on a quarterly basis a
schedule of actual capital expenditures made.
(b) Dividends; Changes in Share Capital. The Company shall not, and shall
not permit any of its Subsidiaries to, and shall not propose to, (i) declare or
pay any dividends on or make other distributions in respect of any of its
capital stock, except (A) the declaration and payment of regular quarterly cash
dividends not in excess of $0.135 per share of Company Common Stock and 6.25% of
the per share stated value per annum per share of (x) Series B Preferred Stock
or (y) Company Convertible Preferred Stock, in each case, with usual record and
payment dates for such dividends in accordance with past dividend practice; (B)
dividends or distributions by wholly owned Subsidiaries of the Company, (C)
dividends or distributions from Monsanto to the Company, and (D) any stock
dividend or distribution by the Company to effect the Monsanto Spin-Off; (ii)
split, combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock, except for any such transaction
by a wholly owned Subsidiary of the Company which remains a wholly owned
Subsidiary after consummation of such transaction, or (iii) repurchase, redeem
or otherwise acquire any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock except (I)
for the exchange of the Series B Preferred Stock in connection with the issuance
of the Company Convertible Preferred Stock, (II) for the purchase from time to
time by the Company of Company Common Stock (and the associated Company Rights)
in the ordinary course of business consistent with past practice in connection
with the Company Benefit Plans and (III) for the redemption or exchange of
Company Rights in accordance with Company Rights Agreement.
(c) Issuance of Securities. The Company shall not, and shall not permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class, any
Company Voting Debt or any securities convertible into or exercisable for, or
any rights, warrants, calls or options to acquire, any such shares or Company
Voting Debt, or enter into any commitment, arrangement, undertaking or agreement
with respect to any of the foregoing, other than (i) the issuance of Company
Common Stock (and the associated Company Rights) upon the exercise of Company
Stock Options or in connection with the Company Benefit Plans, in each case, in
accordance with their present terms or pursuant to Company Stock Options or
other stock based awards granted pursuant to clause (iii) below, (ii) issuances
by a wholly owned Subsidiary of the Company of capital stock to such
Subsidiary's parent or another wholly owned Subsidiary of the Company, (iii) the
granting of Company Stock Options or other stock based awards to acquire shares
of Company Common Stock granted under the Company Benefit Plans in the ordinary
course of business consistent with past practice, (iv) pursuant to acquisitions
set forth on the Company Disclosure Schedule, (v) issuances in accordance with
Company Rights Agreement or (vi) the issuance of the Company Convertible
Preferred Stock in accordance with the terms and provisions of Section 4.7.
(d) Governing Documents. Except to the extent required to comply with its
obligations hereunder or with applicable law, the Company shall not amend or
propose to so amend its certificate of incorporation or bylaws.
(e) No Acquisitions. Other than (i) acquisitions disclosed on the Company
Disclosure Schedule and (ii) acquisitions for cash in existing or related lines
of business of the Company and its Subsidiaries, the fair market value of the
total consideration (including the value of indebtedness acquired or assumed)
for which does not exceed $20 million for any individual acquisition, or $100
million in the aggregate for all such acquisitions, the Company shall not, and
shall not permit any of its Subsidiaries to, acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity interest in
or a substantial portion of the assets of, or by any other manner, any
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business (including by acquisition of assets) or any corporation, partnership,
association or other business organization or division thereof; provided,
however, that the acquisitions that would otherwise be permitted under clause
(ii) of this Section 4.2(e) shall be prohibited if they, individually or in the
aggregate, present (x) a risk of making it materially more difficult to obtain
any approval or authorization required in order to meet the conditions set forth
in Sections 6.1(c) and 6.1(f) or (y) a risk of materially delaying or impairing
the consummation of the Merger; and provided, further, however, that nothing in
this Section 4.2(e) prohibit (x) internal reorganizations or consolidations
involving existing Subsidiaries of the Company or (y) the creation of new
Subsidiaries of the Company organized to conduct or continue activities
otherwise permitted by this Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of the Company, (ii) dispositions
referred to in the Company SEC Reports filed prior to the date of this
Agreement, (iii) as may be required by or in conformance with law or regulation
in order to permit or facilitate the consummation of the transactions
contemplated hereby or the transactions disclosed in the Company Disclosure
Schedule, (iv) the sale or disposition of assets or stock of Monsanto, or (v)
the Monsanto Spin-Off, the Company shall not, and shall not permit any of its
Subsidiaries to, sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets (including capital stock of Subsidiaries
of the Company but excluding inventory in the ordinary course of business), if
the fair market value of the total consideration (including the value of the
indebtedness acquired or assumed) therefor exceeds $20 million for any
individual disposition, or $100 million in the aggregate for all such
dispositions.
(g) Investments; Indebtedness. The Company shall not, and shall not permit
any of its Subsidiaries to, other than in connection with actions permitted by
Section 4.2(e), (i) make any loans, advances or capital contributions to, or
investments in, any other Person, other than (x) by the Company or a Subsidiary
of the Company to or in the Company or any Subsidiary of the Company, (y)
pursuant to any contract or other legal obligation of the Company or any of its
Subsidiaries existing at the date of this Agreement or (z) in the ordinary
course of business consistent with past practice in an aggregate amount not in
excess of $100 million in the aggregate (provided that none of such transactions
referred to in this clause (z) presents a material risk of making it more
difficult to obtain any approval or authorization required in connection with
the Merger under Regulatory Laws) or (ii) create, incur, assume or suffer to
exist any indebtedness, issuances of debt securities, guarantees, loans or
advances not in existence as of the date of this Agreement except pursuant to
the credit facilities, indentures and other arrangements in existence on the
date of this Agreement or in the ordinary course of business consistent with
past practice, in each case as such credit facilities, indentures and other
arrangements and other existing indebtedness may be amended, extended, modified,
refunded, renewed or refinanced after the date of this Agreement; provided that
any outstanding borrowings or debt under such credit facilities, indentures and
other arrangements shall not exceed $250 million, in the aggregate.
(h) Compensation. Other than as contemplated by Sections 4.2(c) or 4.2(h)
of the Company Disclosure Schedule, the Company shall not increase the amount of
compensation of any director, executive officer or employee, make any increase
in or commitment to increase any employee benefits, issue any additional Company
Stock Options, adopt or make any commitment to adopt any additional employee
benefit plan or make any contribution, other than regularly scheduled
contributions, to any Company Benefit Plan and, in the case of any of the
foregoing, except, in any case, in the ordinary course of business consistent
with past practice or as required by an existing agreement.
(i) Accounting Methods; Income Tax Elections. Except as disclosed in the
Company SEC Reports filed prior to the date of this Agreement, or as required by
a Governmental Entity, the Company shall not change its methods of accounting in
effect at March 31, 2002, except as required
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by changes in GAAP as concurred in by the Company's independent public
accountants. The Company shall not (i) change its fiscal year or (ii) make or
change any material tax election, settle or compromise any material tax
liability or claim for refund, without the prior written consent of Parent.
(j) Certain Agreements. The Company shall not, and shall not permit any of
its Subsidiaries to, enter into any agreements or arrangements that limit or
otherwise restrict the Company or any of its Subsidiaries or any of their
respective affiliates or any successor thereto, or that could, after the
Effective Time, limit or restrict Parent or any of its affiliates (including the
Surviving Corporation) or any successor thereto, from engaging or competing in
any line of business or in any geographic area or, in the case of the
pharmaceutical business, any therapeutic area, class of drugs or mechanism of
action which agreements or arrangements, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on Parent and its
Subsidiaries (including the Surviving Corporation and its Subsidiaries), taken
together, after giving effect to the Merger.
(k) Monsanto Separation Agreements. Neither the Company nor its
Subsidiaries shall amend, modify, alter, supplement or terminate the Separation
Agreement, the Tax Sharing Agreement, the Corporate Agreement, the Intellectual
Property Transfer Agreement, the Services Agreement or the Employee Benefits and
Compensation Allocation Agreement, each agreement dated as of September 1, 2000
and by and between the Company and Monsanto and the Protocol Agreement, dated as
of July 1, 2002, by and among the Company, Monsanto and Solutia Inc.
(collectively and each as amended through the date hereof, the "Separation
Agreements"), other than, in any such case, for technical or ministerial
amendments necessary or appropriate to effect the Monsanto Spin-Off.
(l) Settlement of Litigation. The Company shall not settle or compromise
any material action, suit or claim, or enter into any consent decree, injunction
or similar restraint or form of equitable relief in settlement of any material
action, suit or claim.
(m) No Related Actions. The Company will not, and will not permit any of
its Subsidiaries to, agree or commit to any of the foregoing.
SECTION 4.3 MONSANTO INDEBTEDNESS.
(a) The Company will use its reasonable best efforts consistent with its
obligation to effectuate the Monsanto Spin-Off, to collect all outstanding
indebtedness from Monsanto and Monsanto's subsidiaries and the release of all
guarantees of other Monsanto obligations to other parties (collectively,
"Monsanto Indebtedness"), other than current obligations for services provided
to Monsanto pursuant to any agreements between the Company and Monsanto for the
provision of services. The amount of Monsanto Indebtedness as of the date hereof
is not greater than $650 million. The Company shall not invest in or lend any
additional funds or extend further guarantees to Monsanto or to third parties on
behalf of Monsanto. The Company shall not convert any Monsanto Indebtedness into
equity or extend such indebtedness or guarantees beyond the terms currently
applicable to such Monsanto Indebtedness; provided, however, to the extent the
Company is unable to collect all of the Monsanto Indebtedness prior to the
Monsanto Spin-Off, such uncollected indebtedness may be extended to a date no
later than one (1) year after the Monsanto Spin-Off.
(b) After the Monsanto Spin-Off, neither the Company nor any of its
Subsidiaries shall lend any monies or extend credit to, or discount the
receivables of, or enter into any sale or leaseback arrangement or any other
form of financing with, or give any form of guarantee or indemnity in respect
of, Monsanto or any of Monsanto's subsidiaries, associates or affiliates.
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SECTION 4.4 GOVERNMENTAL FILINGS. Each party shall (a) confer on a
regular basis with the other and (b) report to the other (to the extent
permitted by law or regulation or any applicable confidentiality agreement) on
material operational matters. The Company and Parent shall file all reports
required to be filed by each of them with the SEC (and all other Governmental
Entities) between the date of this Agreement and the Effective Time and shall
(to the extent permitted by law or regulation or any applicable confidentiality
agreement) deliver to the other party copies of all such reports, announcements
and publications filed with the SEC promptly after the same are filed.
SECTION 4.5 CONTROL OF OTHER PARTY'S BUSINESS. Nothing contained in this
Agreement shall give the Company, directly or indirectly, the right to control
or direct Parent's operations prior to the Effective Time. Nothing contained in
this Agreement shall give Parent, directly or indirectly, the right to control
or direct the Company's operations prior to the Effective Time. Prior to the
Effective Time, each of the Company and Parent shall exercise, consistent with
the terms and conditions of this Agreement, complete control and supervision
over its respective operations.
SECTION 4.6 ACTIONS TO COMPANY BENEFIT PLANS. Except as set forth in
Section 4.6 of the Company Disclosure Schedule, during the period from the date
of this Agreement and continuing until the Effective Time, the Company agrees as
to itself and its Subsidiaries that neither the Company nor any of its
Subsidiaries, nor the Company's Board of Directors, nor any committee of the
Company, nor any employee of the Company shall take or cause to be taken any
action that would increase any payment, acceleration, termination, forgiveness
of indebtedness, vesting, distribution, increase in compensation or benefits or
obligation to fund benefits, or increase the number of participants, in each
case, with respect to any Company Benefit Plan disclosed in the Company SEC
Reports, except, in each case, in the ordinary course of business consistent
with past practice.
SECTION 4.7 EXCHANGE OF PREFERRED STOCK. Prior to the Effective Time, the
Company shall exchange all outstanding shares of Series B Preferred Stock for
Company Convertible Preferred Stock on a one-for-one basis and having the terms
set forth in Section 4.7 of the Company Disclosure Schedule.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 PREPARATION OF PROXY STATEMENT; STOCKHOLDERS MEETINGS.
(a) As promptly as reasonably practicable following the date hereof, Parent
and the Company shall prepare and file with the SEC mutually acceptable proxy
materials which shall constitute the Joint Proxy Statement/Prospectus (such
proxy statement/prospectus, and any amendments or supplements thereto, the
"Joint Proxy Statement/Prospectus") and Parent shall prepare and file a
registration statement on Form S-4 with respect to the issuance of Parent Common
Stock in the Merger (the "Form S-4"). The Joint Proxy Statement/Prospectus will
be included in and will constitute a part of the Form S-4 as Parent's
prospectus. The Form S-4 and the Joint Proxy Statement/Prospectus shall comply
as to form in all material respects with the applicable provisions of the
Securities Act and the Exchange Act and the rules and regulations thereunder.
Each of Parent and the Company shall use reasonable best efforts to have the
Form S-4 declared effective by the SEC as promptly as practicable after the date
hereof and to keep the Form S-4 effective as long as is necessary to consummate
the Merger and the transactions contemplated thereby. Parent and the Company
shall, as promptly as practicable after receipt thereof, provide the other party
copies of any written comments and advise the other party of any oral comments,
with respect to the Joint Proxy
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Statement/Prospectus received from the SEC. Parent shall provide the Company
with a reasonable opportunity to review and comment on any amendment or
supplement to the Form S-4 prior to filing such with the SEC, and will promptly
provide the Company with a copy of all such filings made with the SEC.
Notwithstanding any other provision herein to the contrary, no amendment or
supplement (including by incorporation by reference) to the Joint Proxy
Statement/Prospectus or the Form S-4 shall be made without the approval of both
parties, which approval shall not be unreasonably withheld or delayed; provided,
that with respect to documents filed by a party which are incorporated by
reference in the Form S-4 or Joint Proxy Statement/Prospectus, this right of
approval shall apply only with respect to information relating to the other
party or its business, financial condition or results of operations; and
provided, further, that Parent, in connection with a Change in the Parent
Recommendation (as defined in Section 5.1(c)), and the Company, in connection
with a Change in the Company Recommendation (as defined in Section 5.1(b)), may
amend or supplement the Joint Proxy Statement/Prospectus or Form S-4 (including
by incorporation by reference) pursuant to a Qualifying Amendment (as defined
below) to effect such a Change, and in such event, this right of approval shall
apply only with respect to information relating to the other party or its
business, financial condition or results of operations, and shall be subject to
the right of each party to have its Board of Directors' deliberations and
conclusions accurately described. A "Qualifying Amendment" means an amendment or
supplement to the Joint Proxy Statement/Prospectus or Form S-4 (including by
incorporation by reference) to the extent it contains (i) a Change in the Parent
Recommendation or a Change in the Company Recommendation (as the case may be),
(ii) a statement of the reasons of the Board of Directors of Parent or the
Company (as the case may be) for making such Change in the Parent Recommendation
or Change in the Company Recommendation (as the case may be) and (iii)
additional information reasonably related to the foregoing. Parent will use
reasonable best efforts to cause the Joint Proxy Statements/Prospectus to be
mailed to Parent stockholders, and the Company will use reasonable best efforts
to cause the Joint Proxy Statement/Prospectus to be mailed to the Company's
stockholders, in each case, as soon as reasonably practicable after the Form S-4
is declared effective under the Securities Act. Parent shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified or to file a general consent to service of process)
required to be taken under any applicable state securities laws in connection
with the Share Issuance and the Company shall furnish all information concerning
the Company and the holders of Company Common Stock as may be reasonably
requested in connection with any such action. Each party will advise the other
party, promptly after it receives notice thereof, of the time when the Form S-4
has become effective, the issuance of any stop order, the suspension of the
qualification of the Parent Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Joint Proxy Statement/Prospectus or the Form S-4. If at any
time prior to the Effective Time any information relating to Parent or the
Company, or any of their respective affiliates, officers or directors, should be
discovered by Parent or the Company which should be set forth in an amendment or
supplement to any of the Form S-4 or the Joint Proxy Statement/ Prospectus so
that any of such documents would not include any misstatement of a material fact
or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, the party
which discovers such information shall promptly notify the other party hereto
and, to the extent required by law, rules or regulations, an appropriate
amendment or supplement describing such information shall be promptly filed with
the SEC and disseminated to the stockholders of Parent and the Company.
(b) The Company shall duly take (subject to compliance with the provisions
of Section 3.1(e) and Section 3.2(e) (provided that the Company shall have used
reasonable best efforts to ensure that such representations are true and
correct)) all lawful action to call, give notice of, convene and hold a meeting
of its stockholders on a date as soon as reasonably practicable (the "Company
Stockholders Meeting") for the purpose of obtaining the Company Stockholder
Approval with respect
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to the adoption of this Agreement and shall take all lawful action to solicit
the adoption of this Agreement by the Company Stockholder Approval; and the
Board of Directors of the Company shall recommend adoption of this Agreement by
the stockholders of the Company to the effect as set forth in Section 3.2(f)
(the "Company Recommendation"), and shall not withdraw, modify or qualify (or
propose to withdraw, modify or qualify) (a "Change") in any manner adverse to
Parent such recommendation or take any action or make any statement in
connection with the Company Stockholders Meeting inconsistent with such
recommendation (collectively, a "Change in the Company Recommendation");
provided the foregoing shall not prohibit accurate disclosure (and such
disclosure shall not be deemed to be a Change in the Company Recommendation) of
factual information regarding the business, financial condition or results of
operations of Parent or the Company or the fact that an Acquisition Proposal has
been made, the identity of the party making such proposal or the material terms
of such proposal (provided, that the Board of Directors of the Company does not
withdraw, modify or qualify (or propose to withdraw, modify or qualify) in any
manner adverse to Parent its recommendation) in the Form S-4 or the Joint Proxy
Statement/ Prospectus or otherwise, to the extent such information, facts,
identity or terms is required to be disclosed under applicable law; and,
provided further, that the Board of Directors of the Company may make a Change
in the Company Recommendation (x) pursuant to Section 5.4 hereof or (y) prior to
the Company Stockholders Meeting if the Board of Directors of the Company
determines in good faith that a Material Adverse Effect has occurred with
respect to Parent. Notwithstanding any Change in the Company Recommendation,
this Agreement shall be submitted to the stockholders of the Company at the
Company Stockholders Meeting for the purpose of adopting the Agreement and
approving the Merger; provided that this Agreement shall not be required to be
submitted to the stockholders of the Company at the Company Stockholders Meeting
if this Agreement has been terminated pursuant to Section 7.1 hereof.
(c) Parent shall duly take (subject to compliance with the provisions of
Section 3.2(e) and Section 3.1(e) (provided that Parent shall have used
reasonable best efforts to ensure that such representations are true and
correct)) all lawful action to call, give notice of, convene and hold a meeting
of its stockholders on a date as soon as reasonably practicable (the "Parent
Stockholders Meeting") for the purpose of obtaining the Parent Stockholder
Approval with respect to the approval of the Share Issuance and Certificate
Amendment and shall take all lawful action to solicit the approval of the Share
Issuance and Certificate Amendment by the Parent Stockholder Approval and the
Board of Directors of Parent shall recommend approval of each of the Share
Issuance and Certificate Amendment by the stockholders of Parent to the effect
as set forth in Section 3.1(f) (the "Parent Recommendation"), and shall not
Change in any manner adverse to the Company such recommendation or take any
action or make any statement in connection with the Parent Stockholders Meeting
inconsistent with such recommendation (collectively, a "Change in the Parent
Recommendation"); provided the foregoing shall not prohibit accurate disclosure
(and such disclosure shall not be deemed to be a Change in the Parent
Recommendation) of factual information regarding the business, financial
condition or operations of Parent or the Company (provided, that the Board of
Directors of Parent does not withdraw, modify or qualify (or propose to
withdraw, modify or qualify) in any manner adverse to the Company its
recommendation) in the Form S-4 or the Joint Proxy Statement/Prospectus or
otherwise, to the extent such information, facts, identity or terms is required
to be disclosed under applicable law; and provided further, that the Board of
Directors of Parent may make a Change in the Parent Recommendation prior to the
Parent Stockholders Meeting if the Board of Directors of Parent determines in
good faith that a Material Adverse Effect has occurred with respect to the
Company. Notwithstanding any Change in the Parent Recommendation, a proposal to
approve the Share Issuance and Certificate Amendment shall be submitted to the
stockholders of Parent at the Parent Stockholders Meeting for the purpose of
obtaining the Parent Stockholder Approval; provided that this Agreement shall
not be required to be submitted to the
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stockholders of Parent at the Parent Stockholders Meeting if this Agreement has
been terminated pursuant to Section 7.1 hereof.
(d) For purposes of this Agreement, a Change in the Company Recommendation
shall be deemed to include, without limitation, a recommendation by the Company
Board of Directors of a third party Acquisition Proposal with respect to the
Company.
SECTION 5.2 ACCESS TO INFORMATION/EMPLOYEES.
(a) Upon reasonable notice, each party shall (and shall cause its
Subsidiaries to) afford to the officers, employees, accountants, counsel,
financial advisors and other authorized representatives of the other party
reasonable access during normal business hours, during the period prior to the
Effective Time, to all its properties, books, contracts, commitments, records,
officers and employees and, during such period, such party shall (and shall
cause its Subsidiaries to) furnish promptly to the other party (a) a copy of
each report, schedule, registration statement and other document filed,
published, announced or received by it during such period pursuant to the
requirements of Federal or state securities laws, as applicable (other than
documents which such party is not permitted to disclose under applicable law),
and (b) all other information concerning it and its business, properties and
personnel as such other party may reasonably request (including consultation on
a regular basis with such parties, agents, advisors, attorneys and
representatives with respect to litigation matters); provided, however, that
either party may restrict the foregoing access to the extent that (i) in the
reasonable judgment of such party, any law, treaty, rule or regulation of any
Governmental Entity applicable to such party requires such party or its
Subsidiaries to restrict or prohibit access to any such properties or
information (ii) in the reasonable judgment of such party, the information is
subject to confidentiality obligations to a third party (iii) such disclosure
would result in disclosure of any trade secrets of third parties or (iv)
disclosure of any such information or document could result in the loss of
attorney client privilege; provided, however, that with respect to this clause
(iv), the parties and/or counsel for the parties shall use their reasonable best
efforts to enter into such joint defense agreements or other arrangements, as
appropriate, so as to avoid the loss of attorney client privilege. Any such
information obtained pursuant to this Section 5.2 ("Confidential Information")
will be used solely for the purpose of consideration or performance of the
transactions contemplated by this Agreement or any other agreement related
hereto and will be kept confidential by the party obtaining such information and
all persons obtaining such information on such party's behalf or who obtain such
information from such party. Confidential Information shall not include
information that (A) is or becomes generally available to the public other than
as a result of disclosure by a party or its Representatives, or (B) is or
becomes available to a party (other than the disclosing party) or its
Representatives that is not known by the non-disclosing party to have any
obligation not to disclose such information. Notwithstanding the foregoing,
Confidential Information may be disclosed by a party (x) to its directors,
officers, employees, representatives (including, without limitation, financial
advisors, attorneys and accountants) or agents (collectively "Representatives")
who need to know such information if the party informs such Representatives of
the confidential nature of such information and directs them to treat such
information confidentially and to use such information for no purpose other than
as specifically permitted by the Agreement and (y) if the party is legally
required to make such disclosure as a result of a court order, subpoena or
similar legal duress, provided that prior to such disclosure, the disclosing
party gives to the other party prompt written notice of its receipt of such
order or subpoena or similar document so that the other party has a reasonable
opportunity prior to disclosure to obtain a protective order (if disclosure of
Confidential Information is so required, the disclosing party shall disclose
only that portion of such information that is so required and shall assist the
other party in obtaining protective orders or undertakings that confidential
treatment will be accorded to any such information furnished). In the event of
termination of this Agreement, each party will promptly return to the other
party all Confidential
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Information in its possession (including all written materials prepared or
supplied by or on its behalf containing or reflecting any Confidential
Information) and will not retain any copies, extracts or other reproductions in
whole or in part of any Confidential Information. Any work papers, memoranda or
other writings prepared by a party or its Representatives derived from or
incorporating any Confidential Information shall be destroyed promptly upon
termination of this Agreement, with such destruction confirmed to the other
party in writing. Any oral Confidential Information will continue to be subject
to the terms of this Section 5.2. Each party shall be responsible for the breach
of the terms of this Section 5.2 by its Representative. Any investigation by
Parent or the Company shall not affect the representation and warranties of the
Company and Parent, as the case may be. In the event of any conflict between the
terms of this Section 5.2 and the terms of the Confidentiality Agreement, the
terms of the Confidentiality Agreement shall control.
(b) After the date hereof, Parent and the Company shall establish a
mechanism reasonably acceptable to both parties by which Parent will be
permitted, prior to the Effective Time and subject to applicable law, to
communicate directly with the Company employees regarding employee related
matters after the Effective Time.
SECTION 5.3 REASONABLE BEST EFFORTS.
(a) Subject to the terms and conditions of this Agreement, each party will
use its reasonable best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under this
Agreement and applicable laws and regulations to consummate the Merger and the
other transactions contemplated by this Agreement as soon as practicable after
the date hereof, including (i) preparing and filing as promptly as practicable
all documentation to effect all necessary applications, notices, petitions,
filings, tax ruling requests and other documents and to obtain as promptly as
practicable all consents, clearances, waivers, licenses, orders, registrations,
approvals, permits, tax rulings and authorizations necessary or advisable to be
obtained from any third party and/or any Governmental Entity in order to
consummate the Merger or any of the other transactions contemplated by this
Agreement and (ii) taking all reasonable steps as may be necessary to obtain all
such material consents, clearances, waivers, licenses, registrations, permits,
authorizations, tax rulings, orders and approvals. In furtherance and not in
limitation of the foregoing, each party hereto agrees to make an appropriate
filing of a Notification and Report Form pursuant to the HSR Act and any other
Regulatory Law (as defined in Section 5.3(b) below) with respect to the
transactions contemplated hereby as promptly as practicable after the date
hereof and to supply as promptly as practicable any additional information and
documentary material that may be requested pursuant to the HSR Act and any other
Regulatory Law and to take all other actions necessary to cause the expiration
or termination of the applicable waiting periods under the HSR Act as soon as
practicable. If necessary to obtain any regulatory approval pursuant to any
Regulatory Law, or if any administrative or judicial action or proceeding,
including any proceeding by a private party, is instituted (or threatened to be
instituted by a Governmental Entity), challenging the Merger or any other
transaction contemplated by this Agreement as violative of any Regulatory Law,
each of Parent and the Company shall cooperate with each other and, if necessary
to (I) obtain any regulatory approval, (II) contest and resist any such action
or proceeding, or (III) have vacated, lifted, reversed or overturned any decree,
judgment, injunction, or other order (whether temporary, preliminary or
permanent): (x) Parent shall, and shall cause its Subsidiaries to, hold separate
any portion of its assets, or otherwise conduct its business or any portion of
its business, in a specified manner in one or more countries for a period of up
to six months after the Closing; (y) Parent shall take such actions with respect
to its assets or the assets of any of its Subsidiaries (including selling,
holding separate or otherwise disposing of such assets, or agreeing to, or
permitting, any of the foregoing with respect to such assets); and (z) the
Company at the direction of the Parent shall take such actions with respect to
its assets or the assets of any of its Subsidiaries (including selling, holding
separate or otherwise
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disposing of such assets, or agreeing to, or permitting any of the foregoing
with respect to such assets); unless, in the case of actions taken pursuant to
clauses (y) and (z), such actions, in the aggregate, would (taking into account
both quantitative and qualitative factors, and assuming in the case of actions
taken pursuant to clause (y) that such actions were or had been taken by the
Company or any of its Subsidiaries with respect to assets of the Company of
similar value or prospective value) result in a Material Adverse Effect on the
Company. For purposes of the previous sentence only, the parties acknowledge
that the value of drug candidates and discoveries may be material before they
provide any revenue or profit to the Company and therefore the term "Material
Adverse Effect" as it relates to the Company shall include the prospects of the
Company and its Subsidiaries, taken as a whole.
(b) To the extent permissible under applicable law or any rule, regulation
or restriction of a Governmental Entity, each of Parent and the Company shall,
in connection with the efforts referenced in Section 5.3(a) to obtain all
requisite material approvals, clearances and authorizations for the transactions
contemplated by this Agreement under the HSR Act or any other Regulatory Law,
use its reasonable best efforts to (i) cooperate in all respects with each other
in connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by a private
party, (ii) promptly inform the other party of any communication received by
such party from, or given by such party to, the Antitrust Division of the
Department of Justice (the "DOJ"), the Federal Trade Commission (the "FTC") or
any other Governmental Entity and of any material communication received or
given in connection with any proceeding by a private party, in each case
regarding any of the transactions contemplated hereby, (iii) permit the other
party, or the other party's legal counsel, to review any communication given by
it to, and consult with each other in advance of any meeting or conference with,
the DOJ, the FTC or any such other Governmental Entity or, in connection with
any proceeding by a private party, with any other Person and (iv) give the other
party the opportunity to attend and participate in such meetings and
conferences. For purposes of this Agreement, "Regulatory Law" means the Sherman
Act, as amended, Council Regulation No. 4064/89 of the European Community, as
amended (the "EC Merger Regulation") the Clayton Act, as amended, the HSR Act,
the Federal Trade Commission Act, as amended, and all other Federal, state and
foreign, if any, statutes, rules, regulations, orders, decrees, administrative
and judicial doctrines and other laws that are designed or intended to prohibit,
restrict or regulate (i) foreign investment or (ii) actions having the purpose
or effect of monopolization or restraint of trade or lessening of competition.
(c) If any objections are asserted with respect to the transactions
contemplated hereby under any Regulatory Law or if any suit is instituted by any
Governmental Entity or any private party challenging any of the transactions
contemplated hereby as violative of any Regulatory Law, each of Parent and the
Company shall use its reasonable best efforts to resolve any such objections or
challenge as such Governmental Entity or private party may have to such
transactions under such Regulatory Law so as to permit consummation of the
transactions contemplated by this Agreement.
SECTION 5.4 ACQUISITION PROPOSALS. The Company agrees that neither it nor
any of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall use its reasonable best efforts to cause
its and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or
knowingly facilitate (including by way of furnishing information) any inquiries
or the making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving it, or any purchase or
sale of the consolidated assets (including without limitation stock of
Subsidiaries) of the Company and its Subsidiaries, taken as a whole, having an
aggregate value equal to 15% or more of the market capitalization of the
Company,
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or any purchase or sale of, or tender or exchange offer for, 15% or more of the
equity securities of the Company (any such proposal or offer (other than a
proposal or offer made by the other party or an affiliate thereof) being
hereinafter referred to as an "Acquisition Proposal"). The Company further
agrees that neither it nor any of its Subsidiaries nor any of the officers and
directors of it or its Subsidiaries shall, and that it shall use its reasonable
best efforts to cause its and its Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly, have
any discussion with or provide any confidential information or data to any
Person relating to an Acquisition Proposal, or engage in any negotiations
concerning an Acquisition Proposal, or knowingly facilitate any effort or
attempt to make or implement an Acquisition Proposal or (subject to Section
7.1(h)) accept an Acquisition Proposal. Notwithstanding anything in this
Agreement to the contrary, the Company and the Company's Board of Directors
shall be permitted to (A) to the extent applicable, comply with Rule 14d-9 and
Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal, (B) effect a Change in the Company Recommendation, or (C) engage in
any discussions or negotiations with, or provide any information to, any Person
in response to an unsolicited bona fide written Acquisition Proposal by any such
Person, if and only to the extent that, with respect to the actions contemplated
by clauses (B) or (C), (i) the Company's Stockholders Meeting shall not have
occurred, (ii) (x) in the case of clause (B) above, (I) such change is permitted
by clause (y) of the second proviso of the first sentence of Section 5.1(b) or
(II) the Company has received an unsolicited bona fide written Acquisition
Proposal from a third party and the Company's Board of Directors concludes in
good faith that such Acquisition Proposal constitutes a Superior Proposal (as
defined in Section 8.11) and (y) in the case of clause (C) above, the Company's
Board of Directors concludes in good faith that there is a reasonable likelihood
that such Acquisition Proposal could result in a Superior Proposal, (iii) in the
case of clause (C) above, prior to providing any information or data to any
Person in connection with an Acquisition Proposal by any such Person, the
Company's Board of Directors receives from such Person an executed
confidentiality agreement containing terms at least as stringent as those
contained in Section 5.2 and (iv) in the case of clause (C) above, prior to
providing any information or data to any Person or entering into discussions or
negotiations with any Person, the Company notifies Parent promptly of such
inquiries, proposals or offers received by, any such information requested from,
or any such discussions or negotiations sought to be initiated or continued
with, any of its representatives indicating, in connection with such notice, the
name of such Person and the material terms and conditions of any inquiries,
proposals or offers. The Company agrees that it will promptly keep Parent
informed of the status and terms of any such proposals or offers and the status
and terms of any such discussions or negotiations. The Company agrees that it
will, and will cause its officers, directors and representatives to, immediately
cease and cause to be terminated any activities, discussions or negotiations
existing as of the date of this Agreement with any parties conducted heretofore
with respect to any Acquisition Proposal. The Company agrees that it will use
reasonable best efforts to promptly inform its directors, officers, key
employees, agents and representatives of the obligations undertaken in this
Section 5.4. Nothing in this Section 5.4 shall (x) permit Parent or the Company
to terminate this Agreement (except as specifically provided in Article VII
hereof) or (y) affect any other obligation of Parent or the Company under this
Agreement.
SECTION 5.5 EMPLOYEE BENEFITS MATTERS.
(a) At the Effective Time, Parent shall provide employment to, or shall
cause the Surviving Corporation to provide employment to, employees who were
employed by the Company or its Subsidiaries as of the Effective Time
("Continuing Employees"). Nothing contained herein shall be deemed to guarantee
employment for any period of time or preclude the Parent's ability to terminate
any Continuing Employee for any reason subsequent to the Effective Time. Except
as may be otherwise required by law, nothing contained herein shall require
Parent to continue any particular
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Company Benefit Plan or compensation plan, program or arrangement, or prevent
the amendment, modification or termination thereof; provided that Parent shall
not take any action or cause the Surviving Corporation to take any action (by
way of amendment, termination or otherwise) which is in violation of the terms
of any Company Benefit Plan. From and after the Effective Time until the second
anniversary of the Effective Time (the "Benefits Continuation Period"), Parent
shall provide, or shall cause the Surviving Corporation to provide compensation
and employee benefits to the Continuing Employees and former employees of the
Company and its Subsidiaries ("Former Employees") which are substantially
comparable in the aggregate to those provided to such individuals by the Company
and its Subsidiaries immediately prior to the Effective Time; provided, however,
that with respect to employees who are subject to collective bargaining,
compensation and benefits shall be provided in accordance with the applicable
collective bargaining agreements. Following the Benefits Continuation Period,
Parent shall provide, or shall cause the Surviving Corporation to provide,
compensation and benefits that are substantially comparable in the aggregate to
those provided to similarly situated employees of Parent.
(b) During the Benefits Continuation Period, Parent shall continue, or
shall cause the Surviving Corporation to continue, the severance and
post-retirement medical and dental benefits provided by the Company and its
Subsidiaries immediately prior to the Effective Time as provided in the
Pharmacia Separation Benefit Plans, as amended through July 9, 2002. Further,
Parent shall continue, or shall cause the Surviving Corporation to continue,
post-retirement medical, dental and life insurance benefits for eligible Former
Employees at the Company as in effect prior to the Effective Time. Following the
Benefits Continuation Period, (i) Parent shall provide, or shall cause the
Surviving Corporation to provide, to the Continuing Employees severance benefits
that are no less favorable than those provided to similarly situated employees
of Parent, and (ii) to the extent Parent alters or modifies any retiree welfare
benefits provided to any Continuing Employee or Former Employee, such alteration
or modification shall result in such individual (and such individual's eligible
dependents) receiving retiree welfare benefits that are substantially comparable
in the aggregate to those provided to similarly situated employees and former
employees of Parent. During the Benefits Continuation Period, Parent shall
provide, or shall cause the Surviving Corporation to provide to Continuing
Employees and Former Employees employed outside of the United States
compensation and benefits that are substantially comparable in the aggregate to
those provided to such persons immediately prior to the Effective Time, subject
to: such modifications as are necessary to comply with applicable laws of the
foreign countries and their political subdivisions; and applicable labor
agreements.
(c) With respect to any Benefit Plans of Parent or the Surviving
Corporation in which Continuing Employees or Former Employees first become
eligible to participate on or after the Effective Time, Parent shall, and shall
cause the Surviving Corporation to, (i) waive any pre-existing condition
exclusions and waiting periods with respect to participation and coverage
requirements applicable to Continuing Employees and Former Employees under any
Benefit Plans of Parent or the Surviving Corporation, except to the extent that
such pre-existing condition exclusions or waiting periods apply to changes made
by such Continuing Employee or Former Employee under the terms of the Parent or
Surviving Corporation Benefit Plan on the same basis as would apply to any
employee or former employee of Parent making a similar change; (ii) provide each
Continuing Employee or Former Employee with credit for any co-payments and
deductible paid prior to the Effective Time (to the same extent such credit was
given under the analogous Company Benefit Plan prior to the Effective Time) in
satisfying any applicable deductible or out-of-pocket requirements under any
Parent Benefit Plan; and (iii) recognize service prior to the Effective Time
with the Company, its Subsidiaries and any predecessor entities of the Company,
for all purposes (including, without limitation, eligibility to participate,
vesting credit, entitlement to benefits and benefit accrual) of Benefit Plans of
Parent or the Surviving Corporation in which any Continuing Employee or Former
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Employee participates to the same extent such service would be recognized by
Parent under the applicable Benefit Plan for similarly situated employees and
former employees of Parent; provided, however, that the foregoing shall not
apply to the extent it would result in any duplication of benefits for the same
period of service.
(d) From and after the Effective Time, Parent shall honor, fulfill and
discharge and shall cause the Surviving Corporation to honor, fulfill and
discharge, in accordance with its terms, each Company Benefit Plan and related
funding arrangement, including each employment, change in control, severance and
termination agreement between the Company or any of its Subsidiaries and any
officer, director or employee of such company, including without limitation (i)
all legal and contractual obligations pursuant to outstanding retirement plans,
salary and bonus deferral plans, vested and accrued benefits and similar
employment and benefit arrangements and agreements in effect as of the Effective
Time, including all the "change in control" provisions under the Company Benefit
Plans, and (ii) all vacation, personal and sick days accrued by Continuing
Employees and Former Employees as of the Effective Time.
SECTION 5.6 FEES AND EXPENSES. Subject to Section 7.2, whether or not the
Merger is consummated, all Expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such Expenses, except (a) if the Merger is consummated, the Surviving
Corporation or its relevant Subsidiary shall pay, or cause to be paid, any and
all property or transfer taxes imposed on the Company or its Subsidiaries and
(b) Expenses incurred in connection with the filing, printing and mailing of the
Joint Proxy Statement/Prospectus, which shall be paid 50% by Parent and 50% by
the Company. As used in this Agreement, "Expenses" includes all out-of-pocket
expenses (including, without limitation, all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a party hereto and
its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby,
including the preparation, printing, filing and mailing of the Joint Proxy
Statement/Prospectus and the solicitation of stockholder approvals and all other
matters related to the transactions contemplated hereby.
SECTION 5.7 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) From and after the Effective Time the Parent agrees that it will (i)
indemnify and hold harmless, against any costs or expenses (including attorney's
fees), judgments, fines, losses, claims damages or liabilities incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, and provide advancement of
expenses to, all past and present directors, officers and employees of the
Company and its Subsidiaries (in all of their capacities) (a) to the same extent
such persons are indemnified or have the right to advancement of expenses as of
the date of this Agreement by the Company pursuant to the Company's certificate
of incorporation, bylaws and indemnification agreements, if any, in existence on
the date hereof with any directors, officers and employees of the Company and
its Subsidiaries and (b) without limitation to clause (a), to the fullest extent
permitted by law, in each case, for acts or omissions at or prior to the
Effective Time (including for acts or omissions occurring in connection with the
approval of this Agreement and the consummation of the transactions contemplated
hereby), (ii) include and cause to be maintained in effect in the Surviving
Corporation's (or any successor's) certificate of incorporation and bylaws for a
period of six years after the Effective Time, the current provisions regarding
elimination of liability of directors, indemnification of officers, directors
and employees and advancement of expenses contained in the certificate of
incorporation and bylaws of the Company and (iii) cause to be maintained for a
period of six years after the Effective Time the current policies of directors'
and officers' liability insurance and fiduciary liability insurance maintained
by the Company (provided that Parent (or any successor) may substitute therefor
policies of at least the same
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coverage and amounts containing terms and conditions which are, in the
aggregate, no less advantageous to the insured) with respect to claims arising
from facts or events that occurred on or before the Effective Time (including
for acts or omissions occurring in connection with the approval of this
Agreement and the consummation of the transactions contemplated hereby). The
obligations of Parent under this Section 5.7 shall not be terminated or modified
in such a manner as to adversely affect any indemnitee to whom this Section 5.7
applies without the consent of such affected indemnitee (it being expressly
agreed that the indemnitees to whom this Section 5.7 applies shall be third
party beneficiaries of this Section 5.7).
(b) If Parent or any of its successors or assigns (i) shall consolidate
with or merge into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) shall transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then, and in each such case, proper
provisions shall be made so that the successors and assigns of Parent shall
assume all of the obligations set forth in this Section 5.7.
SECTION 5.8 PUBLIC ANNOUNCEMENTS. Parent and the Company shall use
reasonable best efforts to develop a joint communications plan and each party
shall use reasonable best efforts (i) to ensure that all press releases and
other public statements with respect to the transactions contemplated hereby
shall be consistent with such joint communications plan, and (ii) unless
otherwise required by applicable law or by obligations pursuant to any listing
agreement with or rules of any securities exchange, to consult with each other
before issuing any press release or, to the extent practical, otherwise making
any public statement with respect to this Agreement or the transactions
contemplated hereby. In addition to the foregoing, except to the extent
disclosed in or consistent with the Joint Proxy Statement/Prospectus in
accordance with the provisions of Section 5.1, neither Parent nor the Company
shall issue any press release or otherwise make any public statement or
disclosure concerning the other party or the other party's business, financial
condition or results of operations without the consent of the other party, which
consent shall not be unreasonably withheld or delayed; provided, the foregoing
shall be subject to the requirements of law and to each party's obligations
pursuant to any listing agreement or the rules of any national securities
exchange.
SECTION 5.9 ACCOUNTANT'S LETTERS.
(a) Parent shall use reasonable best efforts to cause to be delivered to
the Company two letters from Parent's independent public accountants, one dated
approximately the date on which the Form S-4 shall become effective and one
dated the Closing Date, each addressed to Parent and the Company, in form
reasonably satisfactory to the Company and customary in scope for comfort
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
(b) The Company shall use reasonable best efforts to cause to be delivered
to Parent two letters from the Company's independent public accountants, one
dated approximately the date on which the Form S-4 shall become effective and
one dated the Closing Date, each addressed to the Company and Parent, in form
reasonably satisfactory to Parent and customary in scope for comfort letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
SECTION 5.10 LISTING OF SHARES OF PARENT COMMON STOCK. Parent shall use
its reasonable best efforts to cause the shares of Parent Common Stock to be
issued in the Merger and the shares of Parent Common Stock to be reserved for
issuance upon exercise of the Company Stock Options to be approved for listing
on the NYSE, subject to official notice of issuance, prior to the Closing Date.
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SECTION 5.11 DIVIDENDS. After the date of this Agreement, each of Parent
and the Company shall coordinate with the other the payment of dividends with
respect to the Parent Common Stock and Company Common Stock and the record dates
and payment dates relating thereto, it being the intention of the parties that
holders of Parent Common Stock and Company Common Stock shall not receive two
dividends, or fail to receive one dividend, for any single calendar quarter with
respect to their shares of Parent Common Stock and/or Company Common Stock or
any shares of Parent Common Stock that any such holder receives in exchange for
such shares of Company Common Stock in the Merger. Notwithstanding the
foregoing, such coordination shall not in any manner affect the Company's
ability to declare a dividend on the shares of Common Stock to effect the
Monsanto Spin-Off.
SECTION 5.12 AFFILIATES. Not less than 45 days prior to the Effective
Time, the Company shall deliver to Parent a letter identifying all persons who,
in the judgment of the Company, may be deemed at the time this Agreement is
submitted for adoption by the stockholders of the Company, "affiliates" of the
Company for purposes of Rule 145 under the Securities Act and applicable SEC
rules and regulations, and such list shall be updated as necessary to reflect
changes from the date thereof. The Company shall use reasonable best efforts to
cause each person identified on such list to deliver to Parent not less than 30
days prior to the Effective Time, a written agreement substantially in the form
attached as Exhibit 5.12 hereto (an "Affiliate Agreement").
SECTION 5.13 SECTION 16 MATTERS. Prior to the Effective Time, each of
Parent and the Company shall take all such steps as may be required to cause any
dispositions of Company Common Stock (including derivative securities with
respect to Company Common Stock) or acquisitions of Parent Common Stock
(including derivative securities with respect to Parent Common Stock) resulting
from the transactions contemplated by Article I or Article II of this Agreement
by each individual who is subject to the reporting requirements of Section 16(a)
of the Exchange Act with respect to the Company, to be exempt under Rule 16b-3
promulgated under the Exchange Act, such steps to be taken in accordance with
the No-Action Letter dated January 12, 1999, issued by the SEC to Skadden, Arps,
Slate, Meagher & Flom LLP.
SECTION 5.14 TAX TREATMENT. Parent and the Company intend the Merger to
qualify as a reorganization under Section 368(a) of the Code. Each of Parent and
the Company, and each of their respective affiliates shall, to the extent
consistent with their rights and obligations under this Agreement, use their
reasonable best efforts to cause the Merger to so qualify and to obtain the
opinions of Cadwalader, Wickersham & Taft and Sullivan & Cromwell referred to in
Section 6.2(c) and 6.3(c) of this Agreement. For purposes of the tax opinions
described in Sections 6.2(c) and 6.3(c) of this Agreement, each of Parent and
the Company shall use their reasonable best efforts to provide representation
letters substantially in the form of Exhibits 6.2(c)(2) and 6.2(c)(3) hereto,
each dated on or before the date the Form S-4 shall become effective, and
subsequently, on the Closing Date. Except for actions specifically contemplated
by this Agreement, each of Parent, Merger Sub and the Company and each of their
respective affiliates shall use their reasonable best efforts not to take any
action, fail to take any action, cause any action to be taken or not taken, or
suffer to exist any condition, which action or failure to take action or
condition would prevent, or would be reasonably likely to prevent, (i) the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code, or (ii) the Monsanto Spin-Off from qualifying as a Tax-free
distribution under Section 355 of the Code.
SECTION 5.15 TAX CERTIFICATES. The Company shall deliver to Parent at the
time of the Monsanto Spin-Off, unless the Monsanto Sale Transaction (as defined
in Section 5.16) shall have occurred, a representation letter in the form of
Exhibit 5.15 hereto, dated as of the date of the Monsanto Spin-Off.
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SECTION 5.16 COMPLETION OF SPIN-OFF OR SALE OF MONSANTO. The Company
shall cause either (i) the Monsanto Spin-Off, (ii) the sale of all or
substantially all of the assets of Monsanto and transfer of all its liabilities
to an entity no less creditworthy than Monsanto followed by the liquidation and
dissolution of Monsanto, or (iii) the sale of all of the Company's equity
interest in Monsanto (any of clauses (ii) or (iii), the "Monsanto Sale
Transaction") to occur.
SECTION 5.17 RESTRUCTURE OF TRANSACTION. In the event that either of
Cadwalader, Wickersham & Taft or Sullivan & Cromwell is unable to render its
opinion pursuant to Sections 6.2(c) or 6.3(c), respectively, Parent and the
Company shall negotiate in good faith to revise the structure of the business
combination between the Company and Parent such that each of Cadwalader,
Wickersham & Taft and Sullivan & Cromwell will be able to render such opinion,
provided that no such revision to the structure of the Merger shall (a) result
in any change in the Merger Consideration, (b) be adverse to the interests of
Parent, the Company, Merger Sub, the holders of shares of Parent Common Stock or
the holders of shares of Company Common Stock or Company Convertible Preferred
Stock or other capital stock of the Company, or (c) unreasonably impede or delay
consummation of the Merger. If the structure of the Merger is so revised, this
Agreement shall be amended by the parties as appropriate to give effect to the
revised structure of the Merger with each party executing a written amendment to
this Agreement as necessary to reflect the foregoing.
SECTION 5.18 ELECTION TO PARENT'S BOARD OF DIRECTORS. Prior to the
Effective Time, Parent shall (i) cause Mr. Frederick Hassan to be appointed to
Parent's board of directors at the Effective Time and (ii) take all action
necessary so that, at the Effective Time and so long as he is willing and able
to serve, Mr. Hassan shall be appointed the Vice-Chairman of Parent.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of the Company, Parent and Merger Sub to
effect the Merger are subject to the satisfaction or waiver on or prior to the
Closing Date of the following conditions:
(a) Stockholder Approval. (i) The Company shall have obtained the Company
Stockholder Approval in connection with the adoption of this Agreement by the
stockholders of the Company and (ii) Parent shall have obtained the Parent
Stockholder Approval in connection with the approval of each of the Share
Issuance and the Certificate Amendment by the stockholders of Parent.
(b) No Injunctions or Restraints, Illegality. No Laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order, judgment, decision, opinion or decree
issued by a court or other Governmental Entity of competent jurisdiction in the
United States or the European Union shall be in effect, having the effect of
making the Merger illegal or otherwise prohibiting consummation of the Merger.
(c) HSR Act; EC Merger Regulation. Each of (i) the waiting period (and any
extension thereof) applicable to the Merger under the HSR Act shall have been
terminated or shall have expired, and any investigation opened by means of a
second request for additional information or otherwise shall have been
terminated or closed, and (ii) the approval of the Merger by the European
Commission shall have been granted pursuant to the EC Merger Regulation.
(d) NYSE Listing. The shares of Parent Common Stock to be issued in the
Merger and such other shares to be reserved for issuance in connection with the
Merger shall have been approved for listing on the NYSE, subject to official
notice of issuance.
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(e) Effectiveness of the Form S-4. The Form S-4 shall have been declared
effective by the SEC under the Securities Act. No stop order suspending the
effectiveness of the Form S-4 shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(f) Governmental and Regulatory Approvals. Other than the filing provided
for under Section 1.3 and filings pursuant to the HSR Act and EC Merger
Regulation (which are addressed in Section 6.1(c)), all consents, clearances,
approvals and actions of, filings with and notices to any Governmental Entity
required of Parent, the Company or any of their Subsidiaries in connection with
the execution and delivery of this Agreement and the consummation of the Merger,
the Share Issuance and the other transactions contemplated hereby shall have
been made or obtained (as the case may be), except for those the failure of
which to be made or obtained, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on Parent and its
Subsidiaries (including the Surviving Corporation and its Subsidiaries), taken
together after giving effect to the Merger.
(g) Blue Sky Approvals. Parent shall have received all state securities
and "blue sky" permits and approvals necessary to consummate the transactions
contemplated hereby.
SECTION 6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER
SUB. The obligations of Parent and Merger Sub to effect the Merger are subject
to the satisfaction of, or waiver by Parent, on or prior to the Closing Date of
the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company set forth in this Agreement that is qualified as to
Material Adverse Effect shall be true and correct, and each of the
representations and warranties of the Company set forth in this Agreement that
is not so qualified shall be true and correct, except where the failure to be so
true and correct, individually or in the aggregate, would not have a Material
Adverse Effect on the Company, in each case, as of the date of this Agreement
and as of the Closing Date as though made on and as of the Closing Date (except
to the extent in either case that such representations and warranties speak as
of another date), and Parent shall have received a certificate of the chief
executive officer and the chief financial officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed or complied with all agreements and covenants required to be performed
by it under this Agreement at or prior to the Closing Date that are qualified as
to Material Adverse Effect and shall have performed or complied in all material
respects with all other material agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date and Parent
shall have received a certificate of the chief executive officer and the chief
financial officer of the Company to such effect.
(c) Tax Opinions. Parent shall have received from Cadwalader, Wickersham &
Taft, counsel to Parent, on or before the date the Form S-4 shall become
effective, and subsequently, on the Closing Date, written opinions dated as of
such dates substantially in the form of Exhibit 6.2(c)(1). In rendering such
opinions, counsel to Parent shall be entitled to rely upon representations
provided by Parent and the Company substantially in the form of Exhibits
6.2(c)(2) and 6.2(c)(3) (allowing for such amendments to the representations as
counsel to Parent deems reasonably necessary).
(d) Tax Certificates. The Company shall have delivered to Parent at the
time of the Monsanto Spin-Off, unless the Monsanto Sale Transaction shall have
occurred, a representation letter in the form of Exhibit 5.15 hereto, dated as
of the date of the Monsanto Spin-Off.
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(e) The Company Rights Agreement. No Share Acquisition Date or
Distribution Date (as such terms are defined in Company Rights Agreement) shall
have occurred pursuant to Company Rights Agreement.
(f) Events Related to Monsanto. The Monsanto Sale Transaction or the
Monsanto Spin-Off shall have been completed.
(g) No Material Change. The Company and its Subsidiaries shall not have
suffered from the date of this Agreement any change that would reasonably be
expected to have a Material Adverse Effect on the Company.
SECTION 6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to effect the Merger are subject to the satisfaction
of, or waiver by the Company, on or prior to the Closing Date of the following
additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Parent set forth in this Agreement that is qualified as to
Material Adverse Effect shall be true and correct, and each of the
representations and warranties of Parent set forth in this Agreement that is not
so qualified shall be true and correct, except where the failure to be so true
and correct, individually or in the aggregate, would not have a Material Adverse
Effect on Parent, in each case, as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except to the extent
in either case that such representations and warranties speak as of another
date), and the Company shall have received a certificate of the chief executive
officer and the chief financial officer of Parent to such effect.
(b) Performance of Obligations of Parent. Parent shall have performed or
complied with all agreements and covenants required to be performed by it under
this Agreement at or prior to the Closing Date that are qualified as to Material
Adverse Effect and shall have performed or complied in all material respects
with all other material agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date, and the Company shall have
received a certificate of the chief executive officer and the chief financial
officer of Parent to such effect.
(c) Tax Opinions. The Company shall have received from Sullivan &
Cromwell, counsel to the Company, on or before the date the Form S-4 shall
become effective, and subsequently, on the Closing Date, written opinions dated
as of such dates substantially in the form of Exhibit 6.3(c)(1). In rendering
such opinion, counsel to the Company shall be entitled to rely upon
representations provided by Parent and the Company substantially in the form of
Exhibits 6.2(c)(2) and 6.2(c)(3) (allowing for such amendments to the
representations as counsel to the Company deems reasonably necessary).
(d) Events Related to Monsanto. The Monsanto Sale Transaction or the
Monsanto Spin-Off shall have been completed; provided, that the Company shall
not be entitled to assert this condition to Closing if it has not complied with
the terms of Section 5.16 hereof.
(e) Parent Rights Agreement. No Stock Acquisition Date or Distribution
Date (as such terms are defined in the Parent Rights Agreement) shall have
occurred pursuant to the Parent Rights Agreement.
(f) No Material Changes. Parent and its Subsidiaries shall not have
suffered from the date of this Agreement any change that would reasonably be
expected to have a Material Adverse Effect on Parent.
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ARTICLE VII
TERMINATION AND AMENDMENT
SECTION 7.1 GENERAL. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time notwithstanding approval thereof by the stockholders of the
Company:
(a) by mutual written consent duly authorized by the Boards of the Company
and Parent;
(b) by the Company or Parent if the Closing shall not have occurred on or
before April 15, 2003 (the "Termination Date" which term shall include the date
of any extension under this Section 7.1(b)); provided, however, that if on the
Termination Date the conditions to Closing set forth in Sections 6.1(c) and
6.1(f) shall not have been fulfilled but all other conditions to Closing shall
or shall be capable of being fulfilled then the Termination Date shall be
automatically extended to July 15, 2003 (the "Extended Termination Date"); and
provided, further, that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose failure to fulfill any material
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur before such date;
(c) by the Company, if Parent shall have breached in any material respect
any of its representations or warranties or failed to perform in any material
respect any of its covenants or other agreements contained in this Agreement,
which breach or failure to perform (1) is incapable of being cured by Parent
prior to the Termination Date and (2) renders the condition set forth in Section
6.3(a) or 6.3(b) incapable of being satisfied prior to the Termination Date;
(d) by Parent, if the Company shall have breached in any material respect
any of its representations or warranties or failed to perform in any material
respect any of its covenants or other agreements contained in this Agreement,
which breach or failure to perform (1) is incapable of being cured by the
Company prior to the Termination Date and (2) renders the condition set forth in
Section 6.2(a) or 6.2(b) incapable of being satisfied prior to the Termination
Date;
(e) by the Company or Parent, upon written notice to the other party, if a
Governmental Entity of competent jurisdiction in the United States or of the
European Union shall have issued an order, judgment, decision, opinion, decree
or ruling or taken any other action (which the party seeking to terminate shall
have used its reasonable best efforts to resist, resolve, annul, quash, or lift,
as applicable, subject to the provisions of Section 5.3) permanently enjoining
or otherwise prohibiting the consummation of the transactions contemplated by
this Agreement, and such order, decree, ruling or action shall have become final
and non-appealable; provided, however, that the party seeking to terminate this
Agreement pursuant to this clause (e) has fulfilled its obligations under
Section 5.3;
(f) by the Company if (i) the Board of Directors of Parent shall have
withdrawn or changed or modified the Parent Recommendation in a manner adverse
to the Company or (ii) for any reason Parent fails to call or hold the Parent
Stockholders Meeting within six months of the date hereof (provided that if the
Form S-4 shall not have become effective for purposes of the Federal securities
laws by the date that is 20 business days prior to the date that is five months
from the date hereof, then such six month period shall be extended by the number
of days from that elapse from the end of the five-month period until the
effective date of the Form S-4);
(g) by Parent if (i) the Board of Directors of the Company shall have
withdrawn or changed or modified the Company Recommendation in a manner adverse
to Parent or (ii) for any reason the Company fails to call or hold the Company
Stockholders Meeting within six months of the date hereof (provided that if the
Form S-4 shall not have become effective for purposes of the Federal
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securities laws by the date that is 20 business days prior to the date that is
five months from the date hereof, then such six month period shall be extended
by the number of days from that elapse from the end of the five-month period
until the effective date of the Form S-4);
(h) by the Company, if the (i) Board of Directors of the Company authorizes
the Company, subject to complying with the terms of this Agreement, to enter
into a binding written agreement concerning a transaction that constitutes a
Superior Proposal to the Company and the Company notifies Parent in writing that
it intends to enter into such an agreement, attaching the most current version
of such agreement (or a description of all material terms and conditions
thereof) to such notice, (ii) Parent does not make, within five business days of
receipt of the Company's written notification of its intention to enter into a
binding agreement for such Superior Proposal, an offer that the Board of
Directors of the Company determines, in good faith after consultation with a
financial advisor of nationally recognized reputation, is at least as favorable
to the Company's stockholders as such Superior Proposal, it being understood
that the Company shall not enter into any such binding agreement during such
five-day period, and (iii) the Company, at or prior to any termination pursuant
to this Section 7.1(h), pays Parent the Termination Fee (as defined below) set
forth in Section 7.2;
(i) by the Company or Parent, if the Parent Stockholder Approval shall not
have been received at a duly held meeting of the stockholders of Parent called
for such purpose (including any adjournment or postponement thereof); and
(j) by the Company or Parent, if the Company Stockholder Approval shall not
have been received at a duly held meeting of the stockholders of the Company
called for such purpose (including any adjournment or postponement thereof).
SECTION 7.2 OBLIGATIONS IN EVENT OF TERMINATION.
(a) In the event of any termination of this Agreement as provided in
Section 7.1, this Agreement shall forthwith become wholly void and of no further
force and effect (except with respect to Section 3.1(j), Section 3.2(l), Section
5.2, Section 5.6, this Section 7.2 and Article VIII, which shall remain in full
force and effect) and there shall be no liability on the part of the Company or
Parent; provided, however, that termination shall not preclude any party from
suing the other party for, or relieve any party hereto from any liability
arising from a, willful breach of this Agreement; and, provided, further,
however, that if this Agreement is terminated for any reason, other than a
termination (1) by Parent pursuant to Section 7.1(g) (but only if the reason for
the termination was based on a Change in the Company Recommendation pursuant to
the terms of Section 5.4) or (2) by the Company pursuant to Section 7.1(h), then
the provisions of the sixth paragraph of the Confidentiality Agreement shall
continue to apply following the termination of the Merger Agreement and the date
set forth in the definition of "Standstill Period" set forth in the last
sentence of the sixth paragraph of the Confidentiality Agreement shall be
modified to be the date that is two (2) years from the date of the termination
of the Merger Agreement; provided, however, that the provisions of the sixth
paragraph of the Confidentiality Agreement shall terminate on the date that an
event described in clause (y) of such paragraph shall occur and provided further
that the Company agrees to notify Parent not later than 48 hours prior to
entering into any agreement with respect to a Business Combination.
(b) If this Agreement is terminated (i) by Parent pursuant to Section
7.1(g) (but only if, on or before the date this Agreement is terminated, there
shall have been made an offer or proposal for, or any announcement of any
intention with respect to (including the filing of a statement of beneficial
ownership on Schedule 13D discussing the possibility of or reserving the right
to engage in), a transaction that would constitute a Business Combination
involving the Company (whether or not
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such offer, proposal, announcement or agreement will have been rejected or
withdrawn prior to the date this Agreement is terminated)); (ii) by Parent or
the Company pursuant to Section 7.1(j) because of the failure to obtain the
Company Stockholder Approval (but only if, after the date hereof and prior to
the Company Stockholder Meeting, there shall have been made public to a
significant number of the Company's stockholders an offer or proposal for, or
any public announcement of any intention with respect to (including the filing
of a statement of beneficial ownership on Schedule 13D discussing the
possibility of or reserving the right to engage in), a transaction that would
constitute a Business Combination involving the Company (whether or not such
offer, proposal, announcement or agreement will have been rejected or withdrawn
prior to the date of the Company Stockholder Meeting)); (iii) by Parent or the
Company pursuant to Section 7.1(b) because the Merger shall not have been
consummated at or prior to the Termination Date or the Extended Termination
Date, as the case may be, and, at the time of the termination, (x) the Company
Stockholder Approval shall not have been obtained and (y) after the date hereof
and prior to the Termination Date or the Extended Termination Date, as the case
may be, there shall have been made an offer or proposal for, or an announcement
of any intention with respect to (including the filing of a statement of
beneficial ownership on Schedule 13D discussing the possibility of or reserving
the right to engage in), a transaction that would constitute a Business
Combination involving the Company (whether or not such offer, proposal,
announcement or agreement will have been rejected or withdrawn prior to the
Termination Date or the Extended Termination Date, as the case may be); or (iv)
by the Company pursuant to Section 7.1(h), then (A) in the case of clauses
(b)(i), (b)(ii), and (b)(iii) if within twelve months of termination of this
Agreement, the Company enters into a definitive agreement with any Person (other
than Parent or any of Parent's affiliates) with respect to a Business
Combination or any Business Combination with respect to the Company is
consummated, then the Company shall pay to Parent, not later than one business
day after the earlier of the date such agreement is entered into or such
Business Combination is consummated, a termination fee of $1,600,000,000 (the
"Termination Fee") and (B) in the case of clauses (b)(iv), the Company shall pay
to Parent, at or prior to such termination pursuant to Section 7.1(h), the
Termination Fee. Notwithstanding the foregoing, no Termination Fee shall be
payable by the Company to Parent if the Parent stockholders do not approve the
Share Issuance or Certificate Amendment.
(c) For the purposes of this Section 7.2, "Business Combination" means with
respect to the Company, (i) a merger, reorganization, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution or
similar transaction involving such party as a result of which either (A) the
Company's stockholders prior to such transaction (by virtue of their ownership
of such party's shares) in the aggregate cease to own at least 50% of the voting
securities of the entity surviving or resulting from such transaction (or the
ultimate parent entity thereof) or, regardless of the percentage of voting
securities held by such stockholders, if any Person shall beneficially own,
directly or indirectly, at least 40% of the voting securities of such ultimate
parent entity or (B) the individuals comprising the board of directors of the
Company prior to such transaction do not constitute a majority of the board of
directors of such ultimate parent entity, (ii) a sale, lease, exchange, transfer
or other disposition of at least 40% of the assets of the Company and its
Subsidiaries, taken as a whole, in a single transaction or a series of related
transactions, or (iii) the acquisition, directly or indirectly, by a Person of
beneficial ownership of 40% or more of the common stock of the Company whether
by merger, consolidation, share exchange, business combination, tender or
exchange offer or otherwise (other than a merger, reorganization, consolidation,
share exchange, business combination, recapitalization, liquidation, dissolution
or similar transaction upon the consummation of which the Company's stockholders
would in the aggregate beneficially own greater than 50% of the voting
securities of such Person).
(d) All payments under this Section 7.2 shall be made by wire transfer of
immediately available funds to an account designated by Parent.
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(e) The parties each agree that the agreements contained in Section 7.2(b)
are an integral part of the transaction contemplated by this Agreement and
constitute liquidated damages and not a penalty. If the Company fails to
promptly pay Parent any fee due under such Section 7.2(b), the Company shall pay
the costs and expenses of Parent (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or legal action,
taken to collect payment.
SECTION 7.3 AMENDMENT. This Agreement may be amended by the parties, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of the Company and Parent, but, after any such approval, no
amendment shall be made which by law or in accordance with the rules of any
relevant stock exchange requires further approval by such stockholders without
such further approval. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties.
SECTION 7.4 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties, (ii)
waive any inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth in
a written instrument signed on behalf of such party. The failure of any party to
this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
SECTION 7.5 NO EFFECT ON EXISTING AGREEMENTS. Except as expressly set
forth herein, nothing in this Agreement shall affect the rights and obligations
of the parties with respect to any other agreements between the parties,
including without limitation, the Co-Promotion Agreements.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations, warranties, covenants and other
agreements in this Agreement or in any instrument delivered pursuant to this
Agreement, including any rights arising out of any breach of such
representations, warranties, covenants and other agreements, shall survive the
Effective Time, except for those covenants and agreements contained herein and
therein (including Section 5.7) that by their terms apply or are to be performed
in whole or in part after the Effective Time and this Article VIII.
SECTION 8.2 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed duly given (a) on the date of delivery if
delivered personally, or by telecopy or telefacsimile, upon confirmation of
receipt, (b) on the first Business Day following the date of dispatch if
delivered by a recognized next-day courier service, or (c) on the tenth Business
Day following the date of mailing if delivered by registered or certified mail,
return receipt requested,
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postage prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice:
(a) if to Parent or Merger Sub, to:
Pfizer Inc.
235 East 42nd Street
New York, New York 10017
Fax: (212) 808-8924
Attention: Jeffrey Kindler, Esq.
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Fax: (212) 504-6666
Attention: Dennis J. Block, Esq.
(b) if to the Company to:
Pharmacia Corporation
100 Route 206 North
Peapack, New Jersey 07977
Fax: (908) 901-1810
Attention: Richard T. Collier, Esq.
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Fax: (212) 558-3588
Attention: Neil T. Anderson, Esq.
Keith A. Pagnani, Esq.
SECTION 8.3 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation.
SECTION 8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
SECTION 8.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement (including the Exhibits and Schedules hereto) and the
Confidentiality Agreement constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and thereof.
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(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 5.7 (which is intended to be for the benefit of the Persons covered
thereby and may be enforced by such Persons).
SECTION 8.6 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of New York (without giving effect to
choice of law principles thereof).
SECTION 8.7 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Notwithstanding the foregoing, upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby are consummated as originally contemplated to the greatest extent
possible.
SECTION 8.8 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties, in
whole or in part (whether by operation of law or otherwise), without the prior
written consent of the other party, and any attempt to make any such assignment
without such consent shall be null and void, except that Merger Sub may assign,
in its sole discretion, any or all of its rights, interests and obligations
under this Agreement to any direct wholly owned Subsidiary of Parent without the
consent of the Company, but no such assignment shall relieve Merger Sub of any
of its obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
SECTION 8.9 SUBMISSION TO JURISDICTION; WAIVERS. Each of Parent and the
Company irrevocably agrees that any legal action or proceeding with respect to
this Agreement or for recognition and enforcement of any judgment in respect
hereof brought by the other party hereto or its successors or assigns may be
brought and determined in the Chancery or other Courts of the State of Delaware,
and each of Parent and the Company hereby irrevocably submits with regard to any
such action or proceeding for itself and in respect to its property, generally
and unconditionally, to the nonexclusive jurisdiction of the aforesaid courts.
Each of Parent and the Company hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, counterclaim or otherwise, in any action
or proceeding with respect to this Agreement, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to lawfully serve process (b) that it or its property is
exempt or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment prior to
judgment, attachment in aid of execution of judgment, execution of judgment or
otherwise), and (c) to the fullest extent permitted by applicable law, that (i)
the suit, action or proceeding in any such court is brought in an inconvenient
forum, (ii) the venue of such suit, action or proceeding is improper and (iii)
this Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
SECTION 8.10 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed that
the parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
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SECTION 8.11 DEFINITIONS. As used in this Agreement:
(a) "beneficial ownership" or "beneficially own" shall have the meaning
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
(b) "Benefit Plans" means, with respect to any Person, each employee
benefit plan, program, policy, arrangement and contract (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and any
bonus, deferred compensation, stock bonus, stock purchase, restricted stock,
stock option, employment, termination, stay agreement or bonus, change in
control and severance plan, program, policy, arrangement and contract, written
or oral) in effect on the date of this Agreement or disclosed on the Company
Disclosure Schedule or the Parent Disclosure Schedule, as the case may be, to
which such Person or its Subsidiary is a party, which is maintained or
contributed to by such Person, or with respect to which such Person could incur
material liability under Section 4069, 4201 or 4212(c) of ERISA.
(c) "Board of Directors" means the Board of Directors of any specified
Person and any committees thereof.
(d) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
(e) "Confidentiality Agreement" means the letter agreement, dated June 27,
2002 between Parent and the Company.
(f) "known" or "knowledge" means, with respect to any party, the actual
knowledge of such party's executive officers and senior management as listed on
such party's annual report to its shareholders and such knowledge as would be
reasonably expected to be known by such executive officers in the ordinary and
usual course of the performance of their professional responsibilities to such
party.
(g) "Material Adverse Effect" means, with respect to any entity, any event,
change, circumstance or effect that is or is reasonably likely to be materially
adverse to (i) the business, financial condition or results of operations of
such entity and its Subsidiaries, taken as a whole, other than any event,
change, circumstance or effect relating (w) to the economy or financial markets
in general, (x) in general to the industries in which such entity operates and
not specifically relating to (or having the effect of specifically relating to
or having a materially disproportionate effect (relative to most other industry
participants) on) such entity, (y) to changes in applicable law or regulations
or in GAAP or (z) to the announcement of this Agreement or the transactions
contemplated hereby or (ii) the ability of such entity to consummate the
transactions contemplated by this Agreement. Except as specifically set forth in
this Agreement, all references to Material Adverse Effect on Parent or its
Subsidiaries contained in this Agreement shall be deemed to refer solely to
Parent and its Subsidiaries without including its ownership of the Company and
its Subsidiaries after the Merger.
(h) "other party" means, with respect to the Company, Parent and means,
with respect to Parent, the Company, unless the context otherwise requires.
(i) "Person" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
(j) "Subsidiary" when used with respect to any party means any corporation
or other organization, whether incorporated or unincorporated, (i) of which such
party or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party or
any Subsidiary of such party do not have a majority of the voting interests in
A-52
such partnership) or (ii) at least a majority of the securities or other
interests of which having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its Subsidiaries, or
by such party and one or more of its Subsidiaries; provided, that the parties
agree that notwithstanding any other provision of this Agreement, the term
"Subsidiary" shall not, with respect to the Company and for the purposes of (x)
Section 6.2(a) (as it relates to the accuracy of the Company's representations
and warranties as of the Closing Date only), but only if the Monsanto Spin-Off
shall have occurred, and (y) Article IV (except as to the ability of the Company
to control or prohibit action of Monsanto pursuant to the Separation Agreements
or otherwise), Article V (except as to the ability of the Company to control or
prohibit action of Monsanto pursuant to the Separation Agreements or otherwise)
and Section 7.1(d)only, include Monsanto Company.
(k) "Superior Proposal" means with respect to the Company, a bona fide
written proposal made by a third party which is (I)(i) for a sale, lease,
exchange, transfer or other disposition of at least 40% of the assets of the
Company and its Subsidiaries, taken as a whole, in a single transaction or a
series of related transactions, or (ii) for the acquisition, directly or
indirectly, by such third party of beneficial ownership of 30% or more of the
common stock of the Company whether by merger, consolidation, share exchange,
business combination, tender or exchange offer or otherwise, and which is (II)
otherwise on terms which the Board of Directors of the Company in good faith
concludes (after consultation with its financial advisors and outside counsel),
taking into account, among other things, all legal, financial, regulatory and
other aspects of the proposal and the third party making the proposal, (i)
would, if consummated, result in a transaction that is more favorable to its
stockholders (in their capacities as stockholders), from a financial point of
view, than the transactions contemplated by this Agreement and (ii) is
reasonably capable of being completed.
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
PFIZER INC.
By: /s/ HENRY A. MCKINNELL
---------------------------------------
Henry A. McKinnell
Chairman of the Board and
Chief Executive Officer
PILSNER ACQUISITION SUB CORP.
By: /s/ DAVID SHEDLARZ
---------------------------------------
David Shedlarz
President
PHARMACIA CORPORATION
By: /s/ FRED HASSAN
---------------------------------------
Fred Hassan
Chairman and Chief Executive Officer
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ANNEX B
July 13, 2002
The Board of Directors
Pfizer Inc
235 East 42nd Street
New York, N.Y. 10017
Dear Members of the Board:
We understand that Pfizer Inc ("Pfizer") and Pharmacia Corporation (the
"Subject Company") propose to enter into an Agreement and Plan of Merger, dated
as of July 13, 2002 (the "Agreement"), pursuant to which Pfizer will acquire the
Subject Company in a transaction (the "Merger") in which each issued and
outstanding share of the Subject Company's common stock will be converted into
the right to receive 1.40 shares (the "Exchange Ratio") of Pfizer's common
stock. In addition, each issued and outstanding share of the Subject Company's
Series B Convertible Perpetual Preferred Stock will be converted into the right
to receive one share of Series A Convertible Perpetual Preferred Stock of
Pfizer. We also understand that the Subject Company intends to dispose of its
interests in Monsanto Company ("Monsanto") and that the consummation of the
Merger is conditioned on the completion of such disposition (the "Monsanto
Disposition"). The terms and conditions of the Merger are more fully set forth
in the Agreement.
You have requested our opinion as to the fairness to Pfizer, from a
financial point of view, of the Exchange Ratio as of the date hereof. In
connection with this opinion, we "have:
(i) Reviewed the financial terms and conditions of the Agreement and
the Certificate of Designations for Series A Convertible Perpetual
Preferred Stock of Pfizer;
(ii) Analyzed certain historical publicly available business and
financial information relating to Pfizer and the Subject Company;
(iii) Reviewed various financial forecasts and other data provided to
us by Pfizer and the Subject Company relating to their respective
businesses;
(iv) Reviewed the synergistic savings and benefits and the timing of
their occurrence as projected by Pfizer to be realized by the combined
entity in connection with the Merger;
(v) Held discussions with members of the senior managements of Pfizer
and the Subject Company with respect to the business and prospects of
Pfizer and the Subject Company, respectively, the strategic objectives of
each and the possible benefits that might be realized following the Merger
as projected by Pfizer;
(vi) Reviewed public information with respect to certain other
companies in lines of businesses we believe to be generally comparable to
the businesses of Pfizer and the Subject Company;
(vii) Reviewed the financial terms of certain significant business
combinations involving companies in lines of businesses we believe to be
generally comparable to those of Pfizer and the Subject Company;
(viii) Reviewed the historical trading prices and trading volumes of
Pfizer's, the Subject Company's and Monsanto's common stock;
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(ix) Reviewed the pro forma financial results, financial condition and
capitalization of Pfizer giving effect to the Merger provided to us by the
management of Pfizer; and
(x) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
information. We have not assumed any responsibility for any independent
verification of such information for any independent valuation or appraisal of
any of the assets and liabilities of Pfizer or the Subject Company, or
concerning the solvency of or issues relating to solvency concerning either of
the foregoing entities. With respect to financial forecasts, including the
synergistic savings and benefits projected by Pfizer to be realized following
the Merger, and the timing thereof, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of Pfizer and of the Subject Company as to the
future financial performance of Pfizer and the Subject Company, respectively,
and of Pfizer with respect to the combined entity. We assume no responsibility
for and express no view as to such forecasts or the assumptions on which they
are based.
Further, our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. We assume no responsibility for updating or revising our
opinion based on circumstances or events occurring after the date hereof.
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms and subject to the conditions described in the
Agreement without any waiver or modification of any material terms or conditions
by Pfizer, that obtaining the necessary regulatory approvals for the Merger will
not have an adverse effect on Pfizer or the Subject Company and that the
synergistic savings and benefits of the Merger projected by the management of
Pfizer will be substantially realized both in scope and timing. In addition, we
have assumed that (i) the Merger will be accounted for as a tax-free
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code, (ii) the number of outstanding shares of common stock of the Subject
Company on a fully diluted basis will not be materially different than as
represented in the Agreement and (iii) the other representations and warranties
of the Subject Company and Pfizer contained in the Agreement are true and
complete.
We do not express any opinion as to the price at which the common stock of
Pfizer or the Subject Company may trade subsequent to the announcement of the
Merger or as to the price at which the common stock of Pfizer may trade
subsequent to the consummation of the Merger. We are also not expressing any
opinion as to any aspect of the Monsanto Disposition.
Lazard Freres & Co. LLC is acting as an investment banker to Pfizer in
connection with the Merger and will receive a fee for our services, a
substantial portion of which is payable upon the closing of the Merger. We have
in the past provided investment banking services to Pfizer for which we have
received customary fees. In addition, in the ordinary course of our business, we
may actively trade shares of Pfizer's, the Subject Company's and Monsanto's
common stock and other securities of Pfizer, the Subject Company and Monsanto
for our own account and for the accounts of our customers and, accordingly, may
at any time hold a long or short position in such securities.
Our engagement and the opinion expressed herein are for the benefit and use
of Pfizer's board of directors. Our opinion does not address the merits of the
underlying decision by Pfizer to engage in the Merger and does not constitute a
recommendation to any stockholder of Pfizer as to how such stockholder should
vote on, or take any other action with respect to, the Merger. It is understood
that this letter may not be disclosed or otherwise referred to without our prior
consent, except as may otherwise be required by law or by a court of competent
jurisdiction.
B-2
Based on and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair to Pfizer from a financial point of
view.
Very truly yours,
LAZARD FRERES & CO. LLC
By: /s/ STEVEN J. GOLUB
---------------------------------------
Steven J.Golub
Managing Director
B-3
ANNEX C
[BEAR, STEARS & CO. LETTERHEAD]
July 13, 2002
The Board of Directors
Pfizer Inc
235 East 42nd Street
New York, NY 10017
Ladies and Gentlemen:
We understand that Pfizer Inc ("Pfizer") and Pharmacia Corporation
("Pharmacia") intend to enter into an Agreement and Plan of Merger, dated as of
July 13, 2002 (the "Agreement"), among Pfizer, Pilsner Acquisition Sub Corp., a
wholly-owned subsidiary of Pfizer ("Merger Sub"), and Pharmacia pursuant to
which Merger Sub will be merged with and into Pharmacia (the "Merger"). We
further understand that, at the effective time of the Merger, each issued and
outstanding share of common stock, par value $2.00 per share, of Pharmacia
("Pharmacia Common Stock") will be converted into the right to receive 1.4
shares (the "Exchange Ratio") of common stock, par value $0.05 per share, of
Pfizer ("Pfizer Common Stock"). In addition, each issued and outstanding share
of Series B Convertible Perpetual Preferred Stock, par value $0.01 per share, of
Pharmacia will be converted into the right to receive one share of Series A
Convertible Perpetual Preferred Stock of Pfizer. We also understand that
Pharmacia intends to dispose of its interest in Monsanto Company ("Monsanto")
and that the consummation of the Merger is conditioned on the completion of such
disposition (the "Monsanto Disposition").
You have asked us to render our opinion as to whether the Exchange Ratio is
fair, from a financial point of view, to Pfizer.
In the course of performing our review and analyses for rendering this
opinion, we have:
- reviewed the Agreement and the Certificate of Designations for Series A
Convertible Perpetual Preferred Stock of Pfizer Inc;
- reviewed each of Pfizer's and Pharmacia's Annual Reports to Shareholders
and Annual Reports on Form 10-K for the years ended December 31, 1999
through 2001, their respective Quarterly Reports on Form 10-Q for the
period ended March 31, 2002 and their Reports on Form 8-K for the three
years ended the date hereof;
- reviewed certain operating and financial information provided to us by
the senior managements of Pfizer and of Pharmacia relating to Pfizer's
and Pharmacia's respective businesses and prospects, including financial
projections for Pfizer for the years ending December 31, 2002 through
2004 prepared by the management of Pfizer (the "Pfizer Projections") and
for Pharmacia for the years ending December 31, 2002 through 2004
prepared by the management of Pharmacia, assuming the completion of the
Monsanto Disposition (the "Pharmacia Projections") (the Pfizer
Projections and the Pharmacia Projections collectively referred to herein
as the "Projections") and certain other forward-looking information;
- reviewed certain estimates of cost savings and other combination benefits
expected to result from the Merger prepared and provided to us by the
management of Pfizer (collectively, the "Projected Benefits");
C-1
Pfizer Inc.
July 13, 2002
Page 2
- met with certain members of the senior managements of Pfizer and of
Pharmacia and Pharmacia's advisors to discuss (i) the current business
landscape and competitive dynamics related to the markets in which Pfizer
and Pharmacia operate; (ii) each company's business, operations,
historical and projected financial results, future prospects and
financial condition; (iii) each company's views of the strategic,
business, operational and financial rationale for, and expected strategic
benefits and other implications of, the Merger; (iv) the Projections and
Projected Benefits and (v) certain other assumptions and judgments
underlying certain estimates which we deemed relevant to our analysis;
- reviewed the historical prices, valuation parameters and trading volumes
of Pfizer Common Stock, Pharmacia Common Stock and the common stock, par
value $0.01 per share, of Monsanto;
- reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which we deemed generally
comparable to Pfizer and Pharmacia or otherwise relevant to our analysis;
- reviewed the terms, to the extent publicly available, of recent mergers
and acquisitions of companies which we deemed generally comparable to the
Merger or otherwise relevant to our analysis;
- performed discounted cash flow analyses based on the Projections and the
Projected Benefits furnished to us;
- reviewed the pro forma financial results, financial condition and
capitalization of Pfizer giving effect to the Merger provided to us by
the management of Pfizer; and
- conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including,
without limitation, the Projections and the Projected Benefits, provided to us
by Pfizer and Pharmacia. With respect to the Projections and the Projected
Benefits, we have relied on representations that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the senior managements of Pfizer and of Pharmacia as to the
expected future performance of Pfizer and Pharmacia, respectively. We have not
assumed any responsibility for the independent verification of any such
information or of the Projections and the Projected Benefits provided to us, and
we have further relied upon the assurances of the senior managements of Pfizer
and of Pharmacia that they are unaware of any facts that would make the
information, the Projections or the Projected Benefits provided to us incomplete
or misleading.
In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets or liabilities (contingent or otherwise) of
Pfizer or Pharmacia, nor have we been furnished with any such appraisals. We
have assumed that the Merger will qualify as a tax-free "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code. We have assumed that
the Merger will be consummated in a timely manner and in accordance with the
terms and conditions of the Agreement without any limitations, restrictions,
conditions, waivers, amendments or modifications, regulatory or otherwise, that
collectively would have a material effect on Pfizer or Pharmacia.
We do not express any opinion as to the price or range of prices at which
Pfizer Common Stock or Pharmacia Common Stock may trade subsequent to the
announcement of the Merger or as to the
C-2
Pfizer Inc.
July 13, 2002
Page 3
price or range of prices at which Pfizer Common Stock may trade subsequent to
the consummation of the Merger. We are also not expressing any opinion as to any
aspect of the Monsanto Disposition.
We have acted as a financial advisor to Pfizer in connection with the
Merger and will receive a customary fee for such services, a substantial portion
of which is contingent on successful consummation of the Merger. Bear Stearns
has been previously engaged by Pharmacia to provide certain investment banking
and financial advisory services in connection with actual and prospective
merger, acquisition and divestiture transactions as well as certain capital
raising transactions, for which we received customary compensation. In the
ordinary course of business, Bear Stearns and its affiliates may actively trade
the equity and debt securities and/or bank debt of Pfizer, Pharmacia and/or
Monsanto for our own account and for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities or
bank debt.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of Pfizer and does not constitute a recommendation to the
Board of Directors of Pfizer or any holders of Pfizer Common Stock as to how to
vote in connection with the Merger. This opinion does not address Pfizer's
underlying business decision to pursue the Merger, the relative merits of the
Merger as compared to any alternative business strategies that might exist for
Pfizer or the effects of any other transaction in which Pfizer might engage.
This letter is not to be used for any other purpose, or be reproduced,
disseminated, quoted from or referred to at any time, in whole or in part,
without our prior written consent; provided, however, that this letter may be
included in its entirety in any joint proxy statement/prospectus to be
distributed to the holders of Pfizer Common Stock in connection with the Merger.
Our opinion is subject to the assumptions and conditions contained herein and is
necessarily based on economic, market and other conditions, and the information
made available to us, as of the date hereof. We assume no responsibility for
updating or revising our opinion based on circumstances or events occurring
after the date hereof.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair, from a financial point of view, to
Pfizer.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ ALAN SCHWARTZ
------------------------------------
President
C-3
ANNEX D
PERSONAL AND CONFIDENTIAL
July 13, 2002
Board of Directors
Pharmacia Corporation
100 Route 206 North
Peapack, NJ 07977
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock, par value $2.00
per share ("Company Common Stock"), of Pharmacia Corporation (the "Company") of
the exchange ratio of 1.40 shares of common stock, par value $0.05 per share
("Pfizer Common Stock"), of Pfizer Inc. ("Pfizer") to be received for each share
of Company Common Stock (the "Exchange Ratio") pursuant to the Agreement and
Plan of Merger, dated as of July 13, 2002 (the "Agreement"), among Pfizer,
Pilsner Acquisition Sub Corp. and the Company.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in performing financial analyses with respect to businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities and private placements and for estate, corporate and other
purposes. We are familiar with the Company, having provided certain investment
banking services to the Company from time to time, including having acted as its
financial advisor in connection with the sale of its 45% stake in Amersham
Biosciences to Amersham plc in March 2002 for one billion dollars, having acted
as lead manager of the initial public offering of 35,000,000 shares of the
common stock of its then wholly-owned subsidiary, Monsanto Company, in October
2000, and having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement. We also
are currently advising the Company on the proposed spin-off of its approximate
85% interest in Monsanto Company to its shareholders (the "Spin-off"). We may
also provide investment banking services to Pfizer and its subsidiaries in the
future. Goldman, Sachs & Co. provides a full range of financial advisory and
securities services and, in the course of normal trading activities, may from
time to time effect transactions and hold securities, including derivative
securities, of the Company or Pfizer for its own account and for the account of
its customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company and Pfizer for each of the five years ended December 31, 2001; certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of the
Company and Pfizer; certain other communications from the Company and Pfizer to
their respective stockholders; and certain internal financial analyses and
forecasts for the Company and Pfizer prepared by their respective managements,
including certain cost savings and operating synergies expected to result from
the transaction contemplated by the Agreement (the "Synergies"). We also have
held discussions with members of the senior management of the Company and Pfizer
regarding their assessments of the strategic rationale for, and the potential
benefits of, the transaction contemplated by the Agreement and the past and
current business operations, financial condition and future prospects of their
respective companies. In addition, we have reviewed the reported price and
trading activity for the Company Common Stock and the Pfizer Common Stock,
compared certain financial and stock market information for the Company and
Pfizer with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations in the pharmaceutical industry
D-1
Board of Directors
Pharmacia Corporation
July 13, 2002
Page Two
specifically and in other industries generally and performed such other studies
and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial,
accounting and other information discussed with or reviewed by us and have
assumed such accuracy and completeness for purposes of rendering this opinion.
In that regard, we have assumed with your consent that the internal financial
forecasts prepared by the respective managements of the Company and Pfizer,
including the Synergies, have been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the Company and Pfizer. In
addition, we have not made an independent evaluation or appraisal of the assets
and liabilities of the Company or Pfizer or any of their respective subsidiaries
and we have not been furnished with any such evaluation or appraisal. We also
have assumed that all material governmental, regulatory or other consents and
approvals necessary for the consummation of the transaction contemplated by the
Agreement will be obtained without any meaningful adverse effect on the Company
or Pfizer or on the expected benefits of the transaction contemplated by the
Agreement. In addition, we have assumed that the Spin-off will be completed
prior to the closing of the merger contemplated by the Agreement. Our advisory
services and the opinion expressed herein are provided for the information and
assistance of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated by the Agreement and such opinion
does not constitute a recommendation as to how any holder of Company Common
Stock should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof, the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to the holders of Company Common Stock.
D-2
ANNEX E
CERTIFICATE OF DESIGNATIONS
FOR
SERIES A CONVERTIBLE PERPETUAL PREFERRED STOCK
OF
PFIZER INC.
(PURSUANT TO SECTION 151 OF THE DELAWARE CORPORATION LAW)
Pfizer Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (hereinafter called the "Corporation"),
hereby certifies that the following resolution was adopted by the Board of
Directors of the Corporation as required by Section 151 of the General
Corporation Law at a meeting duly called and held on July 13, 2002:
This Board hereby RESOLVES that pursuant to the authority granted to and
vested in the Board of Directors of this Corporation in accordance with the
provisions of the Restated Certificate of Incorporation ("Certification of
Incorporation"), the Board of Directors hereby creates a series of preferred
stock of the Corporation, and hereby states the designation and number of shares
of such series, and fixes the relative, participating, optional or other special
rights, preferences, and limitations thereof as follows:
Series A Convertible Perpetual Preferred Stock:
SECTION 1. DESIGNATION AND AMOUNT; SPECIAL PURPOSE RESTRICTED TRANSFER
ISSUE. (a) The shares of such series shall be designated as shares of "Series A
Convertible Perpetual Preferred Stock, no par value per share" (the "Convertible
Perpetual Preferred Shares"), and the number of shares constituting such series
shall be 7,500. Each Convertible Perpetual Preferred Share shall have a stated
value of $40,300.00 per share.
(b) Convertible Perpetual Preferred Shares shall be issued only to State
Street Bank and Trust Company, its successors and assigns, as trustee (the
"Trustee") of the Pharmacia & Upjohn, Inc. Employee Stock Ownership Trust
forming a part of the Pharmacia Corp. Employee Stock Ownership Plan, or any
successor to such plan (the "Plan" or "ESOP"). All references to the holder of
Convertible Perpetual Preferred Shares shall mean the Trustee or any corporation
with which or into which the Trustee may merge or any successor trustee under
the trust agreement with respect to the Plan. In the event of any transfer of
record ownership of Convertible Perpetual Preferred Shares to any person other
than any successor trustee under the Plan, the Convertible Perpetual Preferred
Shares so transferred, upon such transfer and without any further action by the
Corporation or the holder thereof, shall be automatically converted into shares
of Common Stock on the terms otherwise provided for the conversion of
Convertible Perpetual Preferred Shares into shares of Common Stock pursuant to
Section 5 and no such transferee shall have any of the voting powers,
preferences and relative, participating, optional or special rights ascribed to
Convertible Perpetual Preferred Shares hereunder but, rather, only the powers
and rights pertaining to the Common Stock into which such Convertible Perpetual
Preferred Shares shall be so converted. In the event of such a conversion, the
transferee of the Convertible Perpetual Preferred Shares shall be treated for
all purposes as the record holder of the shares of Common Stock into which such
Convertible Perpetual Preferred Shares have been automatically converted as of
the date of such transfer. Certificates representing Convertible Perpetual
Preferred Shares shall bear a legend to reflect the foregoing provisions.
Notwithstanding the foregoing provisions of this Section 1(b), Convertible
Perpetual Preferred Shares (i) may be converted into shares of Common Stock as
provided by Section 5 and the shares of Common Stock
E-1
issued upon such conversion may be transferred by the holder thereof as
permitted by law and (ii) shall be redeemable by the Corporation upon the terms
and conditions provided by Sections 6, 7 and 8.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS. Subject to the provisions for
adjustment hereinafter set forth, the holders of Convertible Perpetual Preferred
Shares shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available therefor, cash dividends ("Convertible
Perpetual Preferred Dividends") in an amount per share not to exceed $2,518.75
per share per annum, payable quarterly in arrears, one-quarter on the 1st day of
January, one-quarter on the 1st day of April, one-quarter on the 1st day of July
and one-quarter on the 1st day of October of each year (each, a "Dividend
Payment Date"), to holders of record at the start of business on such Dividend
Payment Date. In the event that any Dividend Payment Date shall fall on any day
other than a "Business Day" (as hereinafter defined), the dividend payment due
on such Dividend Payment Date shall be paid on the Business Day immediately
following such Dividend Payment Date. Convertible Perpetual Preferred Dividends
shall begin to accrue on outstanding Convertible Perpetual Preferred Shares from
the date on which dividends were last paid by Pharmacia Corp. on shares of its
Series B Convertible Perpetual Preferred Stock, par value $.01 per share of
issuance of such Convertible Perpetual Preferred Shares. Convertible Perpetual
Preferred Dividends shall accrue on a daily basis whether or not the Corporation
shall have earnings or surplus at the time, but Convertible Perpetual Preferred
Dividends accrued after issuance on the Convertible Perpetual Preferred Shares
for any period less than a full quarterly period between Dividend Payment Dates
(or, in the case of the first dividend payment, from the date of issuance
through the first Dividend Payment Date) shall be computed on the basis of a
360-day year of twelve 30-day months. Accrued but unpaid Convertible Perpetual
Preferred Dividends shall cumulate as of the Dividend Payment Date on which they
first become payable, but no interest shall accrue on accumulated but unpaid
Convertible Perpetual Preferred Dividends.
(b) So long as any Convertible Perpetual Preferred Shares shall be
outstanding, no dividend shall be declared or paid or set apart for payment on
any other series of stock ranking on a parity with the Convertible Perpetual
Preferred Shares as to dividends, unless there shall also be or have been
declared and paid or set apart for payment on the Convertible Perpetual
Preferred Shares dividends for all dividend payment periods of the Convertible
Perpetual Preferred Shares ending on or before the dividend payment date of such
parity stock, ratably in proportion to the respective amounts of dividends
accumulated and unpaid through such dividend period on the Convertible Perpetual
Preferred Shares and accumulated and unpaid on such parity stock through the
dividend payment period on such parity stock next preceding such dividend
payment date. In the event that full cumulative dividends on the Convertible
Perpetual Preferred Shares have not been declared and paid or set apart for
payment when due, the Corporation shall not declare or pay or set apart for
payment any dividends or make any other distributions on, or make any payment on
account of the purchase, redemption or other retirement of any other class of
stock or series thereof of the Corporation ranking, as to dividends or as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Convertible Perpetual Preferred Shares until full
cumulative dividends on the Convertible Perpetual Preferred Shares shall have
been paid or declared and set apart for payment; provided, however, that the
foregoing shall not apply to (i) any dividend payable solely in any shares of
any stock ranking, as to dividends and as to distributions in the event of a
liquidation, dissolution or winding-up of the Corporation, junior to the
Convertible Perpetual Preferred Shares or (ii) the acquisition of shares of any
stock ranking, as to dividends or as to distributions in the event of a
liquidation, dissolution or winding-up of the Corporation, junior to the
Convertible Perpetual Preferred Shares in exchange solely for shares of any
other stock ranking, as to dividends and as to distributions in the event of a
liquidation, dissolution or winding-up of the Corporation, junior to the
Convertible Perpetual Preferred Shares.
E-2
SECTION 3. VOTING RIGHTS. The holders of Convertible Perpetual Preferred
Shares shall have the following voting rights:
(a) The holders of Convertible Perpetual Preferred Shares shall be entitled
to vote on all matters submitted to a vote of the stockholders of the
Corporation, voting together with the holders of Common Stock as one class. The
holder of each Convertible Perpetual Preferred Share shall be entitled to a
number of votes equal to the number of shares of Common Stock into which such
Convertible Perpetual Preferred Share could be converted on the record date for
determining the stockholders entitled to vote, rounded to the nearest one
one-hundredth of a vote; it being understood that whenever the "Conversion
Price" (as defined in Section 5(a)) is adjusted as provided in Section 9, the
number of votes of the Convertible Perpetual Preferred Shares shall also be
similarly adjusted.
(b) Except as otherwise required by law or set forth herein, holders of
Convertible Perpetual Preferred Shares shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for the taking of any
corporate action; provided, however, that the vote of at least 66 2/3% of the
outstanding Convertible Perpetual Preferred Shares, voting separately as a
series, shall be necessary to adopt any alteration, amendment or repeal of any
provision of the Restated Certificate of Incorporation of the Corporation
(including any such alteration, amendment or repeal effected by any merger or
consolidation in which the Corporation is the surviving or resulting
corporation), if such amendment, alteration or repeal would alter or change the
powers, preferences, or special rights of the Convertible Perpetual Preferred
Shares so as to affect them adversely.
SECTION 4. LIQUIDATION, DISSOLUTION OR WINDING-UP. Upon any voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, the
holders of Convertible Perpetual Preferred Shares shall be entitled to receive
out of assets of the Corporation that remain after satisfaction in full of all
valid claims of creditors of the Corporation and that are available for payment
to stockholders, and subject to the rights of the holders of any stock of the
Corporation ranking senior to or on a parity with the Convertible Perpetual
Preferred Shares in respect of distributions upon liquidation, dissolution or
winding-up of the Corporation, before any amount shall be paid or distributed
among the holders of Common Stock or any other shares ranking junior to the
Convertible Perpetual Preferred Shares in respect of distributions upon
liquidation, dissolution or winding-up of the Corporation, liquidating
distributions in the amount of $40,300.00 per share, plus an amount equal to all
accrued and unpaid dividends thereon to the date fixed for distribution, and no
more. If upon any liquidation, dissolution or winding-up of the Corporation, the
amounts payable with respect to the Convertible Perpetual Preferred Shares and
any other stock ranking as to any such distribution on a parity with the
Convertible Perpetual Preferred Shares are not paid in full, the holders of the
Convertible Perpetual Preferred Shares and such other stock shall share ratably
in any distribution of assets in proportion to the full respective preferential
amounts to which they are entitled. After payment of the full amounts to which
they are entitled as provided by the foregoing provisions of this Section 4(a),
the holders of Convertible Perpetual Preferred Shares shall not be entitled to
any further right or claim to any of the remaining assets of the Corporation.
(b) Written notice of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, stating the payment date or dates when, and
the place or places where, the amounts distributable to holders of Convertible
Perpetual Preferred Shares in such circumstances shall be payable, shall be
given by hand delivery, by courier, by standard form of telecommunication or by
first-class mail (postage prepaid), delivered, sent or mailed, as the case may
be, not less than 20 days prior to any payment date stated therein, to the
holders of Convertible Perpetual Preferred Shares, at the address shown on the
books of the Corporation or any transfer agent for the Convertible Perpetual
Preferred Shares.
E-3
SECTION 5. CONVERSION INTO COMMON STOCK. A holder of shares of Convertible
Perpetual Preferred Shares shall be entitled, at any time prior to the close of
business on the date fixed for redemption of such shares pursuant to Sections 6,
7 and 8, to cause any or all of such shares to be converted into shares of
Common Stock, initially at a conversion price equal to $[ ] per share of
Common Stock, with each Convertible Perpetual Preferred Share being valued at
$40,300.00 for such purpose, and which price shall be adjusted as hereinafter
provided (and, as so adjusted, is hereinafter sometimes referred to as the
"Conversion Price") (that is, a conversion rate initially equivalent to [ ]
shares of Common Stock for each Convertible Perpetual Preferred Share so
converted, which is subject to adjustment as the Conversion Price is adjusted as
hereinafter provided in Section 9); provided, however, that in no event shall
the Conversion Price be less than $1.00.
(b) Any holder of Convertible Perpetual Preferred Shares desiring to
convert such shares into shares of Common Stock shall surrender the certificate
or certificates representing the Convertible Perpetual Preferred Shares being
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer agent for the
Convertible Perpetual Preferred Shares or such office or offices in the
continental United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Convertible Perpetual Preferred
Shares by the Corporation or the transfer agent for the Convertible Perpetual
Preferred Shares, accompanied by written notice of conversion. Such notice of
conversion shall specify (i) the number of shares of Convertible Perpetual
Preferred Shares to be converted and the name or names in which such holder
wishes the certificate or certificates for Common Stock and for any Convertible
Perpetual Preferred Shares not to be so converted to be issued and (ii) the
address to which such holder wishes delivery to be made of such new certificates
to be issued upon such conversion.
(c) Upon surrender of a certificate representing a Convertible Perpetual
Preferred Share or Shares for conversion, the Corporation shall issue and send
by hand delivery, by courier or by first-class mail (postage prepaid) to the
holder thereof or to such holder's designee, at the address designated by such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled upon conversion. In the event that there
shall have been surrendered a certificate or certificates representing
Convertible Perpetual Preferred Shares, only part of which are to be converted,
the Corporation shall issue and send to such holder or such holder's designee,
in the manner set forth in the preceding sentence, a new certificate or
certificates representing the number of Convertible Perpetual Preferred Shares
which shall not have been converted.
(d) The issuance by the Corporation of shares of Common Stock upon a
conversion of Convertible Perpetual Preferred Shares into shares of Common Stock
made at the option of the holder thereof shall be effective as of the earlier of
(i) the delivery to such holder or such holder's designee of the certificates
representing the shares of Common Stock issued upon conversion thereof or (ii)
the commencement of business on the second Business Day after the surrender of
the certificate or certificates for the Convertible Perpetual Preferred Shares
to be converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto) and accompanied by
all documentation required to effect the conversion, as provided herein. On and
after the effective date of conversion, the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock, but no
allowance or adjustments shall be made in respect of dividends payable to
holders of Common Stock in respect of any period prior to such effective date.
The Corporation shall not be obligated to pay any dividends that shall have been
declared and shall be payable to holders of Convertible Perpetual Preferred
Shares on a Dividend Payment Date if the record date for such dividend is
subsequent to the effective date of conversion of such shares.
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(e) The Corporation shall not be obligated to deliver to holders of
Convertible Perpetual Preferred Shares any fractional share of Common Stock
issuable upon any conversion of such Convertible Perpetual Preferred Shares, but
in lieu thereof may make a cash payment in respect thereof in any manner
permitted by law.
(f) The Corporation shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for issuance upon the
conversion of Convertible Perpetual Preferred Shares as herein provided, free
from any preemptive rights, such number of shares of Common Stock as shall from
time to time be issuable upon the conversion of all the Convertible Perpetual
Preferred Shares then outstanding. Nothing contained herein shall preclude the
Corporation from issuing shares of Common Stock held in its treasury upon the
conversion of Convertible Perpetual Preferred Shares into Common Stock pursuant
to the terms hereof. The Corporation shall prepare and shall use its best effort
to obtain and keep in force such governmental or regulatory permits or other
authorizations as may be required by law, and shall comply with all requirements
as to registration or qualification of the Common Stock, in order to enable the
Corporation lawfully to issue and deliver to each holder of record of
Convertible Perpetual Preferred Shares such number of shares of its Common Stock
as from time to time is sufficient to effect the conversion of all Convertible
Perpetual Preferred Shares then outstanding and convertible into shares of
Common Stock.
SECTION 6. REDEMPTION AT THE OPTION OF THE CORPORATION. The Convertible
Perpetual Preferred Shares shall be redeemable, in whole or in part, at the
option of the Corporation at any time at the redemption price of $40,300.00 per
share, plus an amount equal to all accrued and unpaid dividends thereon to the
date fixed for redemption. Payment of the redemption price shall be made by the
Corporation in cash or shares of Common Stock, or a combination thereof, as
permitted by Section 6(e). From and after the date fixed for redemption,
dividends on Convertible Perpetual Preferred Shares called for redemption will
cease to accrue, such Convertible Perpetual Preferred Shares will no longer be
deemed to be outstanding and all rights in respect of such Convertible Perpetual
Preferred Shares shall cease, except the right to receive the redemption price.
If fewer than all of the outstanding Convertible Perpetual Preferred Shares are
to be redeemed, the Corporation shall redeem a portion of the Convertible
Perpetual Preferred Shares of each holder determined pro rata based on the
number of Convertible Perpetual Preferred Shares held by each holder.
(b) Unless otherwise required by law, notice of redemption will be sent to
the holders of Convertible Perpetual Preferred Shares at the address shown on
the books of the Corporation or any transfer agent for the Convertible Perpetual
Preferred Shares by hand delivery, by courier, by standard form of
telecommunication or by first-class mail (postage prepaid) delivered, sent or
mailed, as the case may be, not less than twenty (20) days nor more than sixty
(60) days prior to the redemption date. Each such notice shall state: (i) the
redemption date; (ii) the total number of Convertible Perpetual Preferred Shares
to be redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such Convertible Perpetual Preferred Shares to be
redeemed from such holder; (iii) the redemption price; (iv) whether the
redemption price shall be paid in cash or in shares of Common Stock, or in a
combination of such Common Stock and cash, as permitted by Section 6(e); (v) the
place or places where certificates for such Convertible Perpetual Preferred
Shares are to be surrendered for payment of the redemption price; (vi) that
dividends on the Convertible Perpetual Preferred Shares to be redeemed will
cease to accrue on such redemption date; and (vii) the conversion rights of the
Convertible Perpetual Preferred Shares to be redeemed, the period within which
conversion rights may be exercised, and the Conversion Price and number of
shares of Common Stock issuable upon conversion of a Convertible Perpetual
Preferred Share at the time. Upon surrender of the certificate for any
Convertible Perpetual Preferred Shares so called for redemption and not
previously converted (properly endorsed or assigned for transfer, if the Board
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shall so require and the notice shall so state), such shares shall be redeemed
by the Corporation at the date fixed for redemption and at the redemption price
set forth in this paragraph (6).
(c) Within thirty (30) days after the later of (i) the effective date, (ii)
the enactment date or (iii) if the Corporation contests in good faith in a
judicial or administrative proceeding the legality of the change referred to in
this Section 6(c), the date such matter is finally determined (the time for
appeal having expired and no appeal having been filed) against the Corporation,
of a change in any statute, rule or regulation of the United States of America
which has the effect of limiting or making unavailable to the Corporation all or
any of the tax deductions for amounts paid (including dividends) on the
Convertible Perpetual Preferred Shares when such amounts are used as provided
under Section 404(k)(2) of the Internal Revenue Code of 1986, as amended (the
"Code") and in effect on July 21, 1989, the Corporation may, in its sole
discretion and notwithstanding anything to the contrary in Section 6(a), elect
to either (a) redeem any or all of such Convertible Perpetual Preferred Shares
for cash or, if the Corporation so elects, in shares of Common Stock, or a
combination of such shares of Common Stock and cash, any such shares of Common
Stock to be valued for such purpose at their Fair Market Value (as defined in
Section 9(g)), at a redemption price equal to the higher of (x) $40,300.00 per
share or (y) the Fair Market Value of the number of shares of Common Stock into
which each Convertible Perpetual Preferred Share is convertible at the time the
notice of such redemption is given, plus in either case accrued and unpaid
dividends thereon to the date fixed for redemption, or (b) exchange any or all
of such Convertible Perpetual Preferred Shares for securities of comparable
value (as determined by an independent appraiser) that constitute "qualifying
employer securities" with respect to a holder of Convertible Perpetual Preferred
Shares within the meaning of Section 409(1) of the Code and Section 407(d)(5) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
any successor provisions of law.
(d) In the event that the Plan is terminated or the ESOP is terminated or
eliminated from the Plan in accordance with its terms, the Corporation shall, as
soon thereafter as practicable, call for redemption all the then outstanding
Convertible Perpetual Preferred Shares in accordance with Section 6(a).
(e) The Corporation, at its option, may make payment of the redemption
price required upon redemption of Convertible Perpetual Preferred Shares in cash
or in shares of Common Stock, or in a combination of such Common Stock and cash,
any such shares of Common Stock to be valued for such purposes at their Fair
Market Value (as defined in Section 9(g)).
SECTION 7. OTHER REDEMPTION RIGHTS. Convertible Perpetual Preferred Shares
shall be redeemed by the Corporation for cash or, if the Corporation so elects,
in shares of Common Stock, or a combination of such shares of Common Stock and
cash, any such shares of Common Stock to be valued for such purpose at their
Fair Market Value, at a redemption price of $40,300.00 per share plus accrued
and unpaid dividends thereon to the date fixed for redemption, at the option of
the holder, at any time and from time to time upon notice to the Corporation
given not less than five (5) business days prior to the date fixed by the holder
in such notice for such redemption, upon certification by such holder to the
Corporation of the following events: (i) when and to the extent necessary for
such holder to make any payments of principal, interest or premium due and
payable (whether as scheduled, upon acceleration or otherwise) under the note
from the Trustee to the Corporation or any indebtedness, expenses or costs
incurred by the holder for the benefit of the Plan; or (ii) in the event that
the Plan is not initially determined by the Internal Revenue Service to be
qualified within the meaning of Sections 401(a) and 4975(e)(7) of the Code.
Convertible Perpetual Preferred Shares shall be redeemed by the Corporation for
cash or, if the Corporation so elects, in shares of Common Stock, or a
combination of such shares of Common Stock and cash, any such shares of Common
Stock to be valued for such purpose at their Fair Market Value (as defined in
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Section 9(g)), at a redemption price equal to the higher of (x) $40,300.00 per
share or (y) the Fair Market Value of the number of shares of Common Stock into
which each Convertible Perpetual Preferred Share is convertible at the time the
notice of such redemption is given, plus in either case accrued and unpaid
dividends thereon to the date fixed for redemption, at the option of the holder,
at any time and from time to time upon notice to the Corporation given not less
than five (5) business days prior to the date fixed by the holder in such notice
for such redemption, upon certification by such holder to the Corporation that
it is necessary for such holder to provide for distributions required to be made
to the Participants under, or to satisfy an investment election of the
Participants in accordance with, the Plan.
SECTION 8. CONSOLIDATION, MERGER, ETC. In the event that the Corporation
shall consummate any consolidation or merger or similar business combination,
pursuant to which the outstanding shares of Common Stock are exchanged solely
for or changed, reclassified or converted solely into stock that constitutes
"qualifying employer securities" with respect to a holder of Convertible
Perpetual Preferred Shares within the meaning of Section 409(1) of the Code and
Section 407(d)(5) of ERISA or any successor provisions of law, and, if
applicable, for a cash payment in lieu of fractional shares, if any, the
Convertible Perpetual Preferred Shares of such holder shall, in connection with
such consolidation, merger or similar business combination, be assumed by and
shall become preferred stock of the issuer of such "qualifying employer
securities", having in respect of such issuer, insofar as possible, the same
powers, preferences and relative, participating, optional or other special
rights (including the redemption rights provided by Sections 6, 7 and 8), and
the qualifications, limitations or restrictions thereon, that the Convertible
Perpetual Preferred Share had immediately prior to such transaction, except that
after such transaction each Convertible Perpetual Preferred Share shall be
convertible, otherwise on the terms and conditions provided by Section 5, into
the number and kind of qualifying employer securities so receivable by a holder
of the number of shares of Common Stock into which such Convertible Perpetual
Preferred Shares could have been converted immediately prior to such
transaction; provided, however, that if by virtue of the structure of such
transaction, a holder of Common Stock is required to make an election with
respect to the nature and kind of consideration to be received in such
transaction, which election cannot practicably be made by the holders of the
Convertible Perpetual Preferred Shares, then the Convertible Perpetual Preferred
Shares shall, by virtue of such transaction and on the same terms as apply to
the holders of Common Stock, be converted into or exchanged for the aggregate
amount of stock, securities, cash or other property (payable in kind) receivable
by a holder of the number of shares of Common Stock into which such Convertible
Perpetual Preferred Shares could have been converted immediately prior to such
transaction if such holder of Common Stock failed to exercise any rights of
election to receive any kind or amount of stock, securities, cash or other
property (other than such qualifying employer securities and a cash payment, if
applicable, in lieu of fractional shares) receivable upon such transaction
(provided that, if the kind or amount of qualifying employer securities
receivable upon such transaction is not the same for each non-electing share,
then the kind and amount so receivable upon such transaction for each
non-electing share shall be the kind and amount so receivable per share by the
plurality of the non-electing shares). The rights of the Convertible Perpetual
Preferred Shares as preferred stock of the issuer of such "qualifying employer
securities" shall successively be subject to adjustments pursuant to Section 9
after any such transaction as nearly equivalent as practicable to the adjustment
provided for by such section prior to such transaction. The Corporation shall
not consummate any such merger, consolidation or similar transaction unless all
then outstanding Convertible Perpetual Preferred Shares shall be assumed and
authorized by the issuer of such "qualifying employer securities" as aforesaid.
(b) In the event that the Corporation shall consummate any consolidation or
merger or similar business combination, pursuant to which the outstanding shares
of Common Stock are by operation of law exchanged for or changed, reclassified
or converted into other stock or securities or cash or any
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other property, or any combination thereof, other than any such consideration
which is constituted solely of qualifying employer securities (as referred to in
Section 8(a)) and cash payments, if applicable, in lieu of fractional shares,
outstanding Convertible Perpetual Preferred Shares shall, without any action on
the part of the Corporation or any holder thereof (but subject to Section 8(c)),
be automatically converted by virtue of such merger, consolidation or similar
transaction immediately prior to such consummation into the number of shares of
Common Stock into which such Convertible Perpetual Preferred Shares could have
been converted at such time so that each Convertible Perpetual Preferred Share
shall, by virtue of such transaction and on the same terms as apply to the
holders of Common Stock, be converted into or exchanged for the aggregate amount
of stock, securities, cash or other property (payable in like kind) receivable
by a holder of the number of shares of Common Stock into which such Convertible
Perpetual Preferred Shares could have been converted immediately prior to such
transaction; provided, however, that if by virtue of the structure of such
transaction, a holder of Common Stock is required to make an election with
respect to the nature and kind of consideration to be received in such
transaction, which election cannot practicably be made by the holder of the
Convertible Perpetual Preferred Shares, then the Convertible Perpetual Preferred
Shares shall, by virtue of such transaction and on the same terms as apply to
the holders of Common Stock, be converted into or exchanged for the aggregate
amount of stock, securities, cash or other property (payable in kind) receivable
by a holder of the number of shares of Common Stock into which such Convertible
Perpetual Preferred Shares could have been converted immediately prior to such
transaction if such holder of Common Stock failed to exercise any rights of
election as to the kind or amount of stock, securities, cash or other property
receivable upon such transaction (provided that, if the kind or amount of stock,
securities, cash or other property receivable upon such transaction is not the
same for each non-electing share, then the kind and amount of stock, securities,
cash or other property receivable upon such transaction for each non-electing
share shall be the kind and amount so receivable per share by a plurality of the
non-electing shares)
(c) In the event the Corporation shall enter into any agreement providing
for any consolidation or merger or similar business combination described in
Section 8(b), then the Corporation shall as soon as practicable thereafter (and
in any event at least ten (10) business days before consummation of such
transaction) give notice of such agreement and the material terms thereof to
each holder of Convertible Perpetual Preferred Shares and each such holder shall
have the right to elect, by written notice to the Corporation, to receive, upon
consummation of such transaction (if and when such transaction is consummated),
from the Corporation or the successor of the Corporation in redemption and
retirement of such Convertible Perpetual Preferred Shares, a cash payment equal
to the amount payable in respect of Convertible Perpetual Preferred Shares upon
liquidation of the Corporation pursuant to Section 4. No such notice of
redemption shall be effective unless given to the Corporation prior to the close
of business on the second business day prior to consummation of such
transaction, unless the Corporation or the successor of the Corporation shall
waive such prior notice, but any notice of redemption so given prior to such
time may be withdrawn by notice of withdrawal given to the Corporation prior to
the close of business on the fifth business day prior to consummation of such
transaction.
SECTION 9. ANTI-DILUTION ADJUSTMENTS. (a) In the event the Corporation
shall, at any time or from time to time while any of the Convertible Perpetual
Preferred Shares are outstanding, (i) pay a dividend or make a distribution in
respect of the Common Stock in shares of Common Stock, (ii) subdivide the
outstanding shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, in each case whether by
reclassification of shares, recapitalization of the Corporation (including a
recapitalization effected by a merger or consolidation to which Section 8 does
not apply) or otherwise, the Conversion Price in effect immediately prior to
such action shall be adjusted by multiplying such Conversion Price by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately before such event, and the
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denominator of which is the number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to this Section 9(a)
shall be given effect, upon payment of such a dividend or distribution, as of
the record date for the determination of stockholders entitled to receive such
dividend or distribution (on a retroactive basis) and in the case of a
subdivision or combination shall become effective immediately as of the
effective date thereof.
(b) In the event that the Corporation shall, at any time or from time to
time while any of the Convertible Perpetual Preferred Shares are outstanding,
issue to holders of shares of Common Stock as a dividend or distribution,
including by way of a reclassification of shares or a recapitalization of the
Corporation, any right or warrant to purchase shares of Common Stock (but not
including as such a right or warrant any security convertible into or
exchangeable for shares of Common Stock) at a purchase price per share less than
the Fair Market Value (as hereinafter defined) of a share of Common Stock on the
date of issuance of such right or warrant, then, subject to the provisions of
Sections 9(e) and (f), the Conversion Price shall be adjusted by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately before such issuance of rights
or warrants plus the number of shares of Common Stock which could be purchased
at the Fair Market Value of a share of Common Stock at the time of such issuance
for the maximum aggregate consideration payable upon exercise in full of all
such rights or warrants, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately before such issuance of rights or
warrants plus the number of shares of Common Stock that could be acquired upon
exercise in full of all such rights and warrants.
(c) In the event the Corporation shall, at any time or from time to time
while any of the Convertible Perpetual Preferred Shares are outstanding, issue,
sell or exchange shares of Common Stock (other than pursuant to any right or
warrant to purchase or acquire shares of Common Stock (including as such a right
or warrant any security convertible into or exchangeable for shares of Common
Stock) and other than pursuant to any employee or director incentive or benefit
plan or arrangement, including any employment, severance or consulting
agreement, of the Corporation or any subsidiary of the Corporation heretofore or
hereafter adopted) for a consideration having a Fair Market Value, on the date
of such issuance, sale or exchange, less than the Fair Market Value of such
shares on the date of issuance, sale or exchange, then, subject to the
provisions of Sections 9(e) and (f), the Conversion Price shall be adjusted by
multiplying such Conversion Price by a fraction the numerator of which shall be
the sum of (i) the Fair Market Value of all the shares of Common Stock
outstanding on the day immediately preceding the first public announcement of
such issuance, sale or exchange plus (ii) the Fair Market Value of the
consideration received by the Corporation in respect of such issuance, sale or
exchange of shares of Common Stock, and the denominator of which shall be the
product of (a) the Fair Market Value of a share of Common Stock on the day
immediately preceding the first public announcement of such issuance, sale or
exchange multiplied by (b) the sum of the number of shares of Common Stock
outstanding on such day plus the number of shares of Common Stock so issued,
sold or exchanged by the Corporation. In the event the Corporation shall, at any
time or from time to time while any Convertible Perpetual Preferred Shares are
outstanding, issue, sell or exchange any right or warrant to purchase or acquire
shares of Common Stock (including as such a right or warrant any security
convertible into or exchangeable for shares of Common Stock), other than any
such issuance to holders of shares of Common Stock as a dividend or distribution
(including by way of a reclassification of shares or a recapitalization of the
Corporation) and other than pursuant to any employee or director incentive or
benefit plan or arrangement (including any employment, severance or consulting
agreement) of the Corporation or any subsidiary of the Corporation heretofore or
hereafter adopted, for a consideration having a Fair Market Value, on the date
of such issuance, sale or exchange, less than the Non-Dilutive Amount (as
hereinafter defined), then, subject to the provisions of Sections 9(e) and (f),
the Conversion Price shall be adjusted by multiplying such Conversion Price by a
fraction the numerator of which
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shall be the sum of (I) the Fair Market Value of all the shares of Common Stock
outstanding on the day immediately preceding the first public announcement of
such issuance, sale or exchange plus (II) the Fair Market Value of the
consideration received by the Corporation in respect of such issuance, sale or
exchange of such right or warrant plus (III) the Fair Market Value at the time
of such issuance of the consideration which the Corporation would receive upon
exercise in full of all such rights or warrants, and the denominator of which
shall be the product of (i) the Fair Market Value of a share of Common Stock on
the day immediately preceding the first public announcement of such issuance,
sale or exchange multiplied by (ii) the sum of the number of shares of Common
Stock outstanding on such day plus the maximum number of shares of Common Stock
which could be acquired pursuant to such right or warrant at the time of the
issuance, sale or exchange of such right or warrant (assuming shares of Common
Stock could be acquired pursuant to such right or warrant at such time).
(d) In the event the Corporation shall, at any time or from time to time
while any of the Convertible Perpetual Preferred Shares are outstanding, make an
Extraordinary Distribution (as hereinafter defined) in respect of the Common
Stock, whether by dividend, distribution, reclassification of shares or
recapitalization of the Corporation (including a recapitalization or
reclassification effected by a merger or consolidation to which Section 8 does
not apply) or effect a Pro Rata Repurchase (as hereinafter defined) of Common
Stock, the Conversion Price in effect immediately prior to such Extraordinary
Distribution or Pro Rata Repurchase shall, subject to Sections 9(e) and (f), be
adjusted by multiplying such Conversion Price by the fraction, the numerator of
which is the difference between (i) the product of (x) the number of shares of
Common Stock outstanding immediately before such Extraordinary Distribution or
Pro Rata Repurchase multiplied by (y) the Fair Market Value of a share of Common
Stock on the day before the ex-dividend date with respect to an Extraordinary
Distribution which is paid in cash and on the distribution date with respect to
an Extraordinary Distribution which is paid other than in cash, or on the
applicable expiration date (including all extensions thereof) of any tender
offer which is a Pro Rata Repurchase, or on the date of purchase with respect to
any Pro Rata Repurchase which is not a tender offer, as the case may be, and
(ii) the Fair Market Value of the Extraordinary Distribution minus the aggregate
amount of regularly scheduled quarterly dividends declared by the Board and paid
by the Corporation in the twelve months immediately preceding such Extraordinary
Distribution or the aggregate purchase price of the Pro Rata Repurchase, as the
case may be, and the denominator of which shall be the product of (a) the number
of shares of Common Stock outstanding immediately before such Extraordinary
Dividend or Pro Rata Repurchase minus, in the case of a Pro Rata Repurchase, the
number of shares of Common Stock repurchased by the Corporation multiplied by
(b) the Fair Market Value of a share of Common Stock on the day before the
ex-dividend date with respect to an Extraordinary Distribution which is paid in
cash and on the distribution date with respect to an Extraordinary Distribution
which is paid other than in cash, or on the applicable expiration date
(including all extensions thereof) of any tender offer which is a Pro Rate
Repurchase or on the date of purchase with respect to any Pro Rata Repurchase
which is not a tender offer, as the case may be. The Corporation shall send each
holder of Convertible Perpetual Preferred Shares (i) notice of its intent to
make any dividend or distribution and (ii) notice of any offer by the
Corporation to make a Pro Rata Repurchase, in each case at the same time as, or
as soon as practicable after, such offer is first communicated (including by
announcement of a record date in accordance with the rules of any stock exchange
on which the Common Stock is listed or admitted to trading) to holders of Common
Stock. Such notice shall indicate the intended record date and the amount and
nature of such dividend or distribution, or the number of shares subject to such
offer for a Pro Rata Repurchase and the purchase price payable by the
Corporation pursuant to such offer, as well as the Conversion Price and the
number of shares of Common Stock into which a Convertible Perpetual Preferred
Share may be converted at such time.
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(e) Notwithstanding any other provision of this Section 9, the Corporation
shall not be required to make any adjustment to the Conversion Price unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the Conversion Price. Any lesser adjustment shall be carried forward and shall
be made no later than the time of, and together with, the next subsequent
adjustment which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least one percent (1%) in
the Conversion Price.
(f) If the Corporation shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other security of
the Corporation or any rights or warrants to purchase or acquire any such
security, which transaction does not result in an adjustment to the Conversion
Price pursuant to the foregoing provisions of this Section 9, the Board shall
consider whether such action is of such a nature that an adjustment to the
Conversion Price should equitably be made in respect of such transaction. If in
such case the Board determines that an adjustment to the Conversion Price should
be made, an adjustment shall be made effective as of such date, as determined by
the Board. The determination of the Board as to whether an adjustment to the
Conversion Price should be made pursuant to the foregoing provisions of this
Section 9(f), and, if so, as to what adjustment should be made and when, shall
be final and binding on the Corporation and all shareholders of the Corporation.
The Corporation shall be entitled to make such additional adjustments in the
Conversion Price, in addition to those required by the foregoing provisions of
this Section 9, as shall be necessary in order that any dividend or distribution
in shares of capital stock of the Corporation, subdivision, reclassification or
combination of shares of stock of the Corporation or any recapitalization of the
Corporation shall not be taxable to the holders of the Common Stock.
(g) The following definitions shall apply herein:
"Business Day" shall mean each day that is not a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York
are not required to be open.
"Current Market Price" of publicly traded shares of Common Stock or
any other class of capital stock or other security of the Corporation or
any other issuer for any day shall mean the last reported sales price,
regular way, or, in the event that no sale takes place on such day, the
average of the reported closing bid and asked prices, regular way, in
either case as reported on the New York Stock Exchange Composite Tape or,
if such security is not listed or admitted to trading on the New York Stock
Exchange, on the principal national securities exchange on which such
security is listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, on the NASDAQ National Market
System or, if such security is not quoted on such National Market System,
the average of the closing bid and asked prices on each such day in the
over-the-counter market as reported by NASDAQ or, if bid and asked prices
for such security on each such day shall not have been reported through
NASDAQ, the average of the bid and asked prices for such day as furnished
by any New York Stock Exchange member firm regularly making a market in
such security selected for such purpose by the Board of Directors of the
Corporation or a committee thereof.
"Extraordinary Distribution" shall mean any dividend or other
distribution to holders of Common Stock (effected while any of the
Convertible Perpetual Preferred Shares are outstanding) (i) of cash, where
the aggregate amount of such cash dividend or distribution together with
the amount of all cash dividends and distributions made during the
preceding period of 12 months, when combined with the aggregate amount of
all Pro Rata Repurchases (for this purpose, including only that portion of
the aggregate purchase price of such Pro Rata Repurchase which is in excess
of the Fair Market Value of the Common Stock repurchased as determined on
the Business Day immediately following the applicable expiration date
(including all extensions thereof) of any tender offer or exchange offer
which is a Pro Rata Repurchase, or
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the date of purchase with respect to any other Pro Rata Repurchase which is
not a tender offer or exchange offer made during such period), exceeds ten
percent (10%) of the aggregate Fair Market Value of all shares of Common
Stock outstanding on the day before the ex-dividend date with respect to
such Extraordinary Distribution which is paid in cash and on the
distribution date with respect to an Extraordinary Distribution which is
paid other than in cash, and/or (ii) of any shares of capital stock of the
Corporation (other than shares of Common Stock), other securities of the
Corporation (other than securities of the type referred to in Section 9(b)
or (c)), evidences of indebtedness of the Corporation or any other person
or any other property (including shares of any subsidiary of the
Corporation) or any combination thereof. The Fair Market Value of an
Extraordinary Distribution for purposes of Section 9(d) shall be equal to
the sum of the Fair Market Value of such Extraordinary Distribution plus
the amount of any cash dividends which are not Extraordinary Distributions
made during such 12-month period and not previously included in the
calculation of an adjustment pursuant to Section 9(d).
"Fair Market Value" shall mean, as to shares of Common Stock or any
other class of capital stock or securities of the Corporation or any other
issuer which are publicly traded, (i) for purposes of Sections 6 and 7, the
Current Market Price on the date as of which the Fair Market Value is to be
determined, and (ii) for all other purposes hereof, the average of the
Current Market Prices of such shares or securities for each day of the
Adjustment Period.
"Adjustment Period" shall mean the period of five (5) consecutive
trading days preceding, and including, the date as of which the Fair Market
Value of a security is to be determined. The Fair Market Value of any
security which is not publicly traded (other than the Convertible Perpetual
Preferred Shares) or of any other property shall mean the fair value
thereof as determined by an independent investment banking or appraisal
firm experienced in the valuation of such securities or property selected
in good faith by the Board or a committee thereof, or, if no such
investment banking or appraisal firm is in the good faith judgment of the
Board or such committee available to make such determination, as determined
in good faith by the Board or such committee.
"Non-Dilutive Amount" in respect of an issuance, sale or exchange by
the Corporation of any right or warrant to purchase or acquire shares of
Common Stock (including any security convertible into or exchangeable for
shares of Common Stock) shall mean the difference between (i) the product
of the Fair Market Value of a share of Common Stock on the day preceding
the first public announcement of such issuance, sale or exchange multiplied
by the maximum number of shares of Common Stock which could be acquired on
such date upon the exercise in full of such rights and warrants (including
upon the conversion or exchange of all such convertible or exchangeable
securities), whether or not exercisable (or convertible or exchangeable) at
such date, and (ii) the aggregate amount payable pursuant to such right or
warrant to purchase or acquire such maximum number of shares of Common
Stock; provided, however, that in no event shall the Non-Dilutive Amount be
less than zero. For purposes of the foregoing sentence, in the case of a
security convertible into or exchangeable for shares of Common Stock, the
amount payable pursuant to a right or warrant to purchase or acquire shares
of Common Stock shall be the Fair Market Value of such security on the date
of the issuance, sale or exchange of such security by the Corporation.
"Pro Rata Repurchase" shall mean any purchase of shares of Common
Stock by the Corporation or any subsidiary thereof, whether for cash,
shares of capital stock of the Corporation, other securities of the
Corporation, evidences of indebtedness of the Corporation or any other
person or any other property (including shares of a subsidiary of the
Corporation), or any combination thereof, effected while any of the
Convertible Perpetual Preferred Shares are outstanding, pursuant to any
tender offer or exchange offer subject to Section 13(e) of the
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Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor provision of law, or pursuant to any other offer available to
substantially all holders of Common Stock; provided, however, that no
purchase of shares by the Corporation or any subsidiary thereof made in
open market transactions shall be deemed a Pro Rata Repurchase. For
purposes of this Section 9(g), shares shall be deemed to have been
purchased by the Corporation or any subsidiary thereof "in open market
transactions" if they have been purchased substantially in accordance with
the requirements of Rule 10b-18 as in effect under the Exchange Act on July
21, 1989, or on such other terms and conditions as the Board or a committee
thereof shall have determined are reasonably designed to prevent such
purchases from having a material effect on the trading market for the
Common Stock.
(h) Whenever an adjustment to the Conversion Price and the related voting
rights of the convertible Perpetual Preferred Shares is required hereunder, the
Corporation shall forthwith place on file with the transfer agent for the Common
Stock and the Convertible Perpetual Preferred Shares, and with the Secretary of
the Corporation, a statement signed by two officers of the Corporation stating
the adjusted Conversion Price determined as provided herein and the resulting
conversion ratio, and the voting rights (as appropriately adjusted), of the
Convertible Perpetual Preferred Shares. Such statement shall set forth in
reasonable detail such facts as shall be necessary to show the reason and the
manner of computing such adjustment, including any determination of Fair Market
Value involved in such computation. Promptly after each adjustment to the
Conversion Price and the related voting rights of the Convertible Perpetual
Preferred Shares, the Corporation shall mail a notice thereof and of the then
prevailing conversion ratio to each holder of Convertible Perpetual Preferred
Shares.
SECTION 10. RANKING; ATTRIBUTABLE CAPITAL AND ADEQUACY OF SURPLUS;
RETIREMENT OF SHARES. (a) The Convertible Perpetual Preferred Shares shall rank
senior to the Common Stock as to the payment of dividends and the distribution
of assets on liquidation, dissolution and winding-up of the Corporation, and,
unless otherwise provided in the Restated Certificate of Incorporation of the
Corporation, as the same may be amended, or a Certificate of Designations
relating to a subsequent series of Preferred Stock, par value $.0l per share, of
the Corporation, the Convertible Perpetual Preferred Shares shall rank junior to
all series of the Corporation's Preferred Stock, par value $.0l per share, as to
the payment of dividends and the distribution of assets on liquidation,
dissolution or winding-up.
(b) In addition to any vote of stockholders required by law or by Section
3(b), the vote of the holders of a majority of the outstanding Convertible
Perpetual Preferred Shares shall be required to increase the par value of the
Common Stock or otherwise increase the capital of the Corporation allocable to
the Common Stock for the purpose of the General Corporation Law if, as a result
thereof, the surplus of the Corporation for purposes of the General Corporation
Law would be less than the amount of Convertible Perpetual Preferred Dividends
that would accrue on the then outstanding Convertible Perpetual Preferred Shares
during the following three years.
(c) Any Convertible Perpetual Preferred Shares acquired by the Corporation
by reason of the conversion or redemption of such shares as provided by Section
2, or otherwise so acquired, shall be retired as Convertible Perpetual Preferred
Shares and restored to the status of authorized but unissued shares of Preferred
Stock, par value $.01 per share, of the Corporation, undesignated as to series,
and may thereafter be reissued as part of a new series of such Preferred Stock
as permitted by law.
SECTION 11. MISCELLANEOUS. All notices referred to in Section 2 shall be
in writing, and all notices hereunder shall be deemed to have been given upon
the earlier of delivery thereof if by hand delivery, by courier or by standard
form of telecommunication or three (3) Business Days after the
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mailing thereof if sent by registered mail (unless first-class mail shall be
specifically permitted for such notice under the terms of Section 2) with
postage prepaid, addressed: (i) if to the Corporation, to its office at 235 East
42nd Street, New York, N.Y. 10017 (Attention: Secretary), or to the transfer
agent for the Convertible Perpetual Preferred Shares, or other agent of the
Corporation designated as permitted by Section 2 or (ii) if to any holder of the
Convertible Perpetual Preferred Shares or Common Stock, as the case may be, to
such holder at the address of such holder as listed in the stock record books of
the Corporation (which may include the records of any transfer agent for the
Convertible Perpetual Preferred Shares or Common Stock, as the case may be) or
(iii) to such other address as the Corporation or any such holder, as the case
may be, shall have designated by notice similarly given.
(b) The term "Common Stock" as used in Section 2 means the Corporation's
Common Stock, par value $0.05 per share, as the same exists at the date of
filing of a Certificate of Designations relating to Convertible Perpetual
Preferred Shares or any other class of stock resulting from successive changes
or reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that, at any time as a result of an adjustment made pursuant to
Section 9, the holder of any Convertible Perpetual Preferred Shares upon
thereafter surrendering such shares for conversion, shall become entitled to
receive any shares or other securities of the Corporation other than shares of
Common Stock, the Conversion Price in respect of such other shares or securities
so receivable upon conversion of Convertible Perpetual Preferred Shares shall
thereafter be adjusted, and shall be subject to further adjustment from time to
time, in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in Section 9, and the
provisions of Sections 1 through 8, 10 and 11 with respect to the Common Stock
shall apply on like or similar terms to any such other shares or securities.
(c) The Corporation shall pay any and all stock transfer and documentary
stamp taxes that may be payable in respect of any issuance or delivery of
Convertible Perpetual Preferred Shares or shares of Common Stock or other
securities issued on account of Convertible Perpetual Preferred Shares pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax which may be payable in
respect of any transfer involved in the issuance or delivery of Convertible
Perpetual Preferred Shares or Common Stock or other securities in a name other
than that in which the Convertible Perpetual Preferred Shares with respect to
which such shares or other securities are issued or delivered were registered,
or in respect of any payment to any person with respect to any such shares or
securities other than a payment, to the registered holder thereof, and shall not
be required to make any such issuance, delivery or payment unless and until the
person otherwise entitled to such issuance, delivery or payment has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid or is not payable.
(d) In the event that a holder of Convertible Perpetual Preferred Shares
shall not by written notice designate the name in which shares of Common Stock
to be issued upon conversion of such shares should be registered or to whom
payment upon redemption of Convertible Perpetual Preferred Shares should be made
or the addresses to which the certificate or certificates representing such
shares, or such payment, should be sent, the Corporation shall be entitled to
register such shares and make such payment, in the name of the holder of such
Convertible Perpetual Preferred Shares as shown on the records of the
Corporation and to send the certificate or certificates representing such
shares, or such payment, to the address of such holder shown on the records of
the Corporation.
(e) Unless otherwise provided in the Restated Certificate of Incorporation,
as the same may be amended, of the Corporation, all payments in the form of
dividends, distributions on voluntary or involuntary dissolution, liquidation or
winding-up or otherwise made upon the Convertible Perpetual
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Preferred Shares and any other stock ranking on a parity with the Convertible
Perpetual Preferred Shares with respect to such dividend or distribution shall
be pro rata, so that amounts paid per Convertible Perpetual Preferred Share and
such other stock shall in all cases bear to each other the same ratio that the
required dividends, distributions or payments, as the case may be, then payable
per share on the Convertible Perpetual Preferred Share and such other stock bear
to each other.
(f) Any determination required or permitted to be made by the Board
hereunder may be made by a committee appointed by the Board which need not
include members of the Board.
(g) The Corporation may appoint, and from time to time discharge and
change, a transfer agent for the Convertible Perpetual Preferred Shares. Upon
any such appointment or discharge of a transfer agent, the Corporation shall
send notice thereof by hand delivery, by courier, by standard form of
telecommunication or by first-class mail (postage prepaid), to each holder of
record of Convertible Perpetual Preferred Shares.
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IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its Chairman of the Board and attested by its Secretary
this day of , 2002.
--------------------------------------
Chairman of the Board
Attest:
---------------------------------------------
Secretary
E-16
ANNEX F
SECTION 262 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, then, either a constituent corporation before the
effective date of the merger or consolidation, or the surviving or
resulting corporation within ten days thereafter, shall notify each of the
holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall,
also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days
F-2
after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
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(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
F-4
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Indemnification Under Pfizer's Certificate of Incorporation and By-laws and
Delaware Law. Article Seventh of Pfizer's certificate of incorporation provides
for the indemnification of directors or officers, in accordance with the
by-laws, to the fullest extent permitted by the General Corporation Law of the
State of Delaware. Article V of the by-laws of Pfizer provides that Pfizer shall
indemnify and hold harmless, to the fullest extent permitted by law, any person
made or threatened to be made a party to any legal action by reason of the fact
that such person is or was a director, officer, employee or other corporate
agent of Pfizer or any subsidiary or constituent corporation or served any other
enterprise at the request of Pfizer, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action. The General Corporation Law of the State of
Delaware provides for the indemnification of directors and officers under
certain conditions.
Pfizer D&O Insurance. The directors and officers of Pfizer are insured
under a policy of directors' and officers' liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) List of Exhibits
EXHIBIT DESCRIPTION
------- -----------
2.1 Agreement and Plan of Merger dated as of July 13, 2002 among
Pfizer Inc. and Pilsner Acquisition Sub Corp., and Pharmacia
Corporation which is attached to the joint proxy
statement/prospectus which forms a part of this registration
statement as Annex A.
3.1 Amended and Restated Certificate of Incorporation of Pfizer
(incorporated herein by reference to Exhibit 3.1(i) in the
Registrant's Form 10-Q filing for the period ended April 2,
2000) (File No. 001-03619).
3.2 Amended and Restated By-laws of Pfizer (incorporated herein
by reference to Exhibit 3(ii) in the Registrant's Form 10-Q
filing for the period ended April 2, 2000) (File No.
001-03619).
4.1 Rights Agreement, dated as of October 6, 1997, between
Pfizer and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent, as amended (incorporated by reference to
Registrant's Form 8-K filing on October 6, 1997) (File No.
001-03619).
5 Opinion of Cadwalader, Wickersham & Taft regarding the
validity of the securities being registered.**
8.1 Opinion of Cadwalader, Wickersham & Taft regarding material
federal income tax consequences relating to the merger.**
8.2 Opinion of Sullivan & Cromwell regarding material federal
income tax consequences relating to the merger.**
10.1 Employment Agreement dated as of July 13, 2002 between
Pfizer Inc. and Fred Hassan.**
10.2 Pharmacia Corporation Directors Equity Compensation and
Deferral Plan (incorporated herein by reference to Exhibit
99.1 of Pharmacia & Upjohn's Form S-8 filed on April 20,
1999, File No. 333-76659).
10.3 Pharmacia Corporation 1996 Long-Term Incentive Plan Amended
and Restated as of September 24, 2001.*
10.4 Pharmacia Corporation Management Incentive Plan Amended and
Restated as of September 24, 2001.*
S-4 II-1
EXHIBIT DESCRIPTION
------- -----------
10.5 Pharmacia Corporation Shared Success Stock Option Plan as
Amended April 24, 1997, June 26, 1997 and September 24,
2001.*
10.6 Pharmacia Corporation Equity Compensation Plan Amended and
Restated as of September 24, 2001.*
10.7 Pharmacia Corporation 2001 Long-Term Incentive Plan
(incorporated herein by reference to Exhibit 99 of
Pharmacia's Form S-8 filed on February 1, 2002, File No.
333-82002).
10.8 Pharmacia Corporation Employee Stock Purchase Plan
(incorporated herein by reference to Exhibit 10.21 of
Pharmacia's Form 10-Q for the quarter ended March 31, 2001,
File No. 1-2516).
10.9 Pharmacia Corporation Long-Term Performance Share Unit
Incentive Plan Amended and Restated as of July 9, 2002.*
10.10 Monsanto Non-Employee Director Equity Incentive Compensation
Plan (incorporated herein by reference to Exhibit 10.2 of
Monsanto's Form S-1/A filed on September 22, 2000, File No.
333-36956).
12 Pfizer Inc. Ratio of Earnings to Fixed Charges.
15 Accountants' Acknowledgment.
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 in the Registrant's Annual Report on Form 10-K
filed on March 28, 2002 for the fiscal year ended December
31, 2001) (File No. 001-03619).
23.1 Consent of KPMG LLP (for Pfizer).
23.2 Consent of PricewaterhouseCoopers LLP (for Pharmacia).
23.3 Consent of PricewaterhouseCoopers LLP (for former
Warner-Lambert).
23.4 Consent of Deloitte & Touche LLP (for former Monsanto).
23.5 Consent of Cadwalader, Wickersham & Taft (included in the
opinions filed as Exhibit 5 and Exhibit 8.1 to this
Registration Statement).**
23.6 Consent of Sullivan & Cromwell (included in the opinion
filed as Exhibit 8.2 to this Registration Statement).**
24 Power of Attorney (Included on the signature page to this
Registration Statement filed on August 14, 2002).
99.1 Form of Pfizer Proxy Card.
99.2 Form of Pharmacia Proxy Card.
99.3 Consent of Lazard Freres & Co. LLC.*
99.4 Consent of Bear, Stearns & Co. Inc.*
99.5 Consent of Goldman, Sachs & Co.
99.6 Consent of Fred Hassan.*
99.7 Amendment dated as of July 13, 2002 among Pfizer Inc.
Pharmacia Corporation and G.D. Searle LLC (incorporated by
reference to Exhibit 99.1 of the Registrant's Current Report
on Form 8-K filed on July 16, 2002) (File No. 001-03619).
99.8 Portions of Registrant's Proxy Statement on Schedule 14A
filed on March 14, 2002.*
99.9 Portions of Pharmacia Corporation's Proxy Statement on
Schedule 14A filed on March 25, 2002.*
-------------------------
* Previously filed.
** To be filed by Amendment.
S-4 II-2
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(6) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement
S-4 II-3
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the joint proxy statement/prospectus pursuant to Item 4,
10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
S-4 II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on September 27, 2002.
PFIZER INC.
(Registrant)
By: /s/ MARGARET M. FORAN
------------------------------------
Margaret M. Foran
Vice President -- Corporate
Governance and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on September 27, 2002.
SIGNATURE TITLE
--------- -----
* Chairman of the Board, Chief Executive
------------------------------------------- Officer and Director (Principal Executive
Henry A. McKinnell Officer)
* Executive Vice President and Chief
------------------------------------------- Financial Officer (Principal Financial
David L. Shedlarz Officer)
* Vice President -- Controller (Principal
------------------------------------------- Accounting Officer)
Loretta V. Cangialosi
* Director
-------------------------------------------
Michael S. Brown
* Director
-------------------------------------------
M. Anthony Burns
* Director
-------------------------------------------
Robert N. Burt
* Director
-------------------------------------------
W. Don Cornwell
* Director
-------------------------------------------
William H. Gray, III
S-4 II-5
SIGNATURE TITLE
--------- -----
* Director
-------------------------------------------
Constance J. Horner
* Director
-------------------------------------------
William R. Howell
* Director
-------------------------------------------
Stanley O. Ikenberry
* Director
-------------------------------------------
Harry P. Kamen
* Director
-------------------------------------------
George A. Lorch
* Director
-------------------------------------------
Alex J. Mandl
* Director
-------------------------------------------
Dana G. Mead
* Director
-------------------------------------------
Franklin D. Raines
* Director
-------------------------------------------
Ruth J. Simmons
* Director
-------------------------------------------
William C. Steere, Jr.
* Director
-------------------------------------------
Jean-Paul Valles
* /s/ Margaret M. Foran
-------------------------------------------
Margaret M. Foran
(Attorney-In-Fact)
S-4 II-6
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
------- -----------
2.1 Agreement and Plan of Merger dated as of July 13, 2002 among
Pfizer Inc. and Pilsner Acquisition Sub Corp., and Pharmacia
Corporation which is attached to the joint proxy
statement/prospectus which forms a part of this registration
statement as Annex A.
3.1 Amended and Restated Certificate of Incorporation of Pfizer
(incorporated herein by reference to Exhibit 3.1(i) in the
Registrant's Form 10-Q filing for the period ended April 2,
2000) (File No. 001-03619).
3.2 Amended and Restated By-laws of Pfizer (incorporated herein
by reference to Exhibit 3(ii) in the Registrant's Form 10-Q
filing for the period ended April 2, 2000) (File No.
001-03619).
4.1 Rights Agreement, dated as of October 6, 1997, between
Pfizer and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent, as amended (incorporated by reference to
Registrant's Form 8-K filing on October 6, 1997) (File No.
001-03619).
5 Opinion of Cadwalader, Wickersham & Taft regarding the
validity of the securities being registered.**
8.1 Opinion of Cadwalader, Wickersham & Taft regarding material
federal income tax consequences relating to the merger.**
8.2 Opinion of Sullivan & Cromwell regarding material federal
income tax consequences relating to the merger.**
10.1 Employment Agreement dated as of July 13, 2002 between
Pfizer Inc. and Fred Hassan.**
10.2 Pharmacia Corporation Directors Equity Compensation and
Deferral Plan (incorporated herein by reference to Exhibit
99.1 of Pharmacia & Upjohn's Form S-8 filed on April 20,
1999, File No. 333-76659).
10.3 Pharmacia Corporation 1996 Long-Term Incentive Plan Amended
and Restated as of September 24, 2001.*
10.4 Pharmacia Corporation Management Incentive Plan Amended and
Restated as of September 24, 2001.*
10.5 Pharmacia Corporation Shared Success Stock Option Plan as
Amended April 24, 1997, June 26, 1997 and September 24,
2001.*
10.6 Pharmacia Corporation Equity Compensation Plan Amended and
Restated as of September 24, 2001.*
10.7 Pharmacia Corporation 2001 Long-Term Incentive Plan
(incorporated herein by reference to Exhibit 99 of
Pharmacia's Form S-8 filed on February 1, 2002, File No.
333-82002).
10.8 Pharmacia Corporation Employee Stock Purchase Plan
(incorporated herein by reference to Exhibit 10.21 of
Pharmacia's Form 10-Q for the quarter ended March 31, 2001,
File No. 1-2516).
10.9 Pharmacia Corporation Long-Term Performance Share Unit
Incentive Plan Amended and Restated as of July 9, 2002.*
10.10 Monsanto Non-Employee Director Equity Incentive Compensation
Plan. (incorporated herein by reference to Exhibit 10.2 of
Monsanto's Form S-1/A filed on September 22, 2000, File No.
333-36956).
12 Pfizer Inc. Ratio of Earnings to Fixed Charges.
15 Accountants' Acknowledgment.
EXHIBIT DESCRIPTION
------- -----------
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 in the Registrant's Annual Report on Form 10-K
filed on March 28, 2002 for the fiscal year ended December
31, 2001) (File No. 001-03619).
23.1 Consent of KPMG LLP (for Pfizer).
23.2 Consent of PricewaterhouseCoopers LLP (for Pharmacia).
23.3 Consent of PricewaterhouseCoopers LLP (for former
Warner-Lambert).
23.4 Consent of Deloitte & Touche LLP (for former Monsanto).
23.5 Consent of Cadwalader, Wickersham & Taft (included in the
opinions filed as Exhibit 5 and Exhibit 8.1 to this
Registration Statement).**
23.6 Consent of Sullivan & Cromwell (included in the opinion
filed as Exhibit 8.2 to this Registration Statement).**
24 Power of Attorney (Included on the signature page to this
Registration Statement filed on August 14, 2002).
99.1 Form of Pfizer Proxy Card.
99.2 Form of Pharmacia Proxy Card.
99.3 Consent of Lazard Freres & Co. LLC.*
99.4 Consent of Bear, Stearns & Co. Inc.*
99.5 Consent of Goldman, Sachs & Co.
99.6 Consent of Fred Hassan.*
99.7 Amendment dated as of July 13, 2002 among Pfizer Inc.
Pharmacia Corporation and G.D. Searle LLC (incorporated by
reference to Exhibit 99.1 of the Registrant's Current Report
on Form 8-K filed on July 16, 2002) (File No. 001-03619).
99.8 Portions of Registrant's Proxy Statement on Schedule 14A
filed on March 14, 2002.*
99.9 Portions of Pharmacia Corporation's Proxy Statement on
Schedule 14A filed on March 25, 2002.*
-------------------------
* Previously filed
** To be filed by Amendment