SEC Info - Pharmacia Corp/DE - ‘DEFS14A’ for 9/18/97

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Pharmacia Corp/DE – ‘DEFS14A’ for 9/18/97

As of: Monday, 7/14/97 · For: 9/18/97 · Accession #: 950123-97-5793 · File #: 1-02516

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/14/97  Pharmacia Corp/DE                 DEFS14A     9/18/97    1:528K                                   RR Donnelley/FA

Definitive Proxy Solicitation Material — Special Meeting — Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEFS14A     Notice of Special Meeting: Monsanto Company          156    880K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Accounting Treatment Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals Amendment of Certain Charter Provisions and the By-Laws Annex A Antitakeover Legislation Authorized Capital Stock Background and Reasons for the Spinoff Business and Properties of Chemicals After the Spinoff Business of the Company After the Spinoff By Management By Others Certain Agreements Certain Antitakeover Effects of Certain Charter and By-Laws Provisions and the Company Rights and the Chemicals Rights Certain Relationships and Related Transactions Certain Tax Risks of the Spinoff Change of Control Changes in Trading Prices of Company Common Stock Chemicals Common Stock Chemicals Incentive and Benefit Plans Chemicals Preferred Stock Chemicals Rights Chemicals Spinco Chemicals SpinCo Selected Historical Financial Data Chemicals SpinCo Selected Unaudited Pro Forma Combined Financial Data and Comparative Per Share Data Chemicals SpinCo Unaudited Pro Forma Condensed Combined Financial Statements Classification of the Company Board and Related Provisions Classified Boards of Directors Committees of the Chemicals Board Common Stock Company Board Meetings and Committees Company Charter Proposal, The Company Options Company's Increased Reliance on Agricultural Products Segment, The Compensation of Directors Competition Conditions; Termination Description of Chemicals Capital Stock Description of Principal Products and Competitive Situation Directors Continuing Current Terms Expiring in 1998 Directors of Chemicals Directors to be Elected to Terms Expiring in 1999 Directors to be Elected to Terms Expiring in 2000 Distribution Agreement Dividend Policies Earnings Per Share Election of Directors to Classified Terms Elimination of Action by Consent of Stockholders Employee Benefits Allocation Agreement Employee Relations Environmental Liabilities Environmental Matters Esop Executive Compensation Executive Officers of Chemicals Financing Form of Certificate of Amendment of the Monsanto Company Restated Certificate of Incorporation General Incentive Plan Proposal Increased Leverage of Chemicals Increase in Authorized Shares of Company Common Stock Indemnification of Directors and Officers Index of Defined Terms Index to Financial Statements Intellectual Property Agreements International Operations Lack of Operating History as Separate Entities Legal Proceedings Liability and Indemnification of Officers and Directors of Chemicals Limitation of Liability of Chemicals Directors Limitations on Stockholder Action by Written Consent; Special Meetings Liquidity and Capital Resources Listing and Trading of Company Common Stock and Chemicals Common Stock Management of Chemicals After the Spinoff Management of the Company Management's Discussion and Analysis of Financial Condition and Results of Operations of Chemicals Manner of Effecting the Spinoff Market Information Concerning Company Common Stock Material Features of the Incentive Plan Material Federal Income Tax Consequences of the Spinoff Monsanto Company and Subsidiaries Selected Historical Financial Data Monsanto Company and Subsidiaries Selected Unaudited Pro Forma Consolidated Financial Data and Comparative Per Share Data Monsanto Company and Subsidiaries Unaudited Pro Forma Condensed Consolidated Financial Statements for the Periods Ended March 31, 1997 and December 31, 1996 Monsanto Company and Subsidiaries Unaudited Pro Forma Condensed Consolidated Statements of Income for the Years Ended December 31, 1995 and 1994 No Appraisal Rights No Current Public Market for Chemicals Common Stock Notes to Interim Combined Financial Statements Number of Directors; Removal; Filling Vacancies Operating Agreements P4 Joint Venture Patents and Trademarks Possible Antitakeover Effects of the Company Charter Proposal and Similar Provisions of the Chemicals Charter Possible Future Tax Legislation Preemptive Rights Preferred Share Purchase Rights Preferred Stock Principal Equity Affiliates Properties Purpose of the Special Meeting Questions and Answers About the Spinoff of Chemicals Raw Materials and Energy Resources Raw Material Supply Agreements Reasons for the Company Charter Proposal Reasons for the Incentive Plan Proposal Recommendation of the Company Board Regulatory Approvals Relationship Between the Company and Chemicals After the Spinoff Required Vote Requirement of 80% Vote for Stockholders to Amend By-Laws Research and Development Results of Operations Risk Factors Risk Management Risk That the Company or Chemicals Will Be Unable to Satisfy Indemnification Obligations Sale of Products Security Ownership of Certain Beneficial Owners of Company Common Stock Solicitation of Proxies Special Meeting, The Spinoff Proposal, The Submission of Stockholder Proposals for 1998 Annual Meeting Summary of Certain Information Summary Selected Historical and Pro Forma Financial Data Tax Sharing and Indemnification Agreement The Company Charter Proposal The Company's Increased Reliance on Agricultural Products Segment The Special Meeting The Spinoff Proposal Transition Services Agreement Treatment of Outstanding Company Stock Awards Voting Rights and Proxy Information Where Stockholders Can Find Additional Information
1	1st Page - Filing Submission
9	Questions and Answers About the Spinoff of Chemicals
10	Summary of Certain Information
"	The Special Meeting
11	No Appraisal Rights
13	Summary Selected Historical and Pro Forma Financial Data
14	Monsanto Company and Subsidiaries Selected Historical Financial Data
16	Chemicals SpinCo Selected Historical Financial Data
"	Chemicals Spinco
18	Monsanto Company and Subsidiaries Selected Unaudited Pro Forma Consolidated Financial Data and Comparative Per Share Data
19	Chemicals SpinCo Selected Unaudited Pro Forma Combined Financial Data and Comparative Per Share Data
20	Purpose of the Special Meeting
21	Voting Rights and Proxy Information
22	Risk Factors
"	Lack of Operating History as Separate Entities
"	Increased Leverage of Chemicals
23	Environmental Liabilities
24	Risk That the Company or Chemicals Will Be Unable to Satisfy Indemnification Obligations
"	The Company's Increased Reliance on Agricultural Products Segment
25	No Current Public Market for Chemicals Common Stock
"	Changes in Trading Prices of Company Common Stock
"	Certain Tax Risks of the Spinoff
26	Dividend Policies
"	Possible Antitakeover Effects of the Company Charter Proposal and Similar Provisions of the Chemicals Charter
27	The Spinoff Proposal
"	Background and Reasons for the Spinoff
28	Required Vote
"	Recommendation of the Company Board
"	Manner of Effecting the Spinoff
29	Material Federal Income Tax Consequences of the Spinoff
31	Possible Future Tax Legislation
"	Listing and Trading of Company Common Stock and Chemicals Common Stock
32	Financing
"	Regulatory Approvals
"	Accounting Treatment
"	Conditions; Termination
34	Business of the Company After the Spinoff
35	Relationship Between the Company and Chemicals After the Spinoff
"	Distribution Agreement
"	Employee Benefits Allocation Agreement
36	Tax Sharing and Indemnification Agreement
37	Intellectual Property Agreements
"	Transition Services Agreement
"	P4 Joint Venture
38	Operating Agreements
"	Raw Material Supply Agreements
39	The Company Charter Proposal
"	Classification of the Company Board and Related Provisions
40	Elimination of Action by Consent of Stockholders
"	Requirement of 80% Vote for Stockholders to Amend By-Laws
"	Reasons for the Company Charter Proposal
41	Increase in Authorized Shares of Company Common Stock
43	Election of Directors to Classified Terms
"	Directors to be Elected to Terms Expiring in 1999
44	Directors to be Elected to Terms Expiring in 2000
"	Directors Continuing Current Terms Expiring in 1998
45	Company Board Meetings and Committees
46	Compensation of Directors
48	Incentive Plan Proposal
"	Reasons for the Incentive Plan Proposal
"	Material Features of the Incentive Plan
49	Company Options
50	Change of Control
51	Earnings Per Share
54	Monsanto Company and Subsidiaries Unaudited Pro Forma Condensed Consolidated Financial Statements for the Periods Ended March 31, 1997 and December 31, 1996
60	Monsanto Company and Subsidiaries Unaudited Pro Forma Condensed Consolidated Statements of Income for the Years Ended December 31, 1995 and 1994
64	Chemicals SpinCo Unaudited Pro Forma Condensed Combined Financial Statements
70	Management's Discussion and Analysis of Financial Condition and Results of Operations of Chemicals
"	Liquidity and Capital Resources
71	Results of Operations
73	Environmental Matters
75	Business and Properties of Chemicals After the Spinoff
"	Description of Principal Products and Competitive Situation
80	Principal Equity Affiliates
"	Sale of Products
"	Raw Materials and Energy Resources
"	Patents and Trademarks
81	Competition
"	Research and Development
"	Employee Relations
"	International Operations
82	Properties
83	Legal Proceedings
84	Risk Management
85	Management of Chemicals After the Spinoff
"	Executive Officers of Chemicals
86	Directors of Chemicals
88	Committees of the Chemicals Board
89	Executive Compensation
93	Treatment of Outstanding Company Stock Awards
94	Chemicals Incentive and Benefit Plans
95	Certain Relationships and Related Transactions
96	Security Ownership of Certain Beneficial Owners of Company Common Stock
"	By Management
97	By Others
98	Management of the Company
105	Certain Agreements
109	Market Information Concerning Company Common Stock
110	Description of Chemicals Capital Stock
"	Authorized Capital Stock
"	Chemicals Common Stock
"	Chemicals Preferred Stock
"	Chemicals Rights
113	Preemptive Rights
"	Certain Antitakeover Effects of Certain Charter and By-Laws Provisions and the Company Rights and the Chemicals Rights
"	General
114	Classified Boards of Directors
"	Number of Directors; Removal; Filling Vacancies
115	Limitations on Stockholder Action by Written Consent; Special Meetings
"	Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals
116	Preferred Stock
117	Common Stock
"	Amendment of Certain Charter Provisions and the By-Laws
118	Preferred Share Purchase Rights
"	Antitakeover Legislation
120	Liability and Indemnification of Officers and Directors of Chemicals
"	Limitation of Liability of Chemicals Directors
"	Indemnification of Directors and Officers
121	Submission of Stockholder Proposals for 1998 Annual Meeting
"	Solicitation of Proxies
"	Where Stockholders Can Find Additional Information
123	Index of Defined Terms
124	Index to Financial Statements
139	Esop
147	Notes to Interim Combined Financial Statements
150	Annex A
"	Form of Certificate of Amendment of the Monsanto Company Restated Certificate of Incorporation

DEFS14A 1st Page of 156 TOC ↑Top Previous Next ↓Bottom Just 1st

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[Enlarge/Download Table]

[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Monsanto Company
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

------------------------------------------------------------------------
(5) Total fee paid:

------------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

------------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:

------------------------------------------------------------------------

(3) Filing Party:

------------------------------------------------------------------------

(4) Date Filed:

DEFS14A 2nd Page of 156 TOC 1st Previous Next ↓Bottom Just 2nd

Monsanto Letterhead Logo

July 14, 1997

Dear Shareowner,

As you know, we're proposing to spin off Monsanto's chemical businesses
into a new publicly traded company and to unite our agricultural, food and
pharmaceuticals businesses into a life sciences company. Before completing the
spinoff, we are seeking your approval, as a shareowner, of several matters.
Please join us, then, in a special meeting of shareowners on August 18, 1997 in
K Building at the Company's World Headquarters, 800 N. Lindbergh Boulevard, St.
Louis, Missouri. The meeting will start at 10:00 a.m., Central Time. If
shareowners approve the spinoff and the charter amendments, you will receive one
share of common stock of the chemicals company for every five shares of Monsanto
common stock that you own on the record date for the spinoff.

Although the proposed spinoff has been widely reported in the media and
explained in our 1996 annual report, it bears repeating that the board of
directors believes this spinoff will be beneficial to both the chemical and life
sciences enterprises. These are distinct businesses with significant differences
in their markets, products, research needs, investment needs and plans for
growth. We believe that the potential and value of both can best be achieved by
operating them independently. With the spinoff, you will be able to focus on the
specific growth and value characteristics that best suit your investment
philosophy.

At this special meeting, we will ask you to vote on the spinoff, certain
amendments to Monsanto's charter, election of certain Monsanto directors and an
amendment to the Monsanto Management Incentive Plan of 1996.

The spinoff is subject to shareowner approval of the spinoff and of the
Monsanto charter amendments. The spinoff is also subject to certain governmental
approvals, including the receipt of a ruling from the Internal Revenue Service
that the spinoff will generally be tax free to Monsanto's shareowners for U.S.
federal income tax purposes.

Details of these proposals and other important information, including a
description of the business and management of the chemical operations, are
included in this proxy statement.

We hope you will give serious consideration to these matters. The board
has approved the above proposals and recommends that you vote for these
proposals.

Whether or not you plan to attend the special meeting and regardless of
the number of shares that you own, please complete, sign, date and return the
enclosed proxy card promptly in the enclosed envelope. You may, of course,
attend the special meeting and vote in person, even if you have previously
returned your proxy card.

Sincerely,

Shapiro Signature

Robert B. Shapiro
Chairman and Chief Executive Officer

DEFS14A 3rd Page of 156 TOC 1st Previous Next ↓Bottom Just 3rd

Monsanto Letterhead Logo

NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
AUGUST 18, 1997

To Our Stockholders:

A Special Meeting of Stockholders of Monsanto Company (the "Company") will be
held on Monday, August 18, 1997, in K Building at the Company's World
Headquarters, 800 N. Lindbergh Boulevard, St. Louis, Missouri, at 10:00 a.m.,
Central Time (the "Special Meeting"), for the following purposes:

(1) to consider and vote on a proposal to approve the spinoff of the
Company's chemicals business;

(2) to consider and vote on a proposal to amend the Company's Restated
Certificate of Incorporation as described in the attached Proxy
Statement;

(3) to elect the Company's directors named in the accompanying Proxy
Statement to classified terms, subject to approval of the proposal to
amend the Company's Restated Certificate of Incorporation; and

(4) to consider and vote upon a proposal to amend the Monsanto Management
Incentive Plan of 1996 to increase the maximum number of shares of the
Company's common stock available for grants by 19,000,000 shares to
65,250,000 shares.

The record date for determining stockholders entitled to notice of and to vote
at the meeting or any adjournment is June 27, 1997. No business other than the
proposals described in this notice will be considered at the Special Meeting or
any adjournment.

The Board of Directors unanimously recommends that stockholders vote to approve
the four proposals listed above, which are described in detail in the
accompanying Proxy Statement.

WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL IT IN THE ENCLOSED STAMPED
ENVELOPE. If you plan to attend the special meeting, you must present your
admission ticket at the door. Your admission ticket and directions to the
special meeting are in this proxy statement on the following page. This proxy
statement is being mailed to our stockholders beginning on or about July 14,
1997.

Signature
R. William Ide, III
Secretary

St. Louis, Missouri
July 14, 1997

DEFS14A 4th Page of 156 TOC 1st Previous Next ↓Bottom Just 4th

MONSANTO COMPANY

Special Meeting of Stockholders

ADMISSION TICKET

10:00 a.m. Central Time

August 18, 1997

K Building at Monsanto Company's World Headquarters

800 N. Lindbergh Boulevard
St. Louis, Missouri

Directions from downtown St. Louis:

Take Highway 40 west to Lindbergh Boulevard north. Go about 2 1/2 miles to the
Olive Boulevard west exit. Follow Olive to the first traffic light. Turn left
and immediately left again into Monsanto's headquarters site. Please follow
signs to parking area and entrance to K Building.

Directions from St. Louis International Airport (Lambert):

Take Interstate 70 west to Lindbergh Boulevard south. Go about 6 miles to Olive
Boulevard west exit. Follow to the first traffic light. Go directly across the
intersection and then immediately turn left into Monsanto's headquarters site.
Please follow signs to parking area and entrance to K Building.

(See map on back of the page.)

DEFS14A 5th Page of 156 TOC 1st Previous Next ↓Bottom Just 5th

[MONSANTO COMPANY MAP]

DEFS14A 6th Page of 156 TOC 1st Previous Next ↓Bottom Just 6th

TABLE OF CONTENTS

[Enlarge/Download Table]

PAGE
----

QUESTIONS AND ANSWERS ABOUT THE SPINOFF OF CHEMICALS................................... 4

SUMMARY OF CERTAIN INFORMATION......................................................... 5
Summary Selected Historical and Pro Forma Financial Data............................. 8
Monsanto Company and Subsidiaries Selected Historical Financial Data................. 9
Chemicals SpinCo Selected Historical Financial Data.................................. 11
Monsanto Company and Subsidiaries Selected Unaudited Pro Forma Consolidated Financial
Data and Comparative Per Share Data............................................... 13
Chemicals SpinCo Selected Unaudited Pro Forma Combined Financial Data and Comparative
Per Share Data.................................................................... 14
THE SPECIAL MEETING.................................................................... 15
Purpose of the Special Meeting....................................................... 15
Voting Rights and Proxy Information.................................................. 16
No Appraisal Rights.................................................................. 16

RISK FACTORS........................................................................... 17
Lack of Operating History as Separate Entities....................................... 17
Increased Leverage of Chemicals...................................................... 17
Environmental Liabilities............................................................ 18
Risk That the Company or Chemicals Will Be Unable to Satisfy Indemnification
Obligations....................................................................... 19
The Company's Increased Reliance on Agricultural Products Segment.................... 19
No Current Public Market for Chemicals Common Stock.................................. 20
Changes in Trading Prices of Company Common Stock.................................... 20
Certain Tax Risks of the Spinoff..................................................... 20
Dividend Policies.................................................................... 21
Possible Antitakeover Effects of the Company Charter Proposal and Similar Provisions
of the Chemicals Charter.......................................................... 21

THE SPINOFF PROPOSAL................................................................... 22
Background and Reasons for the Spinoff............................................... 22
Required Vote........................................................................ 23
Recommendation of the Company Board.................................................. 23
Manner of Effecting the Spinoff...................................................... 23
Material Federal Income Tax Consequences of the Spinoff.............................. 24
Possible Future Tax Legislation...................................................... 26
Listing and Trading of Company Common Stock and Chemicals Common Stock............... 26
Financing............................................................................ 27
Regulatory Approvals................................................................. 27
Accounting Treatment................................................................. 27
Conditions; Termination.............................................................. 27
BUSINESS OF THE COMPANY AFTER THE SPINOFF.............................................. 29
RELATIONSHIP BETWEEN THE COMPANY AND CHEMICALS AFTER THE SPINOFF....................... 30
Distribution Agreement............................................................... 30
Employee Benefits Allocation Agreement............................................... 30
Tax Sharing and Indemnification Agreement............................................ 31
Intellectual Property Agreements..................................................... 32
Transition Services Agreement........................................................ 32
P4 Joint Venture..................................................................... 32
Operating Agreements................................................................. 33
Raw Material Supply Agreements....................................................... 33

THE COMPANY CHARTER PROPOSAL........................................................... 34
Classification of the Company Board and Related Provisions........................... 34
Elimination of Action by Consent of Stockholders..................................... 35
Requirement of 80% Vote for Stockholders to Amend By-Laws............................ 35

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PAGE
----

Reasons for the Company Charter Proposal............................................. 35
Increase in Authorized Shares of Company Common Stock................................ 36
Required Vote........................................................................ 37
Recommendation of the Company Board.................................................. 37
ELECTION OF DIRECTORS TO CLASSIFIED TERMS.............................................. 38
Directors to be Elected to Terms Expiring in 1999.................................... 38
Directors to be Elected to Terms Expiring in 2000.................................... 39
Directors Continuing Current Terms Expiring in 1998.................................. 39
Required Vote........................................................................ 39
Recommendation of the Company Board.................................................. 39
Company Board Meetings and Committees................................................ 40
Compensation of Directors............................................................ 41
INCENTIVE PLAN PROPOSAL................................................................ 43
Reasons for the Incentive Plan Proposal.............................................. 43
Material Features of the Incentive Plan.............................................. 43
Required Vote........................................................................ 45
Recommendation of the Company Board.................................................. 45
MONSANTO COMPANY AND SUBSIDIARIES SELECTED HISTORICAL FINANCIAL DATA................... 46
CHEMICALS SPINCO SELECTED HISTORICAL FINANCIAL DATA.................................... 48
MONSANTO COMPANY AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE PERIODS ENDED MARCH 31, 1997 AND DECEMBER 31, 1996................ 49
MONSANTO COMPANY AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994............................. 55
CHEMICALS SPINCO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS........... 59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF CHEMICALS......................................................................... 65
Liquidity and Capital Resources...................................................... 65
Results of Operations................................................................ 66
Environmental Matters................................................................ 68
BUSINESS AND PROPERTIES OF CHEMICALS AFTER THE SPINOFF................................. 70
Description of Principal Products and Competitive Situation.......................... 70
Principal Equity Affiliates.......................................................... 75
Sale of Products..................................................................... 75
Raw Materials and Energy Resources................................................... 75
Patents and Trademarks............................................................... 75
Competition.......................................................................... 76
Research and Development............................................................. 76
Environmental Matters................................................................ 76
Employee Relations................................................................... 76
International Operations............................................................. 76
Properties........................................................................... 77
Legal Proceedings.................................................................... 78
Risk Management...................................................................... 79
MANAGEMENT OF CHEMICALS AFTER THE SPINOFF.............................................. 80
Executive Officers of Chemicals...................................................... 80
Directors of Chemicals............................................................... 81
Committees of the Chemicals Board.................................................... 83
Compensation of Directors............................................................ 83

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PAGE
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Executive Compensation............................................................... 84
Chemicals Incentive and Benefit Plans................................................ 89
Certain Relationships and Related Transactions....................................... 90
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF COMPANY COMMON STOCK................ 91
By Management........................................................................ 91
By Others............................................................................ 92
MANAGEMENT OF THE COMPANY.............................................................. 93
Executive Compensation............................................................... 93
Certain Agreements................................................................... 100
Certain Relationships and Related Transactions....................................... 100
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF COMPANY COMMON STOCK................ 102
By Management........................................................................ 102
By Others............................................................................ 103
MARKET INFORMATION CONCERNING COMPANY COMMON STOCK..................................... 104
DESCRIPTION OF CHEMICALS CAPITAL STOCK................................................. 105
Authorized Capital Stock............................................................. 105
Chemicals Common Stock............................................................... 105
Chemicals Preferred Stock............................................................ 105
Chemicals Rights..................................................................... 105
Preemptive Rights.................................................................... 108
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAWS PROVISIONS AND THE COMPANY
RIGHTS AND THE CHEMICALS RIGHTS...................................................... 108
General.............................................................................. 108
Classified Boards of Directors....................................................... 109
Number of Directors; Removal; Filling Vacancies...................................... 109
Limitations on Stockholder Action by Written Consent; Special Meetings............... 110
Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals...... 110
Preferred Stock...................................................................... 111
Common Stock......................................................................... 112
Amendment of Certain Charter Provisions and the By-Laws.............................. 112
Preferred Share Purchase Rights...................................................... 113
Antitakeover Legislation............................................................. 113
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF CHEMICALS................... 115
Limitation of Liability of Chemicals Directors....................................... 115
Indemnification of Directors and Officers............................................ 115
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING............................ 116
SOLICITATION OF PROXIES................................................................ 116
WHERE STOCKHOLDERS CAN FIND ADDITIONAL INFORMATION..................................... 116
INDEX OF DEFINED TERMS................................................................. 118
INDEX TO FINANCIAL STATEMENTS.......................................................... F-1
Annex A -- Form of Certificate of Amendment of the Monsanto Company Restated
Certificate of Incorporation................................................ A-1

DEFS14A 9th Page of 156 TOC 1st Previous Next ↓Bottom Just 9th

QUESTIONS AND ANSWERS ABOUT
THE SPINOFF OF CHEMICALS

Q: WHY ARE WE PROPOSING THE SPINOFF?

A: Your Board of Directors believes that separating the Life Sciences and
Chemicals Businesses will allow each business to pursue strategies and focus on
objectives appropriate to that business. The Life Sciences Business and the
Chemicals Business are distinct businesses with significant differences in their
markets, products, research needs, investment needs and plans for growth. Your
Board of Directors believes that the separation into two independent public
companies will enhance the ability of each to focus on strategic initiatives and
new business opportunities, and to improve cost structures and operating
efficiencies. For a more detailed discussion of these reasons for the spinoff,
see p. 22. For information on the Life Sciences Business after the spinoff, see
p. 29 and on the Chemicals Business, see p. 70.

Q: WHEN WILL THE SPINOFF OCCUR?

A: We plan to complete the spinoff as soon as possible after the Special
Meeting, if the conditions to the spinoff are met. Currently, the Company
anticipates completing the spinoff on or before October 1, 1997.

Q: WHAT BUSINESSES WILL CHEMICALS BE IN AFTER THE SPINOFF?

A: After the spinoff, Chemicals will produce and market a range of
high-performance chemical-based materials, including nylon and acrylic fibers
and fiber intermediates, Saflex(R) plastic interlayer, phosphorus derivatives
and specialty chemicals.

Q: WHAT WILL I RECEIVE IN THE SPINOFF?

A: For every five shares of the Company's common stock you own of record on the
record date for the spinoff, you will receive one share of Chemicals' common
stock. The Company currently intends to distribute the shares of Chemicals'
Common Stock, including any fractional shares, by book entry. Instead of
physical stock certificates, you will receive a statement of your book entry
account for the Chemicals' shares distributed to you in the spinoff. Following
the spinoff, you may also request physical stock certificates, if you wish.
Instructions for making that request will be furnished with your account
statement. Associated with every share of Chemicals' common stock will be a
preferred share purchase right. These rights are similar to the Company rights
associated with your existing shares of the Company's common stock and may have
certain antitakeover effects similar to the Company's current rights.

Q: WHAT WILL HAPPEN TO MY DIVIDENDS?

A: Chemicals' dividend policy will be set by Chemicals' board of directors
after the spinoff. Chemicals may decide to return earnings to stockholders
through cash dividends, stock repurchases, or a combination of both. If a cash
dividend is paid, it will likely be modest. The Company is evaluating an
appropriate dividend policy to be followed after the spinoff, recognizing the
Company's need to finance its future growth plans. While no decision has been
made by either company, the combined dividends of the Company and Chemicals
after the spinoff are likely to be less than the Company's current annual
dividend rate of $0.64 per share. The actual amount of such dividends will
depend on the companies' respective operating results, financial requirements
and other factors as they develop over time.

Q: DO I HAVE TO PAY TAXES ON THE RECEIPT OF CHEMICALS' COMMON STOCK?

A: We have applied to the Internal Revenue Service for a ruling that the
spinoff will be tax free to the Company's stockholders for U.S. federal income
tax purposes, except for any tax payable because of any cash stockholders may
receive instead of fractional shares. If the book entry procedure is used, you
will receive cash instead of fractional shares only if you request physical
stock certificates.

Q: WHERE WILL MY CHEMICALS STOCK BE TRADED?

A: Chemicals will apply to list the Chemicals stock on the New York Stock
Exchange. The symbol for Chemicals' common stock will be announced at a later
date.

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SUMMARY OF CERTAIN INFORMATION

This summary highlights selected information from this document and may not
contain all of the information that is important to you. To better understand
the spinoff and for a more complete understanding of the legal terms of the
spinoff and the other proposals to be presented at the Special Meeting, you
should read this entire document carefully, as well as those additional
documents referred to in this summary and elsewhere. See "Where Stockholders Can
Find Additional Information."

THE SPECIAL MEETING
(SEE PAGE 15)

We will hold the Special Meeting in K Building at the Company's World
Headquarters, 800 N. Lindbergh Boulevard, St. Louis County, Missouri at 10:00
a.m., Central Time, on August 18, 1997.

THE PROPOSALS
(SEE PAGES 22, 34, 38 AND 43)

At the Special Meeting stockholders will vote on the following proposals:

(1) to approve the proposed spinoff of Chemicals;

(2) to approve the following amendments to the Company's Certificate of
Incorporation:

(a) to provide for staggered three-year terms for directors and
certain related matters,

(b) to eliminate stockholder action by written consent,

(c) to require the vote of 80% of the Company's outstanding voting
stock for stockholders to amend the Company's By-Laws,

(d) to increase the authorized number of shares of the Company's
common stock by 150,000,000 shares to 1,000,000,000 shares;

(3) if the amendments to the Company's Certificate of Incorporation are
approved, to elect the directors of the Company who are listed on pages
38-39 to staggered terms; and

(4) to approve the amendment of the Monsanto Management Incentive Plan
of 1996 to increase by 19,000,000 to 65,250,000 the number of shares of the
Company's common stock available for grants under the plan.

WHAT COMPANY STOCKHOLDERS WILL RECEIVE IN THE SPINOFF
(SEE PAGES 23-24)

In the spinoff, Company stockholders will receive one share of Chemicals'
common stock and one preferred share purchase right for every five shares of the
Company's common stock that they own on the record date for the spinoff. The
shares and rights represent a continuing interest in the Chemicals Business.

We currently intend to use a book entry system to distribute shares in the
spinoff. In a book entry system, ownership of stock is recorded in the records
maintained by Chemicals' transfer agent, but physical certificates are not
issued unless the stockholder requests a physical certificate. Following the
spinoff, each stockholder of record on the spinoff record date will receive a
statement of the Chemicals shares, including fractional shares, credited to the
stockholder's account. Stockholders may request physical certificates instead of
participating in the book entry system. In that case, certificates will be
issued only for whole numbers of shares, and cash will be given to stockholders
instead of any remaining fractional shares of Chemicals' common stock that they
would otherwise receive.

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BUSINESSES OF THE COMPANY AND CHEMICALS AFTER THE SPINOFF
(SEE PAGES 22, 29 AND 70-79)

Following the spinoff, the Company will continue to operate its life
sciences businesses, including agricultural products such as Roundup(R)
herbicide and Ortho(R) lawn-and-garden products, pharmaceuticals, and food
ingredients such as NutraSweet(R) brand sweetener. Chemicals will produce and
market a range of high-performance chemical-based materials, including nylon and
acrylic fibers and fiber intermediates, Saflex(R) plastic interlayer, phosphorus
derivatives, and specialty chemicals. As is more fully explained elsewhere in
this proxy statement, certain businesses which have been included historically
in the Company's chemicals segment for financial reporting purposes will not be
contributed to Chemicals in the spinoff. Another business, and certain assets
which have not been reported in the Company's chemicals segment, will be
contributed to Chemicals.
CONDITIONS TO THE SPINOFF
(SEE PAGES 27-28)

The spinoff is subject to several conditions, including the following:

(1) approval by the Company's stockholders of both the spinoff and the
proposal to amend the Company's Certificate of Incorporation;

(2) receipt by the Company of an Internal Revenue Service ruling that,
for U.S. federal income tax purposes, the spinoff generally will not be
taxable; and

(3) approval of Chemicals' common stock for listing on the New York
Stock Exchange.

Your Board does not intend to waive any of these conditions, except that if
the stockholders approve the spinoff but do not approve the amendments to the
Certificate of Incorporation, your Board will reevaluate its intention to
complete the spinoff. After such review, your Board could decide to cancel the
spinoff or to waive the condition that the amendments be approved and complete
the spinoff despite lack of approval. If the Company does not receive the IRS
ruling and the Board decides to waive the condition, we will circulate a revised
proxy statement and resolicit proxies. Your Board also has the right to cancel
or defer the spinoff even if the stockholders approve the spinoff and the other
conditions to the spinoff are met.

FEDERAL INCOME TAX CONSEQUENCES
(SEE PAGES 24-26)

We have applied to the Internal Revenue Service for a ruling that the
spinoff will be generally tax free to the Company and the Company's stockholders
for U.S. federal income tax purposes. However, any cash stockholders may receive
instead of fractional shares may be taxable.

NO APPRAISAL RIGHTS
(SEE PAGE 16)

Under Delaware law, Company stockholders have no right to an appraisal of
the value of their shares in connection with the spinoff.
ACCOUNTING TREATMENT

Following stockholder approval of the spinoff, we will restate our
consolidated financial statements to reflect Chemicals as a discontinued
operation. In the separate financial statements of Chemicals, the assets and
liabilities contributed to Chemicals will be recorded at the Company's
historical basis.

MANAGEMENT OF CHEMICALS FOLLOWING THE SPINOFF
(SEE PAGES 80-82)

Prior to completing the spinoff, the Company, as the sole stockholder of
Chemicals, plans to elect the following persons to Chemicals' Board of
Directors: Robert T. Blakely, Joan T. Bok, Paul H. Hatfield, John C. Hunter III,
Howard M. Love, Frank A. Metz, Jr., Robert G. Potter, William D. Ruckelshaus and
John B. Slaughter. Mrs. Bok, Messrs. Love and Metz and Dr. Slaughter are
currently directors of the Company and will resign their positions as directors
of the Company as of the spinoff. Mr. Ruckelshaus is also currently a director
of the Company and will be a director of both the Company and Chemicals after
the spinoff. The executive officers of Chemicals, as of the date of the spinoff,
will be persons who are currently employees of the Company. Mr. Potter, an
Executive Vice President of the Company, will be Chairman and Chief Executive
Officer of Chemicals. He has been chief executive of the Company's chemical
businesses since 1986.

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DIVIDENDS AFTER THE SPINOFF
(SEE PAGE 21)

Chemicals' dividend policy will be set by Chemicals' board of directors
after the spinoff. Chemicals may decide to return earnings to stockholders
through cash dividends, stock repurchases, or a combination of both. If a cash
dividend is paid, it will likely be modest.

The Company is evaluating an appropriate dividend policy to be followed
after the spinoff, recognizing the Company's need to finance its future growth
plans. While no decision has been made by either company, the combined dividends
of the Company and Chemicals after the spinoff are likely to be less than the
Company's current annual dividend rate of $0.64 per share. The actual amount of
such dividends will depend on the companies' respective operating results,
financial requirements and other factors as they develop over time.

LISTING OF CHEMICALS' COMMON STOCK
(SEE PAGE 26)

The shares of Chemicals' common stock to be issued in the spinoff are
expected to be listed on the New York Stock Exchange. However, there is
currently no public trading market for these shares.

VOTE REQUIRED TO APPROVE THE PROPOSALS
(SEE PAGES 23, 37, 39 AND 45)

[Download Table]

PROPOSAL VOTE REQUIRED
----------------------------------- -----------------------------------

1. Spinoff Majority of shares present in
person or by proxy at Special
Meeting
2. Amendments to Company's Majority of shares outstanding on
Certificate of Incorporation June 27, 1997
3. Election of Company's directors Plurality of shares present in
to Staggered Terms person or by proxy at Special
Meeting (i.e., the nominees
receiving the greatest number of
votes for the available positions)
4. Amendment to Incentive Plan Majority of shares present in
person or by proxy at Special
Meeting

The Company's directors and executive officers as a group hold less than 1%
of the Company's common stock entitled to vote at the Special Meeting. The
persons who are currently expected to be the directors and executive officers of
Chemicals as a group hold less than 1% of the shares.

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SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

We are providing the following financial information to aid you in your
consideration of the proposed spinoff. First, we have provided selected
historical financial data for the Company and for Chemicals. Second, we have
provided pro forma financial data for each of the Company and Chemicals which
gives financial data as though the spinoff had already occurred. The pro forma
financial data for the Company treats Chemicals as a discontinued business for
accounting purposes, which reclassifies the historical sales, expenses and
income tax provisions of Chemicals into a single line on the income statement.
The pro forma financial data for Chemicals presents Chemicals as though it had
already become a separate public company, and includes certain additions and
adjustments to the historical Chemicals results related to the spinoff. The
principal additions and adjustments are related to (1) intercompany sales and
pricing, (2) assumption of obligations and resulting increased costs for retiree
medical benefits and pensions assumed by Chemicals, (3) transactions with the P4
Joint Venture, (4) costs to run Chemicals as a public company, (5) the
assumption by Chemicals of approximately $1.03 billion in debt, (6) additional
interest expense associated with assumed debt and (7) the contribution of $75
million in cash to Chemicals. You should not rely on the pro forma data as being
indicative of what the historical results would have been for the Company or
Chemicals or the future results of either.

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MONSANTO COMPANY AND SUBSIDIARIES

SELECTED HISTORICAL FINANCIAL DATA

In the table below, we provide you with selected historical financial data
of the Company. We have prepared this information using the consolidated
financial statements of the Company for the five years ended December 31, 1996
and the three months ended March 31, 1997 and 1996. The financial data below
includes Chemicals.

When you read this selected historical financial data, it is important that
you read it together with (1) "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Monsanto Company Consolidated
Financial Statements and the related notes in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and (2) the Company's Quarterly
Report on Form 10-Q for the three months ended March 31, 1997. See "Where
Stockholders Can Find Additional Information."

In the opinion of management of the Company, the unaudited consolidated
financial statements as of March 31, 1997 and 1996 and for the three months
ended March 31, 1997 and 1996 contain all adjustments necessary to present
fairly the financial position, results of operations and cash flows for these
interim periods.

Financial information for the first quarter of 1997 should not be
multiplied by four to project results for the full year. The Company's sales and
operating income are historically higher during the first half of the year,
primarily because sales from the generally more profitable agricultural products
segment are concentrated in the first half of the year.

[Enlarge/Download Table]

FOR THE
THREE MONTHS ENDED FOR THE
OR AS OF MARCH 31, YEARS ENDED
(UNAUDITED) OR AS OF DECEMBER 31,
------------------ ------------------------------------------------
1997 1996 1996(1) 1995(2) 1994(3) 1993(4) 1992(5)
------- ------- ------- ------- ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)

OPERATING RESULTS:
Net sales....................... $ 2,574 $ 2,304 $ 9,262 $ 8,962 $8,272 $7,902 $7,763
Operating income (6)............ 386 405 597 985 923 810 58
Income (loss) from continuing
operations.................... 274 260 385 739 622 494 (126)
Income from discontinued
operations (7)................ 578
Cumulative effect of accounting
changes (8)................... (540)
Net income (loss)............... 274 260 385 739 622 494 (88)
EARNINGS PER SHARE: (9) and (10)
Income (loss) from continuing
operations.................... $ 0.45 $ 0.43 $ 0.64 $ 1.27 $ 1.06 $ 0.82 $(0.20)
Net income (loss)............... 0.45 0.43 0.64 1.27 1.06 0.82 (0.14)
OTHER STATISTICS:
Total assets.................... $12,122 $11,062 $11,191 $10,611 $8,891 $8,640 $9,085
Capital expenditures............ 157 133 692 500 409 437 586
Depreciation and amortization... 148 146 590 598 561 572 765
Interest expense................ 43 40 171 190 131 129 169
Long-term debt.................. 1,552 1,630 1,608 1,667 1,405 1,502 1,423
Short-term debt (11)............ 1,773 971 654 365 312 223 257
Dividends per share (9)......... 0.150 0.138 0.588 0.540 0.494 0.460 0.440

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(1) Net income for 1996 included restructuring and other special charges of
$500 million, or $0.84 per share, associated with the exit from the
Company's chemical businesses, the proposed spinoff, and other unusual
items.

(2) Net income for 1995 included net restructuring expenses and other unusual
items of $105 million, or $0.18 per share, and the gain on the sale of the
styrenics plastics business of $116 million, or $0.20 per share.

(3) Net income for 1994 included a net aftertax loss for restructuring and
other unusual items of $1 million, or less than $0.01 per share.

(4) Net income for 1993 included a net aftertax gain for restructuring and
other unusual items of $15 million, or $0.02 per share.

(5) Loss from continuing operations and net loss for 1992 included a net
aftertax loss for restructuring and other unusual items of $472 million, or
$0.76 per share.

(6) Operating income for the three months ended March 31, 1997 includes $101
million of pretax charges for acquired in-process research and development
and $10 million in pretax charges for an accounting rule change related to
environmental remediation reserves at operating facilities.

(7) Discontinued operations relate to our Fisher Controls business which was
sold in October 1992.

(8) In 1992, we adopted Statement of Financial Accounting Standards (SFAS) No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and SFAS No. 109, "Accounting for Income Taxes," and, as a
result, recorded a net aftertax charge of $540 million as a cumulative
effect of accounting changes.

(9) We have restated the per share amounts to reflect the May 1996 five-for-one
stock split.

(10) In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." Under this new standard, the presentation of
primary and fully diluted earnings per share required by current standards
is replaced by basic and diluted earnings per share. Basic earnings per
share measures operating performance assuming no dilution from securities
or contracts to issue common stock. Diluted earnings per share measures
operating performance giving effect to the dilution that would occur when
securities or contracts to issue common stock are exercised or converted.
Earnings per share computed under the provisions of SFAS No. 128 would have
been:

[Download Table]

FOR THE THREE
MONTHS ENDED MARCH FOR THE YEARS
31, ENDED DECEMBER 31,
------------------ ------------------
1997 1996 1996 1995
----- ----- ----- -----

Basic earnings per share................. $0.47 $0.45 $0.66 $1.30
Diluted earnings per share............... $0.45 $0.43 $0.64 $1.27

(11) The increase in short-term debt as of March 31, 1997 compared with
short-term debt as of March 31, 1996 was primarily attributable to the
funding of higher seasonal working capital levels and the acquisition of
the Asgrow Agronomics seed business by the Company.

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CHEMICALS SPINCO
SELECTED HISTORICAL FINANCIAL DATA

In the table below, we provide you with selected historical financial data
of Chemicals SpinCo. We have prepared this information using the combined
financial statements of Chemicals SpinCo for the five years ended December 31,
1996 and the three months ended March 31, 1997 and 1996. During this time,
Chemicals has been wholly owned by the Company. The historical financial
information may not reflect Chemicals' future performance or the financial
position and results of operations of Chemicals if Chemicals had operated as a
separate, stand-alone entity during the periods covered. Per share data has not
been presented for the historical information because Chemicals was not a
publicly held company during the periods presented below.

When you read this selected historical financial data, it is important that
you read it together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Chemicals" and the Chemicals SpinCo
Combined Financial Statements and the related notes that we have included with
this Proxy Statement. In the opinion of management of the Company, the unaudited
combined financial statements at March 31, 1997 and 1996 and for the three
months ended March 31, 1997 and 1996 contain all adjustments necessary to
present fairly the financial position, results of operations and cash flows for
these interim periods. Principally because of factors related to the spinoff,
you should not multiply results for the first quarter of 1997 by four to project
results for the full year.

[Enlarge/Download Table]

FOR THE
THREE MONTHS
ENDED
OR AS OF MARCH FOR THE
31, YEARS ENDED
---------------- OR AS OF DECEMBER 31,
----------------------------------------------
(UNAUDITED) (UNAUDITED)
---------------- ----------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS)

OTHER STATISTICS:
Total assets........................ $2,532 $2,524 $2,483 2,462 $2,435 $2,491 $2,543
Capital expenditures................ 38 45 192 179 187 179 229
Depreciation and amortization....... 45 44 166 162 219 224 262
Intercompany charges................ 12 17 85 72 69 61 77
Interest expense(4)................. 9 8 36 36 29 19 29
Long-term debt(4)................... 0 0 0 0 0 0 0

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(1) Net sales for Chemicals included $140 million in 1995, $400 million in 1994,
$407 million in 1993 and $419 million in 1992 for its rubber chemicals
business. In May 1995, this business was contributed to the Flexsys, L.P.
joint venture between the Company and Akzo Nobel N.V. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Chemicals."

(2) Operating income includes charges (credits) for restructuring and other
unusual items of $10 million in the three months ended March 31, 1997 and
$248 million, $46 million, $34 million, $(43) million, and $150 million in
the years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
The 1996 charges are associated with the closure or sale of certain
facilities, asset write-offs and workforce reductions. In addition,
operating income in 1993 and 1992 includes $25 million and $12 million,
respectively, for Chemicals' rubber chemicals business. Operating income for
this business was not significant in 1994 and 1995.

(3) In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting
for Income Taxes," and, as a result, recorded a net aftertax charge of $540
million as a cumulative effect of accounting changes. This net charge was
not allocated to Chemicals.

(4) The Company uses a centralized approach to cash management and the financing
of its operations. As a result, cash and cash equivalents and debt were not
allocated to Chemicals in the historical financial statements. Interest
expense has been allocated to Chemicals in the Chemicals SpinCo combined
financial statements to reflect Chemicals' pro rata share of the financing
structure of the Company. See Note 1 to the Chemicals SpinCo Combined
Financial Statements.

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MONSANTO COMPANY AND SUBSIDIARIES

SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
AND COMPARATIVE PER SHARE DATA

In the tables below, we provide you with selected unaudited pro forma
consolidated financial data of the Company. The pro forma information assumes
that the spinoff had occurred on an earlier date and is intended to give you an
idea of what the Company's business would have looked like had the spinoff
already occurred. We have prepared this information using the unaudited pro
forma condensed consolidated financial statements of the Company. You should not
rely on the pro forma information as being indicative of the historical results
that the Company would have had, or the future results that the Company will
experience, after the Spinoff.

When you read this selected pro forma financial data, it is important that
you read it together with the unaudited pro forma condensed consolidated
financial statements and related notes that we have included with this Proxy
Statement. See "Monsanto Company and Subsidiaries Unaudited Pro Forma Condensed
Consolidated Financial Statements for the Periods Ended March 31, 1997 and
December 31, 1996."

[Enlarge/Download Table]

THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:(1)
Net sales.............................................. $1,875 $ 6,348
Net income............................................. $ 215 $ 427
Earnings per share..................................... $ 0.36 $ 0.71

[Download Table]

MARCH 31, 1997
--------------

BALANCE SHEET DATA:(2)
Total assets........................................... $9,383
Long-term debt......................................... $1,522
Short-term debt........................................ $ 773
Book value per share................................... $ 7.00

[Enlarge/Download Table]

THE COMPANY
------------------------------------
HISTORICAL PRO FORMA
-------------- -----------------

COMPARATIVE PER SHARE DATA:
EARNINGS PER SHARE:
Three Months Ended March 31, 1997...................... $0.45 $0.36
Year Ended December 31, 1996........................... $0.64 $0.71
BOOK VALUE PER SHARE:
March 31, 1997......................................... $5.08 $7.00

-------------------------
(1) The pro forma consolidated statement of operations data gives effect to the
spinoff as if it had occurred at the beginning of the periods presented.

(2) The pro forma consolidated balance sheet data gives effect to the spinoff as
if it had occurred as of March 31, 1997.

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CHEMICALS SPINCO

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
AND COMPARATIVE PER SHARE DATA

In the tables below, we provide you with selected unaudited pro forma
combined financial data of Chemicals. The pro forma information assumes that the
spinoff had occurred on an earlier date. We have prepared this information using
the unaudited pro forma condensed combined financial statements of Chemicals.
You should not rely on the pro forma information as being indicative of the
historical results that Chemicals would have had, or the future results that
Chemicals will experience after the spinoff.

When you read this selected pro forma financial data, it is important that
you read it together with the unaudited pro forma condensed combined financial
statements and related notes that we have included with this Proxy Statement.
See "Chemicals SpinCo Unaudited Pro Forma Condensed Combined Financial
Statements."

[Enlarge/Download Table]

THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(IN MILLIONS, EXCEPT PER SHARE
DATA)

STATEMENT OF OPERATIONS DATA:(1)
Net sales.................................................. $ 715 $ 2,962
Net income................................................. $ 53 $ 21
Earnings per share(2)...................................... $ 0.44 $ 0.18

[Download Table]

MARCH 31, 1997
--------------

BALANCE SHEET DATA:(3)
Total assets............................................... $2,717
Long-term debt............................................. $1,030
Book value (deficit) per share(4).......................... $(2.41)

[Enlarge/Download Table]

CHEMICALS SPINCO
---------------------------------
PRO FORMA
HISTORICAL COMBINED
-------------- -----------------

COMPARATIVE PER SHARE DATA:
EARNINGS PER SHARE:(2)
Three Months Ended March 31, 1997.......................... $ 0.54 $ 0.44
Year Ended December 31, 1996............................... $ 0.27 $ 0.18
BOOK VALUE PER SHARE:(4)
March 31, 1997............................................. $ 7.26 $ (2.41)

-------------------------
(1) The pro forma combined statement of operations data gives effect to the
spinoff as if it had occurred at the beginning of the periods presented.

(2) Assuming approximately 120.5 million, as of March 31, 1997, and 119.8
million, as of December 31, 1996, weighted average number of shares of
Chemicals' common stock and Chemicals' common stock equivalents based on the
distribution ratio of one share of Chemicals' common stock for every five
shares of the Company's common stock.

(3) The pro forma combined balance sheet data gives effect to the spinoff as if
it had occurred as of March 31, 1997.

(4) Assuming approximately 117.2 million shares of Chemicals' common stock
outstanding at March 31, 1997, based on the distribution ratio of one share
of Chemicals' common stock for every five shares of the Company's common
stock.

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THE SPECIAL MEETING

This Proxy Statement (the "Proxy Statement")* is being furnished to stockholders
of Monsanto Company, a Delaware corporation (the "Company"), in connection with
the solicitation of proxies by the Company's Board of Directors (the "Company
Board") for use at the Special Meeting of Stockholders of the Company to be held
on Monday, August 18, 1997, at 10:00 a.m., Central Time, in K Building at the
Company's World Headquarters, 800 N. Lindbergh Boulevard, St. Louis, Missouri,
and at any adjournment or postponement thereof (the "Special Meeting"). The
Company's telephone number is (314) 694-1000. The principal executive offices of
the Chemicals Business which, in connection with the Spinoff, will be
consolidated into a newly formed Delaware corporation which is currently a
wholly owned subsidiary of the Company ("Chemicals" or "Chemicals SpinCo"), will
be located at 10300 Olive Boulevard, St. Louis, Missouri 63166-6760. Its
telephone number will be (314) 674-1000. A formal statement by representatives
of Deloitte & Touche LLP, the principal independent auditors of the Company, is
not planned at the Special Meeting. However, they are expected to be present at
the Special Meeting and available to respond to appropriate questions.

PURPOSE OF THE SPECIAL MEETING

At the Special Meeting, holders of shares of common stock, $2.00 par value, of
the Company ("Company Common Stock"), will be asked to consider and vote upon
the following proposals (collectively, the "Proposals"):

(1) To approve the distribution (the "Spinoff") to the holders of Company
Common Stock of all outstanding shares of the common stock, $0.01 par
value, of Chemicals ("Chemicals Common Stock") on the basis of one share of
Chemicals Common Stock and the associated preferred share purchase right
(each, a "Chemicals Right") for every five shares of Company Common Stock
(the "Spinoff Proposal");

(2) To approve the amendments (the "Company Charter Amendments") to the
Restated Certificate of Incorporation of the Company (the "Company
Charter") (a) to provide for a Company Board divided into three classes
serving staggered terms and certain related matters, (b) to eliminate
action by written consent of stockholders, (c) to require the vote of
stockholders holding at least 80% of the outstanding Company Common Stock
for stockholders to amend, alter or repeal the By-Laws of the Company (the
"Company By-Laws") and (d) to increase the number of authorized shares of
Company Common Stock by 150,000,000 to 1,000,000,000 (collectively, the
"Company Charter Proposal");

(3) To elect the directors of the Company named in this Proxy Statement to
staggered terms, subject to approval of the Company Charter Proposal; and

(4) To approve an amendment to the Monsanto Company Management Incentive
Plan of 1996, as amended (the "Incentive Plan"), to increase by 19,000,000
to 65,250,000 the number of shares of Company Common Stock authorized with
respect to grants under the plan (the "Incentive Plan Proposal").

Completion of the Spinoff is conditioned upon, among other things, stockholder
approval of the Spinoff Proposal and the Company Charter Proposal. If the
stockholders approve the Spinoff Proposal but do not approve the Company Charter
Proposal, the Company Board will reevaluate its intention to complete the
Spinoff. After such review, the Company Board could decide to cancel the Spinoff
or waive this condition and complete the Spinoff despite such lack of approval.
The Company Board has further retained discretion, even if stockholders approve
the Spinoff Proposal and the other conditions to the Spinoff are satisfied, to
cancel or defer the Spinoff.

THE COMPANY BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR ALL OF THE PROPOSALS.

For a description of the reasons for the Spinoff, see "The Spinoff Proposal --
Background and Reasons for the Spinoff." For a description of the reasons for
the proposed Company Charter Amendments, see "The Company Charter Proposal." For
a description of the proposal to elect directors to staggered terms see
"Election of Directors to Classified Terms." For a description of the reasons
for the proposed amendment to the Incentive Plan, see "Incentive Plan Proposal."

---------------
* For the reader's convenience, an Index of Defined Terms has been provided on
p. 118.

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VOTING RIGHTS AND PROXY INFORMATION

Only holders of record of shares of Company Common Stock as of the close of
business on June 27, 1997 (the "Special Meeting Record Date") will be entitled
to receive notice of and to vote at the Special Meeting. Except for shares owned
by the Company or its subsidiaries, each share of Company Common Stock
outstanding on such Special Meeting Record Date will be entitled to one vote.
The presence, either in person or by properly executed proxy, of the holders of
a majority of the shares of Company Common Stock outstanding on the Special
Meeting Record Date is necessary to constitute a quorum at the Special Meeting.

As of the Special Meeting Record Date, there were 589,494,131 shares of Company
Common Stock outstanding and entitled to vote at the Special Meeting.

Abstentions and executed proxies returned by a broker holding shares of Company
Common Stock in street name which indicate that the broker does not have
discretionary authority as to certain shares to vote on one or more matters
("broker non-votes") will be considered present at the Special Meeting for
purposes of establishing a quorum. Abstentions will not be voted. Broker
non-votes will not be counted as votes cast on any matter to which they relate.
Since the Spinoff Proposal and the Incentive Plan Proposal require the
affirmative vote of the majority of shares present in person or represented by
proxy at the Special Meeting, and the Company Charter Proposal requires the
affirmative vote of a majority of the outstanding shares of Company Common
Stock, abstentions and broker non-votes will have the effect of votes cast
against these proposals. The election of the directors named in this Proxy
Statement to classified terms will be determined by the vote of a plurality of
the shares present in person or represented by proxy at the Special Meeting, and
abstentions and broker non-votes will have no effect on the outcome of the vote
on such election.

All shares of Company Common Stock that are represented at the Special Meeting
by properly executed proxies received prior to or at the Special Meeting and not
revoked will be voted at the Special Meeting in accordance with the instructions
indicated in such proxies. If no instructions are indicated, such proxies will
be voted for approval of the Spinoff Proposal, the Company Charter Proposal and
the Incentive Plan Proposal and for the election to staggered terms of the
directors named in this Proxy Statement. No business other than the Proposals
will be considered at the Special Meeting.

The proxy of a stockholder who is a participant in the Company's Dividend
Reinvestment Plan (the "Company DRP") will also serve as an instruction to vote
the shares held for the account of the participant under the Company DRP in the
manner indicated on the proxy. If a stockholder's proxy is not received, the
shares held in that account in the Company DRP will not be voted.

The Company's Savings and Investment Plan (the "Company SIP") and the Company's
Payroll Related Employee Stock Ownership Plan (the "Company PAYSOP") permit plan
participants to direct the plan trustees how to vote Company Common Stock
allocated to their accounts. Under the terms of the Company SIP trust agreement,
the trustee will vote unallocated and uninstructed shares in proportion to the
shares with respect to which instructions have been received. As to shares held
in the Company PAYSOP, the trustee will not vote those shares of Company Common
Stock for which participant voting instructions have not been received.

In the event that a quorum is not present at the time the Special Meeting is
convened, or if for any other reason the Company believes that additional time
should be allowed for the solicitation of proxies, the Company may adjourn the
Special Meeting with or without a vote of the stockholders. If the Company
proposes to adjourn the Special Meeting by a vote of the stockholders, the
persons named in the enclosed form of proxy will vote all shares of Company
Common Stock for which they have voting authority in favor of such adjournment.

A stockholder who wishes to give a proxy to someone other than the proxy
committee of the Company Board may strike out the names appearing on the
enclosed form of proxy, write in the name of any other person, sign the proxy,
and deliver it to the person whose name has been substituted.

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted.

NO APPRAISAL RIGHTS

Stockholders of the Company will not be entitled to appraisal rights under
Delaware law in connection with any of the Proposals.

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RISK FACTORS

Stockholders should consider the following factors, as well as the other
information set forth in the Proxy Statement, before voting on the Proposals.

We also caution you that this Proxy Statement includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements regarding the Company's
or Chemicals' expected future financial position, results of operations, cash
flows, dividends, financing plans, business strategy, budgets, projected costs
and capital expenditures, competitive positions, growth opportunities for
existing products, benefits from new technology, plans and objectives of
management for future operations, and markets for stock are forward-looking
statements. Although the Company believes its expectations reflected in such
forward-looking statements are based on reasonable assumptions, no assurance can
be given that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the
expectations reflected in the forward-looking statements herein include, among
others, those set forth below as well as general economic and business and
market conditions, customer acceptance of new products, efficacy of new
technology, changes in U.S. and non-U.S. laws and regulations, costs or
difficulties relating to the establishment of Chemicals as an independent entity
and increased competitive and/or customer pressure.

LACK OF OPERATING HISTORY AS SEPARATE ENTITIES

Upon completion of the Spinoff, the Company will own and operate the Life
Sciences Business and Chemicals will own and operate the Chemicals Business.
Neither of these businesses has an operating history as a separate company, and
each has historically been able to rely on the earnings, assets and cash flow of
the other. In addition, Chemicals has not operated as a public company, and
following the Spinoff will incur additional costs and expenses associated with
the management of a public company. The Company is not required to provide
assistance or services to Chemicals except as described in the Distribution
Agreement, the Transition Services Agreement, the Operating Agreements (as such
terms are defined herein) and the other agreements entered into between the
companies. In addition, some of this assistance or these services may be
terminated upon certain events, including a change of control of Chemicals. See
"Relationship Between the Company and Chemicals After the Spinoff."

After the Spinoff, each of the Company and Chemicals will be a smaller and less
diversified company than the Company was prior to the Spinoff. In addition, the
Spinoff may result in some temporary dislocation and inefficiencies to the
business operations, as well as the organization and personnel structure, of
each company.

Finally, Chemicals will not have the right to use the Monsanto name except
during a transition period. Chemicals has previously had the benefit of the
Monsanto name and reputation in the marketing of its products and in dealings
with government officials. One of the challenges facing Chemicals will be to
develop an identity for itself independent of the Monsanto name. Chemicals may
have to make additional advertising and promotion expenditures to position its
new name in its markets and cannot predict with certainty the extent to which
the substitution of a new name may adversely affect its retention and
acquisition of customers, its relations with governmental agencies or its
financial performance.

INCREASED LEVERAGE OF CHEMICALS

On an historical basis, Chemicals was not allocated any of the Company's debt.
Effective as of the Spinoff, the Chemicals balance sheet will include
approximately $1.03 billion of debt, primarily assumable commercial paper which
will be issued by the Company from time to time prior to the Spinoff and assumed
by Chemicals effective as of the Distribution Date. The proceeds of the
commercial paper issuance will be used by the Company to repay Company debt
maturing simultaneously with the issuance of the commercial paper. Repayment of
the assumable commercial paper will be Chemicals' responsibility. The Company
uses a centralized approach to cash management and the financing of its
operations. As a result, it is not possible to determine what amount of debt was
associated, on an historical basis, with the operations of Chemicals. See Note 1
to the Chemicals SpinCo Combined Financial Statements. The amount of debt to be
assumed by Chemicals and the determination of Chemicals' initial capital
structure are based upon the Company's goals

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of maximizing combined stockholder value for the Company's present stockholders
while enabling Chemicals to receive an investment grade credit rating. In
addition, the amount of debt that could be assumed by Chemicals without adverse
tax consequences is limited to the tax basis of the assets to be transferred to
Chemicals. See "The Spinoff Proposal -- Financing." The assumable commercial
paper will be guaranteed by the Company until repaid or refinanced by Chemicals
at maturity, which may be up to 30 to 60 days following the Distribution Date.
It is expected that after the Spinoff the commercial paper will be backed by
approximately $1.2 billion in revolving credit facilities of Chemicals.
Following the Spinoff, Chemicals expects to have its own commercial paper
program part of which will be used to refinance assumable commercial paper. See
"The Spinoff Proposal -- Financing." Assuming the Spinoff had been consummated
as of March 31, 1997, Chemicals would have had total long-term debt of $1.03
billion and a stockholders' deficit of $283 million, compared with Chemicals'
historical long-term debt of $0 and total stockholders' equity of $851 million
at March 31, 1997. Chemicals' higher debt levels after the Spinoff can be
expected to result in increased interest expense to Chemicals compared with the
amount previously allocated to Chemicals by the Company. On a proforma basis,
Chemicals' annual interest expense would have been $57 million in 1996 had the
Spinoff occurred on January 1, 1996. See "Chemicals Spinco Unaudited Pro Forma
Condensed Combined Financial Statements," and the Chemicals SpinCo Combined
Financial Statements. Chemicals currently plans to refinance a substantial
portion of the commercial paper with medium- and long-term debt following the
Spinoff, subject to market conditions. Such refinancing is expected to be at
higher interest rates than short-term commercial paper.

ENVIRONMENTAL LIABILITIES

Chemicals is subject to various laws and government regulations concerning
environmental matters and employee safety and health in the United States and
other countries. U.S. state and federal authorities may seek fines and penalties
for violation of these laws.

Expenditures in 1996 were approximately $9 million for Chemicals' environmental
capital projects, and approximately $85 million for the management of
environmental programs, including the operation and maintenance of facilities
for environmental control. Chemicals estimates that during 1997 and 1998
approximately $15 million to $20 million per year will be spent on additional
capital projects for environmental protection and that expenses for the
management of environmental programs in 1997 and 1998 will continue at levels
comparable to 1996.

Chemicals' policy is to accrue costs for remediation of contaminated sites in
the accounting period in which the responsibility is established and the cost is
estimable. Chemicals had an accrued liability of $51 million as of December 31,
1996 for Superfund sites. Because of uncertainties such as the method and extent
of remediation, the percentage of material attributable to Chemicals at the
sites relative to that attributable to other parties, and the financial
capabilities of the other potentially responsible parties (a "PRP") at most
sites, Chemicals currently estimates that potential future expenses could be as
much as an additional $10 million. Chemicals spent approximately $20 million in
1996 for remediation of Superfund sites. Similar expenditures can be expected in
future years.

Chemicals had environmental reserves of $58 million as of December 31, 1996 for
shut-down plants and third-party sites for which Chemicals is assuming
responsibility pursuant to the Distribution Agreement. Chemicals' estimates of
its liabilities are based on evaluations of currently available facts with
respect to each individual site and take into consideration factors such as
existing technology, laws and agency policy, and prior experience in remediation
of contaminated sites. Subject to these uncertainties, Chemicals currently
estimates that potential future expenses could be as much as an additional $50
million for these sites. Chemicals spent approximately $21 million in 1996 for
remediation of these sites. Similar amounts can be expected in the future.

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closure costs for these facilities will be an additional $70 million based upon
existing technology and other currently available information.

Although the ultimate costs and results of remediation of contaminated sites
cannot be predicted with certainty, they are not expected to result in a
material adverse change in Chemicals' liquidity or financial position as
reflected in Chemicals' historical financial statements, but they could have a
material adverse effect on profitability in a given period. The impact of any
future changes in environmental laws and regulations on Chemicals' liquidity,
financial position and profitability cannot be predicted with accuracy.

Effective January 1, 1997, Chemicals adopted the American Institute of Certified
Public Accounts' Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities." SOP 96-1 establishes authoritative guidance regarding the
recognition, measurement and disclosure of environmental remediation
liabilities. The primary change in Chemicals' accounting principles associated
with the adoption of this SOP was an acceleration of the recognition of certain
environmental remediation liabilities at operating facilities. As a result,
Chemicals recorded an aftertax charge of $6 million in the first quarter of
1997. Additional aftertax charges in the range of $9 million to $14 million are
anticipated in 1997 as the criteria for recording these liabilities are met.
These charges are in addition to the 1997 and 1998 estimated capital
expenditures for environmental projects previously described.

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Chemicals -- Environmental Matters."

RISK THAT THE COMPANY OR CHEMICALS WILL BE UNABLE TO SATISFY INDEMNIFICATION
OBLIGATIONS

The Distribution Agreement and various other agreements entered into by the
Company and Chemicals allocate responsibility between them for various debts,
liabilities and obligations. See "Relationship Between the Company and Chemicals
After the Spinoff." The Distribution Agreement provides that Chemicals will
indemnify the Company for the liabilities assumed by Chemicals pursuant to these
agreements (including certain liabilities related to the Chemicals Business
which will be contingent liabilities of the Company by virtue of the structure
of the Spinoff) and the Company will indemnify Chemicals for the liabilities
retained by the Company. However, the availability of such indemnities will
depend upon the future financial strength of Chemicals and the Company. No
assurance can be given that the relevant company will be in a position to fund
such indemnities.

THE COMPANY'S INCREASED RELIANCE ON AGRICULTURAL PRODUCTS SEGMENT

After the Spinoff, the Company's consolidated sales and operating income will
depend significantly on the results of the agricultural products segment. It is
expected that sales and operating income of the agricultural products segment
will represent approximately two-thirds of such consolidated amounts for the
Company's Life Sciences Business compared with approximately one-half of such
amounts before the Spinoff.

Roundup(R) and other glyphosate-based herbicides are major products for the
agricultural products segment and face competition from generic products in
certain markets outside the United States. Patents protecting Roundup(R) in
various countries expired in 1991, while compound per se patent protection for
the active ingredient in Roundup(R) herbicide expires in the United States in
September 2000. However, significant growth potential for Roundup(R) remains in
conservation tillage applications worldwide, and the recent introduction by the
Company of crops tolerant of Roundup(R) opens up major new growth opportunities.

The Company has invested heavily in biotechnology-related plant sciences
products. The Company is addressing issues of consumer acceptance for some of
these products, particularly in Europe, and is involved in patent disputes with
several parties. An adverse outcome on either of these matters could have a
material effect on the Company's results of operations.

The net income of the Company attributable to the Life Sciences Business has
historically been higher during the first half of the year, primarily because of
the concentration of generally more profitable sales of the agricultural
products segment during that part of the year. This trend is expected to be more
apparent for the

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Life Sciences Business after the Spinoff because of the increased importance of
the results of the agricultural products segment in relation to the consolidated
amounts for the Company.

NO CURRENT PUBLIC MARKET FOR CHEMICALS COMMON STOCK

There is not currently a public market for Chemicals Common Stock, and there can
be no assurance as to the prices at which trading in Chemicals Common Stock will
occur after the Spinoff. Until Chemicals Common Stock is fully distributed and
an orderly market develops, the prices at which trading in such Chemicals Common
Stock occurs may fluctuate significantly. Chemicals will file applications to
list Chemicals Common Stock and the associated Chemicals Rights on the New York
Stock Exchange, Inc. (the "NYSE"). See "The Spinoff Proposal -- Listing and
Trading of Company Common Stock and Chemicals Common Stock."

CHANGES IN TRADING PRICES OF COMPANY COMMON STOCK

It is expected that Company Common Stock will continue to be listed and traded
on the NYSE after the Spinoff. As a result of the Spinoff, the trading prices of
Company Common Stock are expected to be lower than the trading prices of Company
Common Stock immediately prior to the Spinoff, although the receipt of the
shares of Chemicals Common Stock should mitigate such effect. The combined
trading prices of Company Common Stock and Chemicals Common Stock held by
stockholders after the Spinoff may be less than, equal to or greater than the
trading price of Company Common Stock prior to the Spinoff. See "The Spinoff
Proposal -- Listing and Trading of Company Common Stock and Chemicals Common
Stock."

CERTAIN TAX RISKS OF THE SPINOFF

The Spinoff is conditioned upon the Company's receipt of a ruling from the
Internal Revenue Service (the "IRS") to the effect, among other things, that the
Spinoff will qualify as a tax-free reorganization under Sections 355 and 368 of
the Internal Revenue Code of 1986, as amended (the "Code"). See "The Spinoff
Proposal -- Material Federal Income Tax Consequences of the Spinoff." Such a
ruling, while generally binding upon the IRS, is subject to certain factual
representations and assumptions provided by the Company. If these factual
representations and assumptions were incorrect in a material respect, the ruling
would be jeopardized. The Company is not aware of any facts or circumstances
which would cause such representations and assumptions to be untrue. In
addition, Chemicals has agreed to certain restrictions on its future actions to
provide further assurances that the Spinoff will qualify as tax free. If
Chemicals fails to abide by such restrictions and, as a result, the Spinoff
fails to qualify as a tax-free reorganization, then Chemicals will be obligated
to indemnify the Company for any resulting tax liability. However, such tax
liability would be substantial, and there is no assurance that Chemicals would
be able to satisfy its indemnification obligation. If the Company does not
receive the ruling from the IRS, and the Board decides to waive the tax-ruling
condition to the Spinoff, the Company will distribute revised proxy materials
and resolicit proxies. See "-- Risk That the Company or Chemicals Will Be Unable
to Satisfy Indemnification Obligations" and "Relationship Between the Company
and Chemicals After the Spinoff -- Tax Sharing and Indemnification Agreement."

If the Spinoff were not to qualify under Sections 355 and 368 of the Code, then,
in general, a corporate tax would be payable by the consolidated group of which
the Company is the common parent based upon the difference between (1) the
aggregate fair market value of Chemicals Common Stock distributed in the Spinoff
and (2) the adjusted basis of such Chemicals Common Stock. The corporate level
tax would be payable by the Company. However, under certain limited
circumstances, Chemicals has agreed to indemnify the Company for such tax
liabilities. See "Relationship Between the Company and Chemicals After the
Spinoff -- Tax Sharing and Indemnification Agreement." In addition, under the
consolidated return regulations, each member of the consolidated group
(including Chemicals) is severally liable for such tax liability.

Furthermore, if the Spinoff were not to qualify under Sections 355 and 368 of
the Code, then each holder of Company Common Stock who receives shares of
Chemicals Common Stock in the Spinoff would be treated as if such stockholder
received a taxable distribution in an amount equal to the fair market value of
Chemicals

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Common Stock received, which would result in a dividend to the extent paid out
of the Company's current and accumulated earnings and profits.

For recent legislative developments, see "The Spinoff Proposal -- Possible
Future Tax Legislation."

DIVIDEND POLICIES

Chemicals' dividend policy will be set by the Chemicals Board after the Spinoff.
Chemicals may decide to return earnings to stockholders through cash dividends,
stock repurchases, or a combination of both. If a cash dividend is paid, it will
likely be modest.

The Company is evaluating an appropriate dividend policy to be followed after
the Spinoff, recognizing the Company's need to finance its future growth plans.
While no decision has been made by either company, the combined dividends of the
Company and Chemicals after the Spinoff are likely to be less than the Company's
current annual dividend rate of $0.64 per share. The actual amount of such
dividends will depend on the companies' respective operating results, financial
requirements and other factors as they develop over time.

POSSIBLE ANTITAKEOVER EFFECTS OF THE COMPANY
CHARTER PROPOSAL AND SIMILAR PROVISIONS OF THE CHEMICALS CHARTER

The Company Charter Proposal includes amendments to the Company Charter that may
make more difficult an acquisition of control of the Company without the
approval of the Company Board. The Amended and Restated Certificate of
Incorporation of Chemicals (the "Chemicals Charter") and the By-Laws of
Chemicals (the "Chemicals By-Laws") to be adopted prior to the Spinoff will
contain provisions comparable to those proposed for the Company in this Proxy
Statement. See "Certain Antitakeover Effects of Certain Charter and By-Laws
Provisions and the Company Rights and the Chemicals Rights."

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THE SPINOFF PROPOSAL
(PROXY ITEM NO. 1)

BACKGROUND AND REASONS FOR THE SPINOFF

The Company was founded as a chemical company in 1901. Since that time, the
Company has grown into an enterprise with net sales in 1996 of $9.3 billion,
operating in four primary business areas: agricultural products,
pharmaceuticals, food ingredients and chemicals. Since the late 1970's, the
Company has worked to streamline its chemical businesses and at the same time to
bring about a transition from the Company's heritage in the chemical industry
toward a focus based on the application of biological science to agriculture,
food and human health. For the reasons set forth below, among other reasons, the
Company Board has determined to separate the Company into two publicly owned
companies: the Company, which will operate its life sciences businesses,
including agricultural products such as Roundup(R) herbicide and Ortho(R)
lawn-and-garden products, pharmaceuticals, and food ingredients such as
NutraSweet(R) brand sweetener (the "Life Sciences Business"); and Chemicals, a
newly formed corporation which will produce and market a range of
high-performance chemical-based materials, including nylon and acrylic fibers
and fiber intermediates, Saflex(R) plastic interlayer, phosphorus derivatives
and specialty chemicals (the "Chemicals Business").

Pursuant to the Distribution Agreement to be entered into by the Company and
Chemicals prior to the Spinoff (the "Distribution Agreement"), Chemicals will
have substantially the same business and operations as the chemicals segment had
while under the ownership of the Company, with the following exceptions. Certain
businesses that have been reported historically in the Company's chemicals
segment are not included in the Chemicals Business and will not be contributed
to Chemicals in connection with the Spinoff. These businesses represented, in
the aggregate, $345 million in net sales for 1996 and $551 million in assets at
December 31, 1996. They include the Company's industrial alginates business and
Enviro-Chem business, as well as the elemental phosphorus production business
which will be contributed to the P4 Joint Venture. Effective as of the Spinoff,
the P4 Joint Venture will be owned 40% by Chemicals and 60% by the Company. In
connection with the Spinoff, the Company will also contribute to Chemicals
certain assets which were not included in the Company's chemicals segment for
financial reporting purposes at December 31, 1996. These assets include the food
phosphates business, which represented $101 million in net sales for 1996 and
$66 million of assets at December 31, 1996, investments in affiliates of $366
million at December 31, 1996 (principally relating to the Company's interest in
the Flexsys, L.P. ("Flexsys") rubber chemicals and Advanced Elastomer Systems,
L.P. ("Advanced Elastomer Systems") joint ventures), and $75 million in cash.
The industrial alginates business was acquired as part of the Company's
acquisition of The Kelco Company ("Kelco") in February 1995. Kelco was reported
as part of the Company's food ingredients segment in that year. The food
phosphates business to be contributed to Chemicals was, prior to 1996, included
in the chemicals segment of the Company. As of January 1, 1996, responsibility
for the industrial alginates business was transferred to Chemicals and the food
phosphates business was transferred to the food ingredients segment. This
transfer was primarily intended to integrate marketing and product support for
these businesses, even though manufacturing operations for both of these
businesses remained integrated with those of the former segments. In the
Spinoff, the Company is retaining the industrial alginates business and
Chemicals is receiving the food phosphates business in order to avoid separating
these manufacturing operations. The Enviro-Chem business was not, historically,
integrated with the other businesses included in the Chemicals Business, and
will be retained by the Company. By contributing the elemental phosphorus
production business of the Company to a venture to be jointly owned by the
Company and Chemicals following the Spinoff, each of the Company and Chemicals
will be afforded a supply of a raw material used by both. Although Flexsys and
Advanced Elastomer Systems are managed as part of the Chemicals Business,
because they are accounted for as equity investments, their results were not
includable in the operating income of the Company's chemicals segment for
financial reporting purposes, and their assets were not included in the assets
of the Company's chemicals segment. See "Relationship Between the Company and
Chemicals After the Spinoff -- Distribution Agreement."

References to "Chemicals" or "Chemicals SpinCo" for time periods prior to the
Spinoff mean the chemical businesses operated by the Company which are to be
contributed to Chemicals in connection with the Spinoff pursuant to the
Distribution Agreement and, for time periods following the Spinoff, mean
Chemicals as

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capitalized by the Company pursuant to the Distribution Agreement. See
"Relationship Between the Company and Chemicals After the Spinoff --
Distribution Agreement."

The Spinoff is designed to separate two distinct businesses with significant
differences in their markets, products, research needs, investment needs and
plans for growth. The Company Board believes the separation into two independent
companies will enhance the ability of each to focus on strategic initiatives and
new business opportunities, to improve cost structures and operating
efficiencies and create incentives that are more attractive and appropriate for
the recruitment and retention of key employees. As a consequence, the Company
believes that investors will be able to evaluate better the merits of the two
groups of businesses and their future prospects.

As a separate company, the Company's management will be better able to focus on
the concept of an integrated life sciences company rather than the management of
individual life sciences businesses, each of which uses the biological sciences.
The Company believes that improved cost structures will be realized through
sharing knowledge in new technologies -- such as genomics, bioinformatics and
powerful screening methods -- which can be applied broadly to agriculture,
nutrition and health. Management expects to capture market opportunities by
focusing on the integration of these businesses, the common technologies, and
common goals of better, sustainable nutrition and health.

The Spinoff is also designed to allow Chemicals to reach its maximum potential.
A streamlined management structure and new operating processes will enable
shortened decision times and quicker redeployment of assets and resources to
anticipate and take advantage of market opportunities. Chemicals' cost reduction
efforts will focus on two areas: manufacturing efficiencies and marketing,
administration and technology (MAT) costs. Most of the near-term capital
projects are designed to both lower the cost of manufacturing products and to
increase volumes. A reengineering program based on a technologically advanced
software system that will support every part of the supply chain is expected to
significantly reduce costs and working capital.

In approving the Spinoff, the Company Board also approved the closure or
rationalization of certain facilities and work force reductions. These actions
are expected to have a favorable effect on future net earnings and cash flow in
the range of $120 million to $140 million per year. Approximately one-third of
these cost efficiencies are expected to be realized by Chemicals.

REQUIRED VOTE

Under the Company By-Laws, approval of the Spinoff Proposal requires the
affirmative vote of the majority of shares of Company Common Stock present in
person or represented by proxy at the Special Meeting.

RECOMMENDATION OF THE COMPANY BOARD

THE COMPANY BOARD HAS APPROVED THE SPINOFF PROPOSAL AND RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE SPINOFF PROPOSAL.

MANNER OF EFFECTING THE SPINOFF

In the event that the Company's stockholders approve the Spinoff Proposal and
all other conditions to the Spinoff are satisfied, it is expected that the
Spinoff distribution will be made on or before October 1, 1997 (the
"Distribution Date") on a pro rata basis to holders of record of issued and
outstanding Company Common Stock on the date selected by the Company Board (the
"Distribution Record Date"). The Company currently intends to use a direct
registration system to implement the distribution of shares of Chemicals Common
Stock in the Spinoff. On the Distribution Date, a certificate representing all
issued and outstanding shares of Chemicals Common Stock will be delivered by the
Company to First Chicago Trust Company of New York, as the distribution agent
(the "Distribution Agent"). As soon as practicable thereafter, an account
statement will be mailed to each stockholder stating the number of shares of
Chemicals Common Stock, including fractional shares, received by such
stockholder in the Spinoff. Following the Spinoff, stockholders may request
physical certificates for their shares of Chemicals Common Stock. In that case,
fractional shares will not be issued but, instead, cash will be paid with
respect to such fractional shares. Holders of record of Company

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Common Stock as of the Distribution Record Date will receive shares of Chemicals
Common Stock (and associated Chemicals Rights) on the basis of the distribution
ratio of one share of Chemicals Common Stock for every five shares of Company
Common Stock held on the Distribution Record Date (including shares held in the
Company DRP) (the "Distribution Ratio"). No certificates or scrip representing
fractional interests in a share of Chemicals Common Stock will be issued
regardless of whether a stockholder participates in the direct registration
system or requests physical certificates. Instead, with respect to shares for
which physical certificates are requested, the Distribution Agent will, as soon
as practicable after the Distribution Date, aggregate and sell such fractional
interests at then prevailing prices and distribute the net cash proceeds to
stockholders entitled thereto pro rata based on their fractional interests in a
share of Chemicals Common Stock. See "-- Material Federal Income Tax
Consequences of the Spinoff." All shares issued will be fully paid and
nonassessable and the holders thereof will not be entitled to preemptive rights.
See "Description of Chemicals Capital Stock." Certificates evidencing shares of
Chemicals Common Stock will represent the same number of Chemicals Rights. See
"Description of Chemicals Capital Stock -- Chemicals Rights."

No holder of Company Common Stock will be required to pay any cash or other
consideration for shares of Chemicals Common Stock received in the Spinoff or to
surrender or exchange shares of Company Common Stock in order to receive shares
of Chemicals Common Stock.

Certificates representing outstanding shares of Company Common Stock will
continue to represent rights (the "Company Rights") to purchase shares of the
Company's Series A Junior Participating Preferred Stock pursuant to the Rights
Agreement dated as of January 26, 1990 between the Company and The First
National Bank of Boston, as Rights Agent (the "Company Rights Agreement").

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SPINOFF

The following discussion summarizes the U.S. federal income tax consequences
resulting from the Spinoff that materially affect the Company and its
stockholders. This discussion is based on current provisions of the Code,
existing and proposed Treasury Regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change.

In December 1996, the Company filed with the IRS an application for a ruling to
the effect that the Spinoff would qualify as tax free to the Company and its
shareholders under Sections 355 and 368 of the Code. Under Sections 355 and 368
of the Code, in general:

(1) Holders of shares of Company Common Stock will not recognize any income,
gain or loss as a result of the Spinoff, except as described below with
respect to any cash such holders may receive in lieu of fractional shares.

(2) Holders of Company Common Stock will apportion the tax basis of their
Company Common Stock among such Company Common Stock and any Chemicals
Common Stock (including fractional interests in shares of Chemicals Common
Stock) received or deemed received by such holder in the Spinoff in
proportion to the relative fair market values of such stock on the
Distribution Date. Such allocation must be calculated separately for each
block of shares of Company Common Stock with respect to which Chemicals
Common Stock is received, that is, separately for each block of shares of
Company Common Stock that was purchased at different times or at different
costs.

(3) The holding period for the Chemicals Common Stock received in the Spinoff by
a holder of Company Common Stock will include the period during which such
holder held Company Common Stock with respect to which the Spinoff was
made, provided that such Company Common Stock is held as a capital asset by
such holder on the Distribution Date.

(4) Where cash is received by a holder of Company Common Stock as a result of
the sale of accumulated fractional shares by the Distribution Agent on
behalf of such stockholder, it will be treated as if such fractional shares
had been received by such stockholder as part of the Spinoff and then sold
by such stockholder. Accordingly, such stockholder will recognize gain or
loss equal to the difference between the cash received and the amount of
tax basis allocable (as described above) to such fractional shares. Such

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gain or loss would be capital gain or loss if such fractional shares would
have been held by such stockholder as a capital asset.

(5) No gain or loss will be recognized by the Company upon the Spinoff.

(6) No gain or loss will be recognized by (and no amount will be included in the
income of) the Company or Chemicals upon the transfer of the Chemicals
Business to Chemicals in exchange for stock of Chemicals prior to the
Spinoff.

The receipt of a ruling from the IRS confirming these conclusions is a condition
to the Spinoff. As of the date hereof, the IRS has not yet issued the ruling
requested. The Company believes and has been advised by its tax counsel, Arnold
& Porter, that the positions asserted by the Company in requesting the ruling
are consistent with the Code, the applicable legislative history and the related
rules and regulations promulgated thereunder. However, there can be no assurance
that the IRS will issue a favorable ruling. If the Company does not receive the
IRS ruling, and the Company Board decides to waive the condition, the Company
will distribute revised proxy materials and resolicit proxies.

Such a ruling, while generally binding upon the IRS, is subject to certain
factual representations and assumptions. If such factual representations and
assumptions were incorrect in a material respect, such ruling could become
invalid. The Company is not aware of any facts or circumstances which would
cause such representations and assumptions to be untrue. In addition, Chemicals
has agreed to certain restrictions on its future actions to provide further
assurances that Sections 355 and 368 of the Code will apply to the Spinoff. If
Chemicals fails to abide by such restrictions, and, as a result, the Spinoff
fails to qualify as a tax-free reorganization, then Chemicals will be obligated
to indemnify the Company for any resulting tax liability. However, such tax
liability would be substantial, and there is no assurance that Chemicals would
be able to satisfy its indemnification obligation. See "Risk Factors -- Risk
That the Company or Chemicals Will Be Unable to Satisfy Indemnification
Obligations" and "Relationship Between the Company and Chemicals after the
Spinoff -- Tax Sharing and Indemnification Agreement."

If the Spinoff were not to qualify as a tax-free distribution, the fair market
value of the shares of Chemicals Common Stock received by the Company's
stockholders would be taxable as a dividend to the extent paid out of the
Company's current and accumulated earnings and profits. In that event, the tax
basis of the shares of Company Common Stock held by the Company's stockholders
after the Spinoff would not change and the tax basis of the shares of Chemicals
Common Stock would be equal to their fair market value on the Distribution Date.
In addition, the Company would recognize a capital gain equal to the difference
between the fair market value of the shares of Chemicals Common Stock and the
Company's basis in such shares.

The Company has not sought rulings from the IRS as to the U.S. federal income
tax consequences of certain restructurings which were or are to be effected by
the Company prior to the Spinoff. See "-- Possible Future Tax Legislation."
Additional taxes may be asserted against the Company and Chemicals in the course
of audits by the IRS or state, local or foreign taxing authorities with respect
to ongoing business operations or these restructurings of the group of companies
of which the Company is the common parent. Assertions of additional tax
liability in the course of such audits are routine matters, and the Company and
Chemicals believe that they have adequately provided for any such assertions.

Current Treasury Regulations require each holder of Company Common Stock who
receives Chemicals Common Stock pursuant to the Spinoff to attach to his or her
U.S. federal income tax return for the year in which the Spinoff occurs a
detailed statement setting forth such data as may be appropriate in order to
show the applicability of Section 355 to the Spinoff. The Company will convey
the appropriate information to each holder of record of Company Common Stock as
of the Distribution Record Date.

The summary of U.S. federal income tax consequences set forth above is for
general information only and may not be applicable to stockholders who received
their shares of Company Common Stock through the exercise of an employee stock
option or otherwise as compensation or who are not citizens or residents of the
United States or who are otherwise subject to special treatment under the Code.
All stockholders should consult their own tax advisors as to the particular tax
consequences of the Spinoff to them, including the applicability and effect of
state, local and foreign tax laws.

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The IRS has also been asked to rule on the ability of the Company and/or
Chemicals to claim compensation deductions with respect to the exercise of
outstanding stock options after they have been adjusted to reflect the Spinoff.
See "Relationship Between the Company and Chemicals after the Spinoff --
Employee Benefits Allocation Agreement."

For a description of the tax sharing and indemnification agreement which the
Company and Chemicals will enter into prior to the Spinoff (the "Tax Sharing and
Indemnification Agreement") and pursuant to which the Company and Chemicals will
provide for various tax matters, see "Relationship Between the Company and
Chemicals After the Spinoff -- Tax Sharing and Indemnification Agreement." For a
description of certain additional tax considerations, see "Risk Factors --
Certain Tax Risks of the Spinoff."

POSSIBLE FUTURE TAX LEGISLATION

In June 1997, Congress proposed legislation which would require the recognition
of gain where certain distributions of stock are followed by an acquisition (the
"Anti-Morris Trust Proposal"). Under the Anti-Morris Trust Proposal, if greater
than 50% of the voting power or value of the stock of the Company were acquired
by one or more persons (which includes related and affiliated parties and
persons acting in concert) during the four-year period beginning two years
before the date of the Spinoff, then gain would be recognized in an amount equal
to the gain inherent in the Company's assets at the time of the Spinoff. For the
foregoing purposes, if the assets of the Company are acquired by a successor in
a merger or other tax-free reorganization such asset acquisition would be
treated as a stock acquisition. This feature of the Anti-Morris Trust Proposal,
if enacted into law, could limit the Company's ability to enter into a change of
control transaction for a period following the Spinoff.

LISTING AND TRADING OF COMPANY COMMON STOCK AND CHEMICALS COMMON STOCK

It is expected that Company Common Stock will continue to be listed and traded
on the NYSE after the Spinoff. There is not currently a public market for
Chemicals Common Stock. Prices at which Chemicals Common Stock may trade prior
to the Spinoff on a "when-issued" basis or after the Spinoff cannot be
predicted. Until the Chemicals Common Stock is fully distributed and an orderly
market develops, the prices at which trading in Chemicals Common Stock occurs
may fluctuate significantly. The prices at which Chemicals Common Stock trades
will be determined by the marketplace and may be influenced by many factors,
including, among others, the depth and liquidity of the market for Chemicals
Common Stock, investor perception of Chemicals and the chemical industry,
Chemicals' dividend policy and general economic and market conditions. See "Risk
Factors -- Dividend Policies." In addition, the combined trading prices of
Company Common Stock and Chemicals Common Stock held by stockholders after the
Spinoff may be less than, equal to or greater than the trading price of Company
Common Stock prior to the Spinoff. See "Risk Factors -- Dividend Policies."

Chemicals will file an application to list Chemicals Common Stock and Chemicals
Rights on the NYSE. Chemicals initially will have approximately 56,572
stockholders of record based upon the number of stockholders of record of the
Company as of June 27, 1997. For certain information regarding options to
purchase Chemicals Common Stock ("Chemicals Options") that will be outstanding
after the Spinoff, see "Relationship Between the Company and Chemicals After the
Spinoff -- Employee Benefits Allocation Agreement."

Shares of Chemicals Common Stock distributed to the Company's stockholders in
the Spinoff will be freely transferable, except for securities received by
persons who may be deemed to be "affiliates" of Chemicals pursuant to the
Securities Act. Persons who may be deemed to be "affiliates" of Chemicals after
the Spinoff generally include individuals or entities that control, are
controlled by, or are under common control with, Chemicals and may include
certain officers and directors of Chemicals as well as principal stockholders of
Chemicals, if any. Persons who are affiliates of Chemicals will be permitted to
sell their shares of Chemicals Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act.

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FINANCING

Effective as of the Distribution Date, the Chemicals balance sheet will include
approximately $1.03 billion of debt, primarily assumable commercial paper that
will be issued by the Company from time to time prior to the Spinoff and assumed
by Chemicals effective as of the Distribution Date. The proceeds of the
commercial paper issuance will be used by the Company to repay Company debt
maturing simultaneously with the issuance of the commercial paper. Repayment of
the assumable commercial paper will be Chemicals' responsibility. The assumable
commercial paper will be guaranteed by the Company until repaid or refinanced at
maturity, which may be up to 30 to 60 days following the Distribution Date.

On an historical basis, Chemicals was not allocated any of the Company's debt as
the Company uses a centralized approach to cash management and the financing of
its operations. As a result, it is not possible to determine what amount of debt
was associated, on an historical basis, with the operations of Chemicals. See
Note 1 to the Chemicals SpinCo Combined Financial Statements. The amount of debt
to be assumed by Chemicals and the determination of Chemicals' initial capital
structure are based upon the Company's goals of maximizing combined stockholder
value for the Company's present stockholders while enabling Chemicals to receive
an investment grade credit rating. In addition, the amount of debt that could be
assumed by Chemicals without adverse tax consequences is limited to the tax
basis of the assets to be transferred to Chemicals.

Following the Spinoff, Chemicals expects to have its own commercial paper
program part of which will be used to refinance assumable commercial paper.
Interest expense on commercial paper financings by Chemicals is expected to
increase somewhat after the Company's guarantee of the assumable commercial
paper expires. Chemicals currently plans to refinance a substantial portion of
the commercial paper with medium and long-term debt following the Spinoff,
subject to market conditions. Such refinancing is expected to be at higher
interest rates than short-term commercial paper. The determination of the amount
to be refinanced and the terms and conditions of such refinancing have not yet
been determined.

Chemicals also intends to enter into a total of $1.2 billion in revolving credit
facilities (the "Credit Facilities") to support its commercial paper borrowings.
The Credit Facilities would also be available for working capital and other
general corporate purposes. The Credit Facilities will consist of an unsecured
five-year revolving credit facility under which Chemicals may borrow from time
to time on a revolving credit basis an aggregate principal amount of up to $800
million and an unsecured 364-day revolving credit facility under which Chemicals
may borrow on a revolving credit basis an aggregate principal amount of up to
$400 million. The Credit Facilities are expected to contain certain
representations and warranties; conditions; affirmative, negative and financial
covenants; and events of default customary for such facilities. Interest rates
charged on any borrowings outstanding under the Credit Facilities would be based
on market rates that can vary over time.

REGULATORY APPROVALS

The Company does not believe that any material U.S. federal or state or foreign
regulatory approvals will be required by law in connection with the Spinoff.

ACCOUNTING TREATMENT

Upon receipt of stockholder approval of the Spinoff, the Company will restate
its consolidated financial statements to reflect Chemicals as a discontinued
operation. In the separate financial statements of Chemicals, the assets and
liabilities contributed to Chemicals will be recorded at the Company's
historical basis.

CONDITIONS; TERMINATION

The Spinoff is conditioned upon the satisfaction of the following conditions:
(1) approval of the Company Charter Proposal and the Spinoff Proposal by the
Company's stockholders at the Special Meeting; (2) certain transactions
(including the transfers of assets and liabilities contemplated by the
Distribution Agreement)

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having been consummated; (3) Chemicals Common Stock having been approved for
listing on the NYSE, subject to official notice of issuance; (4) the
Registration Statement on Form 10 (the "Registration Statement") to be filed
with the Securities and Exchange Commission (the "Commission") to register the
Chemicals Common Stock under the Exchange Act having become effective and no
stop order being in effect; (5) all material authorizations, consents, approvals
and clearances of U.S. federal, state and local, and foreign governmental
agencies having been obtained; (6) no preliminary or permanent injunction or
other order, decree or ruling issued by a court of competent jurisdiction or by
a government, regulatory or administrative agency or commission, and no statute,
rule, regulation or executive order promulgated or enacted by any governmental
authority, being in effect preventing the consummation of the Spinoff; (7) the
assumable commercial paper program and the Credit Facilities being in place and
all conditions to borrowing thereunder having been satisfied, and all necessary
consents, waivers or amendments to any bank credit agreement, debt security or
other financing facility having been obtained, or each such agreement, security
or facility having been refinanced, in each case, on terms satisfactory to the
Company and to the extent necessary to permit the Spinoff to be consummated
without any material breach of the terms of such agreement, security or
facility; and (8) receipt by the Company of a ruling from the IRS that, among
other things, the Spinoff will generally be tax free for U.S. federal income tax
purposes.

The Company Board does not intend to waive any of the conditions, except that if
the stockholders approve the Spinoff but do not approve the Company Charter
Proposal, the Company Board will reevaluate its intention to complete the
Spinoff. After such review, the Company Board could decide to cancel the Spinoff
or waive the condition that the Company Charter Proposal be approved and to
complete the Spinoff despite such lack of approval. If the Company does not
receive the ruling from the IRS, and the Company Board decides to waive the
tax-ruling condition to the Spinoff, the Company will distribute revised proxy
materials and resolicit proxies. Even if all the above conditions are satisfied,
the Company Board has reserved the right to cancel or defer the Spinoff and the
related transactions described in this Proxy Statement at any time prior to the
Distribution Date. See "Relationship Between the Company and Chemicals After the
Spinoff -- Distribution Agreement."

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BUSINESS OF THE COMPANY AFTER THE SPINOFF

After the Spinoff the Company will operate the Life Sciences Business, which
will consist of its agricultural products, pharmaceuticals, and food ingredients
segments. If the Spinoff had occurred on January 1, 1996, net sales for the
Company for 1996, on a pro forma basis, would have been approximately $6.3
billion compared to $9.3 billion of net sales on an actual historical basis for
1996. If the Spinoff had occurred on December 31, 1996, total assets would have
been approximately $8.7 billion compared to historical total assets at that date
of $11.9 billion. For a more detailed presentation of the pro forma effects of
the Spinoff on the Company's financial position, see "Monsanto Company and
Subsidiaries Unaudited Pro Forma Condensed Consolidated Financial Statements for
the Periods Ending March 31, 1997 and December 31, 1996."

The agricultural products segment is a leading worldwide developer, producer and
marketer of crop protection products and lawn-and-garden products. This group
also develops and markets products enhanced by biotechnology. These products
improve the efficiency of food production and preserve environmental quality for
agricultural, industrial, turf and residential uses. More than half of the
unit's herbicide net sales are made outside the United States. Weather
conditions in agricultural markets worldwide affect sales volumes.

The pharmaceuticals segment reflects the operations of G.D. Searle & Co.
("Searle"). Searle develops, produces and markets prescription pharmaceuticals.
Its products include medications to relieve the symptoms of arthritis, to
control high blood pressure, to relieve insomnia, to prevent the formation of
ulcers, to treat certain infections, and to provide better women's health care.

The food ingredients segment manufactures and markets sweeteners, including
NutraSweet(R) brand sweetener and Equal(R) and Canderel(R) tabletop sweeteners.
It also develops, produces and markets alginates, biogums and other food
ingredients.

Upon consummation of the Spinoff, the Company Board will consist of 10 of the
present 14 directors of the Company. See "Election of Directors to Classified
Terms." In addition, 12 of the present 14 executive officers of the Company
including Robert B. Shapiro, Chairman and Chief Executive Officer of the
Company, will continue as senior executives of the Company following the
Spinoff. See "Management of the Company."

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RELATIONSHIP BETWEEN THE COMPANY AND
CHEMICALS AFTER THE SPINOFF

For the purpose of governing certain of the ongoing relationships between the
Company and Chemicals after the Spinoff and to provide mechanisms for an orderly
transition, the Company and Chemicals or their respective subsidiaries, as
applicable, will enter into the various agreements described in this section
prior to the Distribution Date. Certain of the agreements summarized in this
section will be included as exhibits to the Registration Statement, and the
following summaries are qualified in their entirety by reference to the
agreements as filed.

DISTRIBUTION AGREEMENT

The Distribution Agreement will provide for, among other things, the principal
corporate transactions required to effect the Spinoff and certain other matters
governing the relationship between Chemicals and the Company with respect to or
in consequence of the Spinoff.

Subject to certain exceptions described below, the Distribution Agreement
contains provisions designed principally to place with Chemicals the assets and
personnel currently involved in the Chemicals Business and financial
responsibility for known and contingent or unknown liabilities of the Chemicals
Business. In addition, certain other assets and liabilities of the Company
described in the Distribution Agreement will be contributed to, or assumed by,
Chemicals. These additional assets include, among others: (1) a joint venture
interest in the elemental phosphorus mining and operations of the Company which
the Company will contribute to the P4 Joint Venture prior to the Spinoff (see
" -- P4 Joint Venture"); (2) the Company's interests in certain existing joint
ventures, including the Flexsys 50/50 joint venture between the Company and Akzo
Nobel N.V. ("Akzo Nobel") and the Advanced Elastomer Systems 50/50 joint venture
between the Company and Exxon Corporation ("Exxon") (see "Business and
Properties of Chemicals After the Spinoff -- Principal Equity Affiliates"); and
(3) $75 million of cash. These additional liabilities include, among others: (1)
most of the remaining liabilities of sold or discontinued businesses conducted
by former chemicals units or divisions of the Company; (2) environmental
remediation liabilities of certain other specified sold or discontinued
businesses of the Company; and (3) liabilities associated with the assumable
commercial paper, as described above under "The Spinoff Proposal -- Financing."

Under the Distribution Agreement, Chemicals will be entitled to the benefit of
liability insurance coverage under certain Company policies, to the extent such
coverage existed and coverage limits are not exhausted, for claims for which it
is assuming responsibility. Such insurance coverage generally will be shared
with the Company for other liabilities existing prior to the Distribution Date
which the Company is retaining, on an as available basis, without allocation.

Pursuant to the Distribution Agreement, the Spinoff is subject to a number of
conditions which are described under "The Spinoff Proposal -- Conditions;
Termination." The Distribution Agreement may be amended or terminated, and the
Spinoff may be cancelled, or certain conditions to the Spinoff may be waived, at
any time prior to the Distribution Date, in the sole discretion of the Company
Board.

EMPLOYEE BENEFITS ALLOCATION AGREEMENT

Prior to the Distribution Date, the Company and Chemicals will enter into an
employee benefits and compensation allocation agreement (the "Employee Benefits
Allocation Agreement") to set forth the manner in which assets and liabilities
under employee benefit plans and other employment-related liabilities will be
divided between them, and to ensure a smooth transition for employees' benefits
in the Spinoff. In general, Chemicals will be responsible for compensation and
employee benefits relating to its employees and former employees who last worked
at a Chemicals facility. Chemicals will receive corresponding assets under these
employee benefit plans qualified under the Code, but will receive no assets with
respect to liabilities under non-qualified plans. Certain liabilities relating
to some former employees of Chemicals will be retained by the Company (along
with any corresponding assets), including liabilities and assets for defined
benefit pension plan benefits accrued by certain retired employees of the
Chemicals business, liabilities and assets under the Company Savings and
Investment Plan and the corresponding supplemental executive plan for such
retired

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salaried employees and unfunded deferred compensation liabilities. In addition,
the Company and Chemicals may create a multiple employer pension plan, of which
they would initially be the joint sponsors, to provide for certain benefits
accrued by certain non-union employees and retirees of the Chemicals Business
through December 31, 1997. Chemicals would be primarily liable for all
contributions to fund this multiple employer pension plan, but the Company would
remain secondarily liable for such funding during the period it is a joint
sponsor. The Company would have the right to withdraw as a joint sponsor at the
earlier of a specified date or upon the occurrence of certain specified events.

The Employee Benefits Allocation Agreement will also provide for the treatment
of outstanding options to purchase Company Common Stock ("Company Options"). At
the time of the Spinoff, Company Options will be converted into either Chemicals
Options, adjusted Company Options ("New Company Options") or a combination of
both (collectively, "Substituted Options"), in each case, with adjustments to
preserve their value notwithstanding the Spinoff. These adjustments will be
based upon the relative trading values of the Company Common Stock before giving
effect to the Spinoff, and Chemicals Common Stock or Company Common Stock after
giving effect to the Spinoff, as the case may be. Chemicals will be responsible
for delivering shares of Chemicals Common Stock upon exercise of Chemicals
Options, and the Company will be responsible for the delivery of shares of
Company Common Stock upon exercise of New Company Options. The holders of
restricted shares of Company Common Stock ("Company Restricted Stock") (whether
employed by the Company or Chemicals after the Spinoff) will be entitled under
the terms of their Company Restricted Stock to receive the distribution of
shares of Chemicals Restricted Stock in the Spinoff with respect to their
Company Restricted Stock, and such shares of Chemicals Restricted Stock will
generally be subject to the same restrictions as the Company Restricted Stock.
(Restricted shares of Chemicals Common Stock are referred to in this Proxy
Statement as "Chemicals Restricted Stock".)

TAX SHARING AND INDEMNIFICATION AGREEMENT

Prior to the Distribution Date, Chemicals and the Company will enter into the
Tax Sharing and Indemnification Agreement, which will set forth each party's
rights and obligations with respect to payment and refunds, if any, with respect
to taxes for periods before and after the Distribution Date and related matters
such as the filing of tax returns and the conduct of audits or other proceedings
involving claims made by taxing authorities.

In general, the Company will be responsible for filing consolidated U.S. federal
and consolidated, combined or unified state income tax returns for periods
through the Distribution Date, and for paying the taxes relating to such returns
(including any subsequent adjustments resulting from the redetermination of such
tax liability by the applicable taxing authorities). The Tax Sharing and
Indemnification Agreement will also allocate liability between the Company and
Chemicals for property taxes and for any taxes which may arise in connection
with separating the Chemicals Business from the Life Sciences Business.

Pursuant to the Tax Sharing and Indemnification Agreement, Chemicals will agree
to refrain from engaging in certain transactions for two years following the
Distribution Date without the Company's written consent unless it shall first
provide the Company with a ruling from the IRS, or in the case of certain
intragroup transfers of assets, an opinion of counsel in a form reasonably
acceptable to the Company, that the transaction will not adversely affect the
tax consequences of the Spinoff. Transactions subject to these restrictions will
include, among other things, liquidation or merger with another corporation,
certain repurchase or issuance of Chemicals Common Stock, sale, distribution or
other disposition of certain assets and the discontinuance of certain
businesses. The Company and Chemicals will agree that, in general, they will
indemnify each other, on an aftertax basis, against any tax liability resulting
from either the Company's or Chemicals' breach of any covenant or
representations contained in the Tax Sharing and Indemnification Agreement.

The Tax Sharing and Indemnification Agreement further provides for cooperation
with respect to certain tax matters, the method of reporting of non-qualified
stock options, indemnification in connection with the income of certain
partnerships, the exchange of information and the retention of records which may
affect the income tax liability of either party.

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Though valid as between the parties thereto, the Tax Sharing and Indemnification
Agreement is not binding on the IRS and does not affect the several liability of
the Company, Chemicals and their respective subsidiaries to the IRS for all U.S.
federal taxes of the consolidated group relating to periods prior to the
Distribution Date.

INTELLECTUAL PROPERTY AGREEMENTS

On or prior to the Distribution Date, the Company and Chemicals will enter into
a series of agreements (the "Intellectual Property Agreements") relating to the
transfer of intellectual property, including patents, trademarks, copyrights,
know-how and trade secrets. The Intellectual Property Agreements will include:
(1) an assignment of intellectual property rights to Chemicals which relate
solely to the Chemicals Business, (2) an assignment of intellectual property
rights to Chemicals which relate primarily, but not entirely, to the Chemicals
Business, in which case a license will be granted to the Company for use in the
Life Sciences Business and in certain specified areas outside the Chemicals
Business, and (3) a license to Chemicals of certain of the Company's
intellectual property rights which relate primarily, but not entirely, to the
Life Sciences Business for use by Chemicals in the Chemicals Business and in
certain specified areas which are outside the Life Sciences Business.

TRANSITION SERVICES AGREEMENT

On or prior to the Distribution Date, the Company and Chemicals will enter into
a transitional services agreement (the "Transition Services Agreement"),
pursuant to which the Company and Chemicals will provide each other with
transitional administrative and support services (the "Transition Services") for
a period of time not to exceed 18 months from the Distribution Date. The
Transition Services Agreement will provide that, in consideration for the
performance of a Transition Service, the user of such Transition Service (the
"Service User") will pay to the provider of such Transition Service (the
"Service Provider") the cost incurred by the Service Provider in rendering such
Transition Service.

The Transition Services Agreement will provide that the Service Provider has the
right to terminate the provision of certain Transition Services under certain
circumstances, including the occurrence of certain changes in the ownership or
beneficial control of the Service User, and also will contain provisions whereby
the Service User will generally agree to indemnify the Service Provider for all
claims, losses, damages, liabilities and other costs incurred by the Service
Provider to a third party which arise in connection with the provision of a
Transition Service, other than those costs resulting from the Service Provider's
own willful misconduct or fraud. In general, the Service User can terminate a
Transition Service after an agreed notice period.

P4 JOINT VENTURE

The Company and Chemicals will form a joint venture for the mining of phosphate
rock and the production of elemental phosphorus (the "P4 Joint Venture"). The
Company will own 60% of the P4 Joint Venture and Chemicals will own the
remaining 40% of the P4 Joint Venture. The elemental phosphorus production
facilities are located at Soda Springs, Idaho and will be operated by Chemicals
under an operating agreement with the P4 Joint Venture. The elemental phosphorus
produced by the P4 Joint Venture will be sold to the Company and Chemicals
generally at cost with certain adjustments to reflect ownership. The Company
will have priority for a certain percentage of the production volume. The
phosphorus material acquired by the Company will be used as a raw material for
the manufacture of herbicides (including the Company's Roundup(R) brand). The
phosphorus material acquired by Chemicals will either be used by Chemicals as a
raw material for the manufacture of phosphorus derivatives which will then be
sold by Chemicals or will be resold (as elemental phosphorus) by Chemicals. In
the event of a change of control of Chemicals, the Company has an option to
acquire Chemicals' interest in the P4 Joint Venture at the then book value. The
Company is paying Chemicals an annual fee in consideration of this option.

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OPERATING AGREEMENTS

On or prior to the Distribution Date, the Company and Chemicals will enter into
master operating agreements (the "Operating Agreements") with respect to each of
four production facilities located at Chocolate Bayou in Alvin, Texas; Luling,
Louisiana; Antwerp, Belgium; and Sao Jose dos Campos, Brazil. The Company will
be the operator (the "Operator") and Chemicals will be the guest (the "Guest")
at all of the facilities except the Chocolate Bayou facility, at which the
Company will be the Guest and Chemicals will be the Operator.

Pursuant to each of the Operating Agreements, the Operator will, as an
independent contractor, provide, or arrange for the provision of, such
production, utility and certain ancillary services as are reasonably necessary
or required for the Guest's production operations at the facility, and the
Operator will lease to the Guest the real property at the facility that is used
in connection with the Guest's production operations. The Guest is required to
pay all direct and indirect costs incurred by the Operator in the performance or
supply of such services, plus an agreed upon return on the net capital employed
in connection with the respective Operating Agreement. The Guest will own the
production assets related to its operations at the facility.

Unless terminated earlier by either party thereto in accordance with the terms
of the Operating Agreements, the initial term of each of the Operating
Agreements is 20 years. After the initial term, the Operating Agreements
continue indefinitely unless and until terminated by either party upon at least
24 months' prior written notice. Each of the Operating Agreements also provides
that, under certain circumstances, either the Operator or the Guest may
terminate the Operating Agreement prior to the expiration of its initial term.

The Operating Agreements contain provisions requiring the Guest to indemnify the
Operator for all losses (other than environmental liabilities) arising out of
the operation of the facility or the provision of services, except to the extent
that such losses are caused by the Operator's willful misconduct or fraud. The
Operating Agreements also apportion certain environmental liabilities.

RAW MATERIAL SUPPLY AGREEMENTS

On or prior to the Distribution Date, the Company and Chemicals will enter into
a series of raw material supply agreements pursuant to which Chemicals will
provide materials to the Company for the continued manufacture of certain of the
Company's products, including herbicides (such as Roundup(R)) and aspartame. The
raw materials to be provided by Chemicals are as follows: formalin
(formaldehyde), monochlorobenzene (MCB), hexamethylenediamine (HMD),
hexamethylenetetramine (HMTA), hydrogen cyanide (HCN) and L-aspartic acid
(L-Asp).

The raw material supply agreements will have an anticipated term of 10 years and
will provide that the Company will obtain its requirements of the materials for
the facility to which the agreement relates from Chemicals. Chemicals will sell
these materials under formula-based or market-based pricing mechanisms.
Chemicals will also act as the agent for Life Sciences in purchasing additional
quantities of one of these materials.

On or prior to the Distribution Date, the Company and Chemicals will enter into
a supply agreement pursuant to which the Company will provide phosphorus
trichloride (PCl(3)) to Chemicals for an anticipated term of less than eight
years. The Company will sell this material under a formula-based pricing
mechanism.

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THE COMPANY CHARTER PROPOSAL
(PROXY ITEM NO. 2)

The Company Board believes that it is advisable to adopt the Company Charter
Amendments described below, and, accordingly, has adopted a resolution proposing
that such Company Charter Amendments be presented to the stockholders at the
Special Meeting for their approval.

CLASSIFICATION OF THE COMPANY BOARD AND RELATED PROVISIONS

If approved by the stockholders, Article VIII of the Company Charter would be
amended and restated in its entirety to provide for the Company Board to be
divided into three classes, to set forth the range for the number of directors
comprising the Company Board, to establish procedures for filling vacancies on
the Company Board, to provide that directors can only be removed for cause and
by a supermajority vote of the stockholders and to require a supermajority vote
for stockholders to amend such Article VIII ("Amended Article VIII").

Amended Article VIII would divide the Company Board into three separate classes,
as nearly equal in number as possible, each class to serve a three-year term and
until their successors are duly elected and qualified with each class being
elected at different annual stockholder meetings. Following the effectiveness of
the Company Charter Amendments, Class I will consist of directors who will serve
for an initial term expiring at the 1998 Annual Meeting of Stockholders, Class
II will consist of directors who will serve for an initial term expiring at the
1999 Annual Meeting of Stockholders, and Class III will consist of directors who
will serve for an initial term expiring at the 2000 Annual Meeting of
Stockholders. At each annual meeting beginning in 1998, directors will be
elected to succeed those directors whose terms then expire and each newly
elected director will serve for a three-year term. The proposed Amended Article
VIII would replace the current system of electing all of the directors annually
for one-year terms.

The effect of a classified board of directors may be circumvented by increasing
or decreasing the size of the board. The Company Charter currently provides that
the number of directors is to be fixed as provided in the Company By-Laws, and
the Company By-Laws provide that such number is to be fixed by resolution of the
Company Board. Such Company By-Laws can currently be amended by holders of a
majority of the outstanding shares of Company Common Stock. Amended Article VIII
fixes the number of directors at not less than five nor more than twenty, the
specific number to be fixed by resolution of the Company Board. The current
Company Charter likewise provides that any vacancies caused by an increase in
the number of directors or otherwise may be filled by the Company Board in the
manner described in the Company By-Laws. Amended Article VIII provides that such
vacancies may be filled only by the affirmative vote of a majority of the
remaining directors, though less than a quorum, and that directors so chosen
would serve for the remainder of the full term of the class in which the new
directorship was created or the vacancy occurred. The Company Charter also
currently provides that directors may be removed with or without cause by a vote
of the majority of the outstanding shares entitled to vote for directors. Under
the General Corporation Law of the State of Delaware (the "Delaware Law"), if a
board of directors is classified by action of the stockholders, unless the
certificate of incorporation specifies otherwise, members of the board of
directors of each class may be removed by the stockholders before the expiration
of their respective terms only for cause. Amended Article VIII would expressly
provide that directors may be removed only for cause and only by the affirmative
vote of 80% of the stockholders entitled to vote thereon. Finally, Amended
Article VIII would provide that such article cannot be amended except by the
affirmative vote of 80% of the stockholders entitled to vote thereon.

The text of Amended Article VIII is set forth in Annex A to this Proxy
Statement.

In the event that the Company Charter Proposal is approved, the Company Board
has adopted conforming amendments to the Company By-Laws which will become
effective upon the effectiveness of the Company Charter Amendments.

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ELIMINATION OF ACTION BY CONSENT OF STOCKHOLDERS

If approved by the stockholders, Article XI of the Company Charter would be
renumbered as Article XII and a new Article XI would be inserted, which Article
XI would require that all stockholder action be taken at a duly called annual or
special meeting and not by means of a written consent in lieu of such a meeting
("New Article XI").

Pursuant to the Delaware Law, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken by the stockholders
of a Delaware corporation may be taken without a meeting, without prior notice
and without a stockholder vote if a written consent setting forth the action to
be taken is signed by the holders of outstanding stock having the requisite
number of shares that would be necessary to authorize such action at a meeting
at which all shares entitled to vote thereon were present and voted. The Company
Charter does not currently preclude stockholder action by written consent.

The text of the proposed New Article XI is set forth in Annex A to this Proxy
Statement.

REQUIREMENT OF 80% VOTE FOR STOCKHOLDERS TO AMEND BY-LAWS

If approved by the stockholders, Article X of the Company Charter would be
amended to require a vote of the holders of 80% of the outstanding stock for
stockholders to adopt, amend or repeal the Company By-Laws ("Amended Article
X"). Amended Article X would also provide that such article cannot be amended
except by the affirmative vote of 80% of the stockholders entitled to vote
thereon.

Pursuant to the Company Charter and the Company By-Laws, the Company By-Laws may
currently be amended by stockholders by a vote of a majority of the outstanding
stock or by the Company Board. If the Company Charter Amendments are approved,
the required vote for stockholders to adopt, amend or repeal the Company By-Laws
would be increased from 50.1% to 80%. The Company Board would continue to have
the power to amend the Company By-Laws.

The text of the proposed Amended Article X is set forth in Annex A to this Proxy
Statement.

REASONS FOR THE COMPANY CHARTER PROPOSAL

The amendments providing for a classified board, the elimination of stockholder
action by written consent, and the requirement of an 80% vote for stockholders
to amend the Company By-Laws may have certain antitakeover effects which the
Company Board believes will help to protect the value of each stockholder's
investment in the Company. Certain current provisions of the Company Charter,
the Company By-Laws and the Company Rights Agreement already provide certain
protections against takeover bids which the Company Board determines are not in
the best interest of stockholders. See "Certain Antitakeover Effects of Certain
Charter and By-Laws Provisions and the Company Rights and the Chemicals Rights."
The Company Board believes that the additional measures are desirable in
connection with the Spinoff for a number of reasons. Following the Spinoff, the
Company will consist solely of the Life Sciences Business and will be an
innovative and growth-oriented agricultural products, food, health and
biotechnology company. The Life Sciences Business has recently undertaken a
number of acquisitions and alliances, and following the Spinoff the Company
intends to continue to aggressively pursue opportunities to build the business
both through internal growth and by strategic acquisitions and alliances. The
Company's strategies for the Life Sciences Business have already yielded
substantial value for stockholders. The proposed Company Charter Amendments are
intended to enable the Company to concentrate on and implement this business
plan following the Spinoff and to foster sustained long-term growth without the
potential disruption caused by the threat of a takeover not considered by the
Company Board to be in the best interests of the Company and its stockholders.

In addition, following the Spinoff, the price of Company Common Stock may not
immediately reflect the full value of the Company as a pure Life Sciences
Business. It may take time for the market fully to appreciate the dynamics of
the Company following the Spinoff and for the Company to realize the long-term
value of focusing on the Life Sciences Business and implementing its business
plan. The additional protective provisions will enable the Company to preserve
for the benefit of the Company's stockholders the advantages of operating as a
pure life sciences company after the Spinoff.

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A classified Company Board will eliminate the ability of a raider to acquire
control of the Company Board at a single annual stockholder meeting. In some
cases, a raider may not be interested in taking over a corporation, but rather
may use the threat of a proxy fight and/or a takeover bid as a means of forcing
a corporation to adopt the raider's strategy for the corporation. The imminent
threat of removal of the Company Board in a proxy contest or consent
solicitation severely curtails the ability of the Company Board to negotiate
effectively with both a raider and other potential acquirors. The Company Board
may be deprived of the time and information necessary to evaluate an unsolicited
takeover proposal, to study alternative proposals and to help ensure that the
best price for stockholders is obtained in any transaction involving the Company
which may ultimately be undertaken. If the Company Board were to determine that
the best alternative for stockholders was for the Company to remain independent,
a classified Company Board would force the raider to take two annual meetings to
take control of the Company Board and implement its agenda. Accordingly, by
making it more time-consuming for a prospective acquiror to gain control of the
Company Board, a classified Company Board creates some additional negotiating
leverage for the Company Board to seek the best terms for all stockholders and
to resist proposals that the Company Board determines to be contrary to the best
interests of stockholders.

Since directors will be serving for longer terms which expire at different
times, the Company Board also believes that a classified Company Board will
promote continuity of management and thereby enhance the Company's ability to
carry out long-range plans and goals for the benefit of its stockholders.

Elimination of the stockholder consent procedure would prevent the holders of
the majority of Company Common Stock from taking action without giving all
stockholders of the Company entitled to vote on such action the opportunity to
participate in determining that action. Elimination of the ability of the
stockholders to act by written consent will also serve to ensure that the
Company Board will have adequate time and opportunity to evaluate any
stockholder proposals and to avoid the expense and distraction of a proxy fight
arising at times other than at annual meetings of stockholders. As a result of
the provisions of the Company By-Laws requiring stockholders to give advance
notice of their intention to propose nominees for director or to propose
business for action at an annual meeting, the Company Board is afforded more
time to evaluate an unsolicited takeover proposal and to determine what actions
are in the best interests of stockholders.

The requirement for a supermajority vote in order for stockholders to amend the
Company By-Laws will prevent a bare majority of the stockholders from seeking to
eliminate the Company's defenses against takeovers or otherwise frustrate
certain types of corporate action traditionally within the authority of the
Company Board. In recent years, potential acquirors, labor unions and other
stockholders have proposed by-law amendments to require the redemption of a
company's shareholders rights plan, terminate a company's defensive measures to
a takeover or authorize expenditures of corporate funds without board of
director approval. While the validity of such by-law amendments is questionable,
the Company Board believes such proposals to amend the Company By-Laws may
assist a raider in acquiring control of the Company and undermine the efforts of
the Company Board to protect the value of each stockholder's investment in the
Company.

INCREASE IN AUTHORIZED SHARES OF COMPANY COMMON STOCK

The Company Board believes that it is advisable to amend Article IV of the
Company Charter to increase the number of authorized shares of Company Common
Stock from 850,000,000 shares to 1,000,000,000 shares and the total number of
authorized shares of all classes of stock of the Company to 1,010,000,000
Shares. Such amendment would change only the number of authorized shares of
Company Common Stock and the total number of authorized shares of all classes of
stock of the Company.

As of the close of business on June 27, 1997, of the 850,000,000 shares of
Company Common Stock presently authorized by the Company Charter, 589,494,131
shares were issued and outstanding, 232,476,839 shares were held in the
Company's treasury or by a subsidiary of the Company and 28,029,030 shares were
authorized but unissued. Adoption of the Company Charter Proposal would increase
the number of authorized, but unissued, shares of Company Common Stock to
178,029,030 shares.

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On April 26, 1996, the Company Board declared a five-for-one stock split in the
form of a stock dividend following approval by the Company's stockholders of an
increase in the authorized number of shares of Company Common Stock from
200,000,000 to 850,000,000. The Company Board has concluded that there is not
currently authorized a sufficient number of shares of Company Common Stock to
give the Company the ability to react quickly to today's competitive, fast
changing environment. The additional authorized shares of Company Common Stock
would provide the Company the necessary flexibility for actions the Company
might wish to take relating to possible financing programs, acquisitions,
mergers, employee benefit plans, future stock splits and other corporate
purposes without the expense and delay of a special stockholders' meeting to
increase authorized capital.

No further action or authorization by the Company's stockholders would be
necessary prior to issuance of the additional shares except as may be required
by applicable law or regulatory agencies or by the rules of any stock exchange
on which the Company's securities may then be listed. For example, the NYSE, on
which the Company Common Stock is listed, currently requires specific
stockholder approval as a prerequisite to listing shares in several instances,
including acquisition transactions where the issuance of shares could result in
a 20% or greater increase in the number of shares of Company Common Stock
outstanding. The Company has no present agreements or commitments for the
issuance of any of the additional shares that would be authorized by the
amendment of Article IV of the Company Charter.

The additional shares for which authorization is sought would be identical to
the shares of Common Stock now authorized and outstanding. The Company Common
Stock has no conversion, preemptive or subscription rights, and is not
redeemable.

The proposed increase in the number of authorized shares of Company Common Stock
is not intended to impede a change of control of the Company. Further, the
Company is not aware of any current efforts to acquire control of the Company.
It should be noted, however, that the additional shares could be issued in
connection with defending the Company against a hostile takeover bid. The
issuance of additional shares of Company Common Stock could have the effect of
diluting earnings and book value of outstanding shares of Company Common Stock,
could be used to dilute the stock ownership of a person or entity seeking to
obtain control of the Company, or could result in a private placement with
purchasers who might side with the Company Board if they chose to oppose a
specific change of control. See "Certain Antitakeover Effects of Certain Charter
and By-Laws Provisions and the Company Rights and the Chemicals Rights -- Common
Stock."

If the Company Charter Proposal is approved by the stockholders, the Company
Charter Amendments will become effective upon the filing of a Certificate of
Amendment in accordance with the Delaware Law. A form of such Certificate of
Amendment is included as Annex A to this Proxy Statement.

REQUIRED VOTE

The affirmative vote of a majority of the shares outstanding and eligible to
vote at the Special Meeting is required for the approval of the Company Charter
Proposal. Approval of the Company Charter Proposal is a condition to
consummation of the Spinoff.

RECOMMENDATION OF THE COMPANY BOARD

THE COMPANY BOARD HAS APPROVED THE COMPANY CHARTER PROPOSAL AND RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE COMPANY CHARTER PROPOSAL.

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ELECTION OF DIRECTORS TO CLASSIFIED TERMS
(PROXY ITEM NO. 3)

If the Company Charter Proposal, which includes the proposed amendment to the
Company Charter concerning classification of the Company Board, is adopted, the
terms of the following three present directors, Nicholas L. Reding, John E.
Robson and William D. Ruckelshaus, will expire at the Annual Meeting in 1998,
the end of the one-year term to which they were elected at the Annual Meeting in
1997. It is proposed at the Special Meeting to elect four present directors to
serve for a term expiring at the Annual Meeting in 1999; and three present
directors to serve for a term expiring at the Annual Meeting in 2000 (or, in all
cases, until their respective successors are elected and qualified). If the
Company Charter Proposal is not approved, all such directors will continue to
hold office until the Annual Meeting in 1998 (or until their respective
successors are elected and qualified). Unless you indicate otherwise on your
proxy, your proxy will be voted to elect to classified terms the following
directors, whose biographical sketches appear below, for the indicated terms. If
any director fails to receive the vote necessary to be elected to a classified
term, the term of such director shall expire at the Annual Meeting in 1998 and
the vacancy so arising will be filled by the Company Board. If the Company
Charter Proposal is approved, in the event of death or disqualification or
inability to serve of any of the directors listed above, the vacancy so arising
will be filled by the Company Board. The directors who are proposed for election
to terms expiring in 1999 and 2000 were elected to terms expiring in 1998 by the
stockholders at the Annual Meeting held in April 1997.

DIRECTORS TO BE ELECTED TO TERMS EXPIRING IN 1999:

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NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS
-------------------------- -------------------------------------------------------------------

Robert B. Shapiro, 58..... Chairman, President and Chief Executive Officer, the Company, since
1995; President and Chief Operating Officer, the Company, 1993-95;
Executive Vice President and Advisory Director, the Company, and
President, The Agricultural Group of the Company, 1990-93,
Director: Citicorp; Silicon Graphics, Inc.; Barnes-Jewish Hospital.
Trustee: Missouri Botanical Garden; Washington University. Member:
The Business Council; The Business Roundtable.
Robert M. Heyssel, 69..... Consultant; President Emeritus, The Johns Hopkins Health System,
since 1992; President and Chief Executive Officer, The Johns
Hopkins Health System and The Johns Hopkins Hospital, 1972-92.
Professor, The Johns Hopkins Schools of Medicine and Public Health
since 1971 and 1972, respectively.
Philip Leder, 62.......... Chairman, Department of Genetics, Harvard Medical School since
1980; John Emory Andrus Professor of Genetics, since 1980. Senior
Investigator, Howard Hughes Medical Institute since 1986. Director:
Genome Therapeutics Corporation. Trustee: The General Hospital
Corporation; The Hadassah Medical Organization; Massachusetts
General Hospital; The Charles A. Revson Foundation; The Rockefeller
University.
Jacobus F.M. Peters, 65... Chairman of the Executive Board and Chief Executive Officer, AEGON
N.V., 1984-93. Director: Kleinwort Endowment Policy Trust Plc.
Member of Supervisory Board: AEGON N.V.; Amsterdam Company for Town
Restoration Ltd.; IBM International Centre for Asset Management
N.V.; Koninklijke Pakhoed Holding N.V.; Randstad Holding N.V.;
SAMAS Group N.V.; United Flower Auctions Aalsmeer.

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DIRECTORS TO BE ELECTED TO TERMS EXPIRING IN 2000:

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NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS
-------------------------- -------------------------------------------------------------------

Michael Kantor, 57........ Partner, Mayer, Brown & Platt, since 1997; U.S. Secretary of
Commerce, 1996-97; U.S. Trade Representative 1993-96; National
Chairman for the Clinton/Gore Campaign, 1992; Partner, Manatt,
Phelps, Phillips and Kantor, 1975-92.
Gwendolyn S. King, 56..... Senior Vice President, Corporate and Public Affairs, PECO Energy
Company (formerly Philadelphia Electric Company), since 1992.
Commissioner, Social Security Administration, 1989-92. Director:
Adwin Equipment Co., Adwin Realty Co.; Eastern Pennsylvania
Development Corp.; Lockheed Martin Corp.
John S. Reed, 58.......... Chairman and Chief Executive Officer, Citicorp and Citibank, N.A.,
since 1984. Director: Citicorp; Citibank, N.A.; Philip Morris
Companies, Inc. Trustee: Rand Corporation. Member: The Business
Council; The Business Roundtable.

DIRECTORS CONTINUING CURRENT TERMS EXPIRING IN 1998:

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NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS
-------------------------- -------------------------------------------------------------------

Nicholas L. Reding, 62.... Vice Chairman of the Board, the Company, since 1993; Advisory
Director, 1986-92; Executive Vice President, Environment, Safety,
Health and Manufacturing, 1990-93. Director: CPI Corp.; Meredith
Corporation; Multifoods Corporation; The Keystone Center.
John E. Robson, 67........ Senior Advisor, Robertson, Stephens & Company, since 1993;
Distinguished Faculty Fellow, Yale University School of Management
and Visiting Fellow, The Heritage Foundation, 1993; Deputy
Secretary of the U.S. Department of the Treasury, 1989-92; Dean,
Emory University Business School, 1986-89; President and Chief
Executive Officer, G.D. Searle & Co., 1985-86; Executive Vice
President, G.D. Searle & Co., 1978-85. Director: Northrop Grumman
Corp.; Rand McNally Company; Security Capital Industrial Trust
(REIT).
William D.
Ruckelshaus, 64......... Chairman, Browning-Ferris Industries, Inc., since 1995; Principal,
Madrona Investment Group L.L.C., since 1996; Chairman and Chief
Executive Officer, Browning-Ferris Industries, Inc., 1988-95. Of
Counsel, Perkins Coie since 1985. Administrator, Environmental
Protection Agency, 1983-85. Director: Browning-Ferris Industries,
Inc.; Cummins Engine Co., Inc.; Gargoyles Inc.; Nordstrom, Inc.;
Weyerhaeuser Company.

Joan T. Bok, Howard M. Love, Frank A. Metz, Jr. and John B. Slaughter will
resign as directors of the Company as of the Distribution Date and will become
directors of Chemicals at that time. In addition, Mr. Ruckelshaus will be a
director of both the Company and Chemicals at and after the Distribution Date.

REQUIRED VOTE

Directors will be elected to their respective classified terms if they receive
the vote of a plurality of the shares present in person or represented by proxy.

RECOMMENDATION OF THE COMPANY BOARD

THE COMPANY BOARD HAS APPROVED THE ELECTION OF EACH OF THE DIRECTORS NAMED
HEREIN TO CLASSIFIED TERMS AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
ELECTION OF EACH OF THESE DIRECTORS TO CLASSIFIED TERMS.

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COMPANY BOARD MEETINGS AND COMMITTEES

The Company Board met eight times during 1996. To assist the Company Board in
carrying out its duties, the Company Board has established an Executive
Committee and seven functional committees with responsibilities in specific
areas of Company Board activity. All nominees attended 75% or more of the
aggregate meetings of the Company Board and of the Company Board committees on
which they served during the period they held office in 1996 except that, due to
unavoidable circumstances, Mr. Reed attended one meeting less than 75% of such
meetings. A description of each Company Board committee and its current
membership follows.

Audit Committee. The Audit Committee is composed of non-employee directors and
met four times in 1996. The committee reviews and monitors the Company's
internal accounting controls, financial reports, accounting practices and the
scope and effectiveness of the audits performed by the independent auditors and
internal auditors. The committee also recommends to the full Company Board the
appointment of the Company's principal independent auditors and approves in
advance all significant audit and non-audit services provided by such auditors.
The committee discusses audit and financial reporting matters with
representatives of the Company's financial management, its internal auditors and
its principal independent auditors. The internal auditors and the principal
independent auditors meet with the committee, with and without management
representatives present, to discuss the results of their examinations, the
adequacy of the Company's internal accounting controls and the quality of the
Company's financial reporting. The committee encourages the internal auditors
and the principal independent auditors to communicate directly with the
committee. The members of the committee are: Mr. Metz, Chairman; Dr. Heyssel,
Mrs. King, Mr. Ruckelshaus and Dr. Slaughter.

Corporate Social Responsibility Committee. The Corporate Social Responsibility
Committee met four times in 1996. The committee reviews and monitors the
Company's performance as it affects employees, communities, customers, and the
environment and recommends Company policies for consideration when appropriate.
The committee also identifies and investigates emerging issues. The members of
the committee are: Mrs. Bok, Chairman; Mr. Kantor, Mrs. King, Mr. Ruckelshaus
and Dr. Slaughter.

Executive Committee. The Executive Committee has the powers of the Company
Board in directing the management of the business and affairs of the Company in
the intervals between meetings of the Company Board (except for certain matters
reserved for the Company Board). The matters acted upon by the Executive
Committee are typically of a routine nature; thus, the committee meets
infrequently. During 1996, all actions were taken by unanimous written consent
after the committee's review of proposals circulated to the members. Actions of
the committee are reported at the Company Board's next regular meeting. The
members of the committee are: Mr. Shapiro, Chairman; Drs. Leder and Slaughter.

Executive Compensation and Development Committee. The Executive Compensation
and Development Committee (the "ECDC") is composed of non-employee directors and
met four times in 1996. The ECDC recommends to the Company Board the
establishment and modification of the Company's management incentive plans. The
ECDC also administers and interprets the Company's management incentive plans
and approves the establishment, modification and termination of other executive
compensation plans and agreements. The ECDC has delegated authority to a
compensation committee composed of senior management to make grants and awards
under the incentive plans and to approve and administer other compensation plans
for all employees except executive officers. The ECDC also reviews plans for
executive succession and determines the salaries of all executive officers of
the Company. The members of the committee are: Mr. Love, Chairman; Dr. Heyssel,
Messrs. Metz and Ruckelshaus.

Finance Committee. The Finance Committee met three times in 1996. The committee
reviews and monitors the Company's financial planning and structure to insure
compatibility with the Company's requirements for growth and sound operation.
The committee provides advice regarding the worldwide financing programs of the
Company and reviews specific financing plans as requested by management. The
committee makes recommendations to the Company Board concerning the increase or
retirement of debt, issuance and repurchase of capital stock, foreign currency
management, dividend policy and commercial and investment

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banking relationships. The members of the committee are: Mr. Reed, Chairman;
Mrs. Bok, Messrs. Metz, Peters and Robson.

Nominating Committee. The Nominating Committee is composed of non-employee
directors and met twice in 1996. At its meeting in January 1997, the committee
approved for submission to the Company Board the slate of directors who were
elected at the 1997 Annual Meeting of Stockholders and at its meeting in June
1997, the committee approved for submission to the Company Board the slate of
directors proposed to be elected to classified terms at the Special Meeting. In
addition, the committee considers candidates for the Company Board in case of
retirements or other vacancies. The committee also develops internal criteria
for the selection of non-employee directors and criteria by which an evaluation
of all directors is made. In performing its responsibilities, the committee
consults with the Chairman of the Board. This committee will consider
stockholder nominations, which should be submitted in writing by year-end to the
Company's Secretary. The members of the committee are: Mr. Ruckelshaus,
Chairman; Dr. Heyssel, Messrs. Love and Metz.

Pension and Savings Funds Committee. The Pension and Savings Funds Committee
met four times in 1996. The committee's specific responsibilities include
approving the actuarial assumptions and annual contributions for certain pension
and benefit plans (the "Company Plans"), selecting trustees and investment
managers for the Company Plans, and establishing policies for the approval of
related pension trust agreements and other funding instruments. Although the
professional trustees and investment managers have primary investment
responsibility with respect to these funds, the committee monitors the
investment performance of the Company Plans and the investment managers. The
members of the committee are: Dr. Heyssel, Chairman; Dr. Leder, Messrs. Love and
Peters.

Special Committee of the Board Regarding Agricultural Biotechnology
Matters. The Special Committee of the Board Regarding Agricultural
Biotechnology Matters was formed to review and approve acquisitions by the
Company of assets or securities or other business combination transactions, or
contributions of capital or loans to third parties, in the area of agricultural
biotechnology, either directly or indirectly. The committee met twice in 1996
via telephone conference and took one action by unanimous written consent after
the committee's review of proposals circulated to the members. Actions of the
committee are reported at the Company Board's next regular meeting. The members
of the committee are: Mr. Shapiro, Chairman; Mrs. King, Dr. Leder, Messrs. Metz
and Ruckelshaus.

COMPENSATION OF DIRECTORS

Employee directors receive neither retainers nor fees for attendance at Company
Board or Company Board committee meetings. Non-employee directors receive an
annual retainer of $30,000 plus $1,300 per Company Board meeting attended. In
addition, non-employee chairmen of the Executive and the Nominating committees
receive $4,000 per year, and non-employee chairmen of all other Company Board
committees receive $5,000 per year. Each other non-employee director serving as
a member of Company Board committees receives $3,000 per year for each Company
Board committee on which such director serves. Committee members, including
chairmen, receive a fee of $1,300 per meeting attended, except that this fee is
paid for attendance at only one committee meeting on the day of a Company Board
meeting. Each non-employee director receives $20,000 of the annual retainer in
cash and the $10,000 balance in Company Common Stock. The shares representing
the Company Common Stock portion of the annual retainer for a five-year period
are transferred to each director at the beginning of the period. These shares
are, however, subject to forfeiture to the Company unless "earned out" by the
director through continued service on the Company Board during the five years.
Thus, the forfeiture condition is removed on one-fifth of the shares on the
respective dates of the five annual meetings following transfer of the shares if
the director is still serving on the Company Board. Although the directors have
voting and dividend rights, none of their shares may be sold prior to the date
of the fifth such annual meeting so long as the director continues serving on
the Company Board. Appropriate adjustments are made for directors whose
retirement will occur in less than five years. The Company Board has approved
the suspension of such grants of Company Common Stock to directors pending
further consideration of the Company's policy regarding director compensation.

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In 1993, the Company Board adopted a guideline which provides that non-employee
directors should own Company Common Stock having a value of three times their
annual retainer by the fifth anniversary of their election to the Company Board.

Non-employee directors do not participate in any of the Company's incentive,
stock option, pension or benefit plans except that they are covered under the
Company's business travel accident insurance policy while traveling on Company
business. The normal retirement date for non-employee directors is the annual
meeting following their 70th birthday. Non-employee directors who retire with
five or more years of service receive an annual retirement benefit for life paid
in cash and equal to their annual retainer at the time of retirement. If a
non-employee director dies within 15 years after retirement, a designated
beneficiary will be entitled to receive the annual benefit for the remainder of
the 15-year period. Reduced benefits will be paid to a director who ceases for
any reason to be a director with fewer than five years of service and to a
director who commences receiving benefits prior to normal retirement. The
Company purchases Company-owned life insurance contracts on the lives of the
non-employee directors. Thus, the cost of this retirement benefit program,
including a factor for use of money, should be substantially recoverable through
the proceeds of such insurance, depending on realization of the assumptions as
to mortality experience, policy dividends and other factors. The Company Board
intends to review the compensation arrangements for non-employee directors
contemporaneously with the Spinoff with a view toward discontinuing this
retirement plan with respect to all continuing directors. Compensation for
non-employee directors is expected to be increasingly based on Company Common
Stock.

The Company has established a Directors' Charitable Contribution Program for all
non-employee directors of the Company which will be funded through life
insurance policies which have been purchased on each of the directors. Upon the
death of a director with five or more years of service, the Company will
contribute a total of $1,000,000 to one or more qualifying charitable
institutions recommended by the director. A reduced contribution will be made
upon the death of a director with fewer years of service. Directors derive no
direct financial benefit from this program since all charitable deductions
accrue to the Company.

The Company has a consulting agreement with Dr. Leder, a director of the
Company, who provides consulting services and the benefit of his considerable
professional skills, knowledge, experience and judgment in areas of interest to
the Company, particularly in the field of biological sciences. In 1996, Dr.
Leder received $132,600 under this contract.

Mr. Robson, a director of the Company, served on the board of directors of
Calgene, Inc. ("Calgene") at the request of the Company prior to the acquisition
by the Company in May 1997 of 100% of the common stock of Calgene (the "Calgene
Acquisition"). In consideration of such service, in May 1996, the Company
transferred to Mr. Robson 15,000 shares of common stock of Calgene valued at
$6.00 per share at the time of transfer. These shares were originally subject to
a three-year vesting period, under which one-third of the shares would become
non-forfeitable on each March 31, commencing March 31, 1997. These shares were
in addition to the standard director compensation arrangements that Calgene had
with its non-employee directors. Vesting of these restricted shares was
accelerated upon consummation of the Calgene Acquisition.

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INCENTIVE PLAN PROPOSAL
(PROXY ITEM NO. 4)

At the 1996 Annual Meeting, the Company's stockholders approved the Incentive
Plan. The Incentive Plan authorizes up to 46,250,000 shares of Company Common
Stock for grants of non-qualified and incentive stock options, stock
appreciation rights, restricted stock awards and bonus stock awards. The number
of shares authorized is subject to adjustment for stock dividends, stock splits
and other changes in capitalization, and the number of shares set forth above
reflects the five-for-one stock split in 1996. As of April 30, 1997,
approximately 11,895,597 shares of Company Common Stock remained available for
grants under the Incentive Plan. The Company Board, upon recommendation of the
ECDC, has amended the Incentive Plan, subject to stockholder approval, to
authorize 19,000,000 additional shares for future awards. Pursuant to the
Incentive Plan, the total number of shares available under the Incentive Plan
will be adjusted to reflect the effect of the Spinoff. For the effect of the
Spinoff on Company Options and Company Restricted Stock granted under the
Incentive Plan and its predecessor plans, see "Management of Chemicals After the
Spinoff -- Executive Compensation."

REASONS FOR THE INCENTIVE PLAN PROPOSAL

Because of the limited number of remaining shares, the Company Board believes it
is appropriate and necessary at this time to authorize additional shares for
future awards. Authorization of these additional shares will allow grants to
both mid-level and senior management employees in furtherance of the Company's
goal of continuing to achieve significant gains in stockholder value and
operating results. The Company intends to continue the practice begun in 1993 of
linking the exercisability of Company Options to the achievement of
performance-based targets.

MATERIAL FEATURES OF THE INCENTIVE PLAN

The material features of the Incentive Plan are outlined below and are qualified
by reference to the terms of the Incentive Plan. The Incentive Plan, as
previously amended, was filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1997. Copies of the Incentive Plan will
be provided to stockholders without charge upon telephone request to (314)
694-4306 or upon written request to Monsanto Company E2ND, 800 N. Lindbergh
Boulevard, St. Louis, Missouri 63167. Copies will also be available at the
Special Meeting.

Authorized Shares. The Incentive Plan Proposal would authorize the use of up to
65,250,000 shares of Company Common Stock (subject to proportional adjustment in
the event of a stock split, stock dividend, spinoff or other change in
capitalization) for grants of non-qualified and incentive stock options, stock
appreciation rights, awards of Company Restricted Stock and bonus stock awards.
Pursuant to the Incentive Plan, the total number of shares available under the
Incentive Plan will be adjusted to reflect the effect of the Spinoff.

Administration. The Incentive Plan is administered by the ECDC, which is
composed of two or more non-employee directors. The ECDC may delegate the
administration of the plan except as it relates to those officers subject to the
reporting requirements of Section 16(a) of the Exchange Act.

Eligible Employees. The ECDC may grant awards under the Incentive Plan to any
employee of the Company or its subsidiaries or associated companies. In February
1997, awards were made to a group of approximately 3,125 management employees.
In any three-year period, the total number of shares for which awards may be
made to any one participant under the Incentive Plan cannot exceed 15% of the
total number of shares for which awards may be made under the Incentive Plan.

Grants in 1996 and 1997. As of April 30, 1997, non-qualified Company Options
have been granted under the Incentive Plan as follows: Mr. Shapiro, 3,022,727,
shares; Mr. De Schutter, 489,102 shares; Mr. Potter, 831,818 shares; Mr. Reding,
832,773 shares; Mr. Verfaillie, 831,818 shares; all current executive officers
as a group, 10,787,004 shares; and all other employees, 23,567,399 shares. These
numbers include Company

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Options granted in 1996 as set forth in the Company Option Grant table. See
"Management of the Company -- Executive Compensation."

Company Options. The ECDC establishes the terms and conditions of the Company
Options granted under the Incentive Plan, subject to certain limitations
specified in the Incentive Plan. Under the Incentive Plan, the exercise price of
any Company Option granted must be no less than the fair market value of the
Company Common Stock at the grant date (or such later date as the ECDC shall
determine). Subsequent repricing of options to decrease the exercise price is
expressly prohibited.

The Incentive Plan permits the ECDC to include various terms in Company Options
in order to enhance the linkage between stockholder and management interests.
These include escalation of the option price over the term of the Company
Option, permitting participants to deliver shares of Company Common Stock in
payment of the exercise price, offering participants the opportunity to elect to
receive a grant of Company Options instead of a salary increase or bonus,
offering participants the opportunity to purchase Company Options, and making
the exercise or vesting of Company Options contingent upon the satisfaction of
performance criteria. The Incentive Plan permits the granting of dividend
equivalent units in connection with Company Option grants; none have been
granted to date under the Incentive Plan.

The Incentive Plan also provides that the term of any Company Option granted may
not exceed ten years and, additionally, may not exceed twelve months following
the termination of employment unless the termination is the result of
retirement, death or disability, provided that employees of the Company who
become employees of Chemicals in conjunction with the Spinoff shall not be
deemed to have terminated their employment for purposes of the Incentive Plan
until they have terminated their employment with Chemicals.

Company Options granted under the Incentive Plan are not transferable except by
will, the laws of descent and distribution, or, in the case of a non-qualified
option, pursuant to a qualified domestic relations order as defined by the Code,
or in circumstances permitted under Section 16 of the Exchange Act. All Company
Options may be exercised during the holder's lifetime only by the holder or the
holder's guardian or legal representative.

Incentive stock options may be granted provided they meet the requirements of
the Code. The Company has not granted, and has no plans to grant, incentive
stock options.

U.S. Tax Consequences of Company Options. No taxable income is realized by the
participant upon the grant of a non-qualified stock option, and no deduction is
then available to the Company. Upon exercise of the option, the excess of the
fair market value of the shares on the date of exercise over the option price
will be taxable to the participant and deductible by the Company. For the
treatment of deductibility with respect to Company Options in the Spinoff, see
"Relationship Between the Company and Chemicals After the Spinoff -- Employee
Benefits Allocation Agreement." The tax basis of shares acquired will be the
fair market value on the date of exercise. For shares held for more than one
year following exercise of the option, the participant will realize long-term
capital gain or loss upon disposition.

No taxable income is realized by a participant, and no tax deduction is
available to the Company, upon either the grant or exercise of an incentive
stock option. If a participant holds the shares acquired upon the exercise of an
incentive stock option for more than one year after the stock option exercise
and more than two years after the date of the option grant (the "holding
period"), the difference between the option price and the amount realized upon
the sale of the shares will be treated as long-term capital gain or loss and no
deduction will be available to the Company. If the shares are transferred before
the expiration of the holding period, the participant will realize ordinary
income, and the Company will be entitled to a deduction on a portion of the
gain, if any, equal to the difference between the option price and the lesser of
the fair market value of the shares on the date of exercise or the amount
realized on the disposition. Any further gain or loss will be taxable as
long-term or short-term capital gain or loss depending upon the holding period
before disposition. For shares held for more than one year, the participant will
realize long-term capital gain or loss upon disposition.

The Company believes that compensation received by participants on the exercise
of non-qualified options or the disposition of shares acquired upon the exercise
of any incentive stock options will be considered performance-based compensation
and thus not subject to the $1 million limit on deductibility of compensation
under Section 162(m) of the Code.

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Participants are responsible for the payment of all withholding taxes due in
connection with the exercise or disposition of a Company Option or the vesting
of a Company Restricted Stock award. The ECDC has provided that all participants
may direct the Company to withhold shares to be issued on an option exercise or
stock award to satisfy the withholding obligation.

Stock Appreciation Rights. The Incentive Plan authorizes the grant of stock
appreciation rights, but only in tandem with Company Options. Any stock
appreciation right granted must be exercisable only to the same extent as the
related Company Options. The Company has no stock appreciation rights currently
outstanding and no present plans to grant any stock appreciation rights.

Restricted and Unrestricted Shares. The Incentive Plan authorizes the ECDC to
use up to one-half of 1% of the outstanding shares (or approximately 2,947,470
shares as of June 27, 1997) for restricted or unrestricted share grants. The
ECDC may set the terms and conditions of Company Restricted Stock awards
including restrictions against sale, transfer or other disposition, and may make
the lapse of such restrictions contingent on the achievement of performance
goals. The ECDC also may grant an award of dividend equivalent units in
connection with a Company Restricted Stock award. In 1996, one award of 15,000
shares of Company Restricted Stock was made to an executive officer of the
Company who was not a Company Named Executive Officer (as defined herein).

Change of Control. The Incentive Plan specifically authorizes the ECDC to take
such action as it determines to be necessary or advisable, and fair and
equitable to participants, with respect to Company Options, stock appreciation
rights and Company Restricted Stock awards in the event of a merger,
consolidation, acquisition, sale or transfer of assets, tender or exchange offer
or other reorganization in which the Company will not survive as an independent,
publicly owned company. Provisions for acceleration of vesting of Company
Options and Company Restricted Stock in connection with a change of control have
been incorporated in grants of Company Options and Company Restricted Stock
grants under the Incentive Plan.

REQUIRED VOTE

To be adopted, the Incentive Plan Proposal requires the affirmative vote of a
majority of the shares present in person or represented by proxy at the Special
Meeting. If the stockholders do not approve the amendment, only shares remaining
in the Incentive Plan will be available for awards.

RECOMMENDATION OF THE COMPANY BOARD

THE COMPANY BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT
INCREASING THE NUMBER OF SHARES OF COMPANY COMMON STOCK AVAILABLE UNDER THE
INCENTIVE PLAN.

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MONSANTO COMPANY AND SUBSIDIARIES

SELECTED HISTORICAL FINANCIAL DATA

The following table summarizes certain selected consolidated financial data of
the Company which has been derived from the Monsanto Company Consolidated
Financial Statements for the five years ended December 31, 1996 and the three
months ended March 31, 1997 and 1996. The consolidated financial data set forth
below includes Chemicals. Following stockholder approval of the Spinoff, the
Company will restate its consolidated financial statements to reflect Chemicals
as a discontinued operation. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Monsanto Company Consolidated Financial
Statements and the Notes thereto incorporated by reference into this Proxy
Statement from the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and the Company's Quarterly Report on Form 10-Q for the three
months ended March 31, 1997. See "Where Stockholders Can Find Additional
Information." In the opinion of management of the Company, the unaudited
consolidated financial statements at March 31, 1997 and 1996 and for the three
months ended March 31, 1997 and 1996 contain all adjustments necessary to
present fairly the financial position, results of operations and cash flows for
such interim periods. Financial information for the first quarter of 1997 should
not be annualized. The Company's sales and operating income are historically
higher during the first half of the year, primarily because of the concentration
of generally more profitable sales from the agricultural products segment in the
first half of the year.

[Enlarge/Download Table]

EARNINGS PER SHARE: (9) and (10)
Income (loss) from continuing
operations.................... $ 0.45 $ 0.43 $ 0.64 $ 1.27 $ 1.06 $ 0.82 $(0.20)
Net income...................... 0.45 0.43 0.64 1.27 1.06 0.82 (0.14)

OTHER STATISTICS:
Total assets.................... $12,122 $11,062 $11,191 $10,611 $8,891 $8,640 $9,085
Capital expenditures............ 157 133 692 500 409 437 586
Depreciation and amortization... 148 146 590 598 561 572 765
Interest expense................ 43 40 171 190 131 129 169
Long-term debt.................. 1,552 1,630 1,608 1,667 1,405 1,502 1,423
Short-term debt (11)............ 1,773 971 654 365 312 223 257
Dividends per share (9)......... 0.150 0.138 0.588 0.540 0.494 0.460 0.440

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(3) Net income for 1994 included a net aftertax loss for restructuring and
other unusual items of $1 million, or less than $0.01 per share.

(4) Net income for 1993 included a net aftertax gain for restructuring and
other unusual items of $15 million, or $0.02 per share.

(5) Loss from continuing operations and net loss for 1992 included a net
aftertax loss for restructuring and other unusual items of $472 million, or
$0.76 per share.

(7) Discontinued operations relate to the Company's Fisher Controls business
which was sold in October 1992.

(8) In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting
for Income Taxes," and, as a result, recorded a net aftertax charge of $540
million as a cumulative effect of accounting changes.

(9) Per share amounts were restated to reflect the May 1996 five-for-one stock
split.

[Download Table]

FOR THE THREE
MONTHS ENDED MARCH FOR THE YEARS
31, ENDED DECEMBER 31,
------------------ ------------------
1997 1996 1996 1995
----- ----- ----- -----

Basic earnings per share................. $0.47 $0.45 $0.66 $1.30
Diluted earnings per share............... $0.45 $0.43 $0.64 $1.27

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CHEMICALS SPINCO

SELECTED HISTORICAL FINANCIAL DATA

The following table summarizes certain selected combined financial data of
Chemicals which has been derived from the Chemicals SpinCo Combined Financial
Statements for the five years ended December 31, 1996 and the three months ended
March 31, 1997 and 1996. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Chemicals" and the Chemicals SpinCo Combined
Financial Statements and the Notes thereto included in this Proxy Statement. The
historical financial information may not be indicative of Chemicals future
performance and does not necessarily reflect what the financial position and
results of operations of the Company would have been had the Company operated as
a separate, stand-alone entity during the periods covered. Per share data for
dividends has not been presented for the historical information as Chemicals was
not a publicly held company during the periods presented below. In the opinion
of management of the Company, the unaudited combined financial statements at
March 31, 1997 and 1996 and for the three months ended March 31, 1997 and 1996
contain all adjustments necessary to present fairly the financial position,
results of operations and cash flows for such interim periods. Results for the
first quarter of 1997 may not be indicative of results for the entire fiscal
year.

[Enlarge/Download Table]

FOR THE
THREE MONTHS
ENDED
OR AS OF MARCH FOR THE YEARS
31, ENDED OR AS OF DECEMBER 31,
---------------- ----------------------------------------------
(UNAUDITED) (UNAUDITED)
---------------- ----------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS)

OPERATING RESULTS:
Net sales(1)........................ $ 719 $ 705 $2,977 $2,964 $3,097 $3,028 $3,022
Operating income(2)................. 95 56 33 258 256 300 30
Other income(expense)............... 13 5 36 9 1 8 (11)
Income (loss) before income taxes... 99 53 33 231 228 290 (10)
Net income (loss)(3)................ 65 36 32 147 149 192 (6)
OTHER STATISTICS:
Total assets........................ $2,532 $2,524 $2,483 $2,462 $2,435 $2,491 $2,543
Capital expenditures................ 38 45 192 179 187 179 229
Depreciation and amortization....... 45 44 166 162 219 224 262
Intercompany charges................ 12 17 85 72 69 61 77
Interest expense(4)................. 9 8 36 36 29 19 29
Long-term debt(4)................... 0 0 0 0 0 0 0

---------------
(1) Net sales for Chemicals included $140 million in 1995, $400 million in 1994,
$407 million in 1993 and $419 million in 1992 for its rubber chemicals
business. In May 1995, this business was contributed to the Flexsys joint
venture between the Company and Akzo Nobel. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Chemicals."

(2) Operating income includes charges (credits) for restructuring and other
unusual items of $10 million in the three months ended March 31, 1997 and
$248 million, $46 million, $34 million, $(43) million and $150 million in
the years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
The 1996 charges are associated with the closure or sale of certain
facilities, asset write-offs and workforce reductions. In addition,
operating income in 1993 and 1992 includes $25 million and $12 million,
respectively, for Chemicals' rubber chemicals business. Operating income for
this business was not significant in 1994 and 1995.

(3) In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for
Post-retirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting
for Income Taxes," and, as a result, recorded a net aftertax charge of $540
million as a cumulative effect of accounting changes. This net charge was
not allocated to Chemicals.

(4) The Company uses a centralized approach to cash management and the financing
of its operations. As a result, cash and cash equivalents and debt were not
allocated to Chemicals in the historical financial statements. Interest
expense has been allocated to Chemicals in the combined financial statements
to reflect Chemicals' pro rata share of the financing structure of the
Company. See Note 1 to the Chemicals SpinCo Combined Financial Statements.

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MONSANTO COMPANY AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 1997 AND DECEMBER 31, 1996

The following unaudited pro forma condensed consolidated statement of financial
position as of March 31, 1997 and the unaudited pro forma condensed consolidated
statement of income for the three months ended March 31, 1997 and for the year
ended December 31, 1996 give effect to the Spinoff. The pro forma condensed
consolidated statement of financial position is presented as if the Spinoff had
occurred on March 31, 1997, and the pro forma condensed consolidated statement
of income is presented as if the Spinoff had occurred as of the beginning of the
periods presented. "The Company Restated" amounts show the effects on reported
results of operations and financial position of the Company assuming the
proposed Spinoff was consummated and, as a result, the Chemicals Business is
reported as discontinued operations. These financial statements are presented on
a pro forma basis pending the occurrence of the event that would establish the
measurement date for treatment of the Chemicals Business as discontinued
operations, namely the approval of the Spinoff by the Company's stockholders.
"The Company Adjusted" amounts represent the estimated effect on reported
results of operations and financial position of the Company of various
agreements which will govern ongoing relationships between the Company and
Chemicals after the Spinoff. See "Relationships Between the Company and
Chemicals After the Spinoff." The pro forma information is presented for
illustrative purposes only and may not be indicative of the results that would
have been obtained had the Spinoff actually occurred on the dates assumed nor is
it necessarily indicative of the future consolidated results of operations.

The pro forma condensed consolidated financial statements should be read in
conjunction with the historical financial statements and the related notes
thereto of the Company incorporated by reference into this Proxy Statement from
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
and the Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997. See "Where Stockholders Can Find Additional Information."

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MONSANTO COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED

[Enlarge/Download Table]

THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
----------------------------------------------------------------- --------------------------
DISCONTINUED OPERATIONS(A)
----------------------------------------- THE THE
THE ADDITIONS COMPANY ADDITIONS COMPANY
COMPANY CHEMICALS (DEDUCTIONS) SUBTOTAL RESTATED (DEDUCTIONS) ADJUSTED
------- ------------ ------------ -------- ----------- ------------ --------

NET SALES................... $ 2,574 $ 719 $ (20)(B) $ 699 $ 1,875 $ 1,875
Cost of goods sold.......... 1,321 543 (20)(B) 523 798 $ (2)(H) 795
(1)(C) (1)(I)
1(D)
------ ---- ---- ---- ------ ---- ------
Gross profit................ 1,253 176 176 1,077 3 1,080
Marketing, administrative
and technological
expenses.................. 730 81 (7)(C) 81 649 (1)(H) 648
7(D)
Acquired in-process research
and development........... 101 101 101
Amortization of intangible
assets.................... 36 36 36
------ ---- ---- ---- ------ ---- ------
OPERATING INCOME............ 386 95 95 291 4 295
Interest expense............ (43) (9) (6)(F) (15) (28) (28)
Interest income............. 11 11 11
Other income -- net......... 40 13 13 27 27
------ ---- ---- ---- ------ ---- ------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES..................... 394 99 (6) 93 301 4 305
Income taxes................ 120 34 (2)(G) 32 88 2(J) 90
------ ---- ---- ---- ------ ---- ------
INCOME FROM CONTINUING
OPERATIONS................ 274 65 (4) 61 213 2 215
INCOME FROM DISCONTINUED
OPERATIONS................ 61 (61) --
------ ------ ---- ------
NET INCOME.................. $ 274 $ 274 $ (59) $ 215
====== ====== ==== ======
Earnings per share:
Continuing operations..... $ 0.35 $ 0.36
Discontinued operations... 0.10 --
------ ------
Total............. $ 0.45 $ 0.36
====== ======
Weighted average number of
shares used in the
calculation of earnings
per share................. 602.6 602.6
====== ======

See Notes to Pro Forma Condensed Consolidated Financial Statements.

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MONSANTO COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED

[Enlarge/Download Table]

YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
------------------------------------------------------------- -------------------------
DISCONTINUED OPERATIONS(A)
---------------------------------------- THE THE
THE ADDITIONS COMPANY ADDITIONS COMPANY
COMPANY CHEMICALS (DEDUCTIONS) SUBTOTAL RESTATED (DEDUCTIONS) ADJUSTED
------- ------------ ------------ -------- -------- ------------ --------

NET SALES...................... $ 9,262 $2,977 $ (63)(B) $ 2,914 $ 6,348 $ 6,348
Cost of goods sold............. 4,918 2,325 (63)(B) 2,260 2,658 $(10)(H) 2,645
(5)(C) (3)(I)
3(D)
------ ------ ---- ------ ------ ---- ------
Gross profit................... 4,344 652 2 654 3,690 13 3,703
Marketing, administrative and
technological expenses....... 2,964 427 (59)(C) 382 2,582 (2)(H) 2,580
14(D)
Amortization of intangible
assets....................... 151 151 151
Restructuring expenses and
other special
charges -- net............... 632 192 84(E) 276 356 356
------ ------ ---- ------ ------ ---- ------
OPERATING INCOME............... 597 33 (37) (4) 601 15 616
Interest expense............... (171) (36) (16)(F) (52) (119) (119)
Interest income................ 51 51 51
Other income -- net............ 63 36 36 27 27
------ ------ ---- ------ ------ ---- ------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES........................ 540 33 (53) (20) 560 15 575
Income taxes................... 155 1 12(G) 13 142 6(J) 148
------ ------ ---- ------ ------ ---- ------
INCOME FROM CONTINUING
OPERATIONS................... 385 32 (65) (33) 418 9 427
LOSS FROM DISCONTINUED
OPERATIONS................... (33) 33 --
------ ------ ---- ------
NET INCOME..................... $ 385 $ 385 $ 42 $ 427
====== ====== ==== ======
Earnings (Loss) per share:
Continuing operations........ $ 0.70 $ 0.71
Discontinued operations...... (0.06) --
------ ------
Total................ $ 0.64 $ 0.71
====== ======
Weighted average number of
shares used in the
calculation of earnings per
share........................ 598.9 598.9
====== ======

See Notes to Pro Forma Condensed Consolidated Financial Statements.

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MONSANTO COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF MARCH 31, 1997
(IN MILLIONS)
UNAUDITED

[Enlarge/Download Table]

HISTORICAL PRO FORMA
-------------------------------------- ----------------------------
LESS THE COMPANY ADDITIONS THE COMPANY
THE COMPANY CHEMICALS(K) RESTATED (DEDUCTIONS) ADJUSTED
----------- ------------ ----------- ----------- -----------

ASSETS
Cash and cash equivalents........... $ 106 $ 106 $ (75)(L) $ 31
Trade receivables................... 2,583 $ 430 2,153 2,153
Miscellaneous receivables and
prepaid expenses.................. 508 73 435 (8)(M) 427
Deferred income tax benefit......... 406 106 300 (2)(M) 304
6 (N)
Inventories......................... 1,563 321 1,242 (7)(M) 1,235
------- ------ ------ ------- ------
TOTAL CURRENT ASSETS.............. 5,166 930 4,236 (86) 4,150
------- ------ ------ ------- ------
Net property........................ 3,117 906 2,211 (50)(M) 2,161
Investments in affiliates........... 627 378 249 39 (M) 288
Intangible assets................... 2,168 2,168 2,168
Other assets........................ 1,044 318 726 (107)(O) 616
(13)(M)
10 (N)
------- ------ ------ ------- ------
TOTAL ASSETS........................ $12,122 $2,532 $ 9,590 $ (207) $ 9,383
======= ====== ====== ======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................... $ 694 $ 212 $ 482 $ (8)(M) $ 474
Accrued liabilities................. 1,776 434 1,342 (7)(M) 1,308
(19)(O)
(8)(N)
Short-term debt..................... 1,773 1,773 (1,000)(P) 773
------- ------ ------ ------- ------
TOTAL CURRENT LIABILITIES......... 4,243 646 3,597 (1,042) 2,555
------- ------ ------ ------- ------
Long-term debt...................... 1,552 1,552 (30)(P) 1,522
Post-retirement liabilities......... 1,522 628 894 (262)(O) 632
Deferred income taxes and other
liabilities....................... 978 407 571 571
Stockholders' equity................ 3,827 851 2,976 1,127 (Q) 4,103
------- ------ ------ ------- ------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................ $12,122 $2,532 $ 9,590 $ (207) $ 9,383
======= ====== ====== ======= ======

See Notes to Pro Forma Condensed Consolidated Financial Statements.

DEFS14A 58th Page of 156 TOC 1st Previous Next ↓Bottom Just 58th

MONSANTO COMPANY AND SUBSIDIARIES

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 1997 AND DECEMBER 31, 1996
UNAUDITED

(A) The "Discontinued Operations" columns in the unaudited pro forma condensed
consolidated statements of income represent the historical results of
operations of the Chemicals Business plus the effects of certain
adjustments, which are reasonable in the opinion of the Company's
management, to properly present such results as discontinued operations.
For the historical information see Chemicals SpinCo Combined Statements of
Income for the three months ended March 31, 1997 on page F-21 and for the
year ended December 31, 1996 on page F-3.

(B) To account for intercompany sales and costs from Chemicals to the Company.
These sales and costs were eliminated in the Company's consolidated
financial statements, but are included in Chemicals' historical financial
results and must be added back to properly reflect the Company's sales to
external parties after the Spinoff.

(C) To reverse the historical Company corporate allocation net of estimated
corporate costs retained by Chemicals after the Spinoff because Chemicals
will no longer be subject to the allocation of corporate expenses from the
Company after the Spinoff. For purposes of the historical Chemicals
financial statements such expenses were allocated on the basis of the net
capital employed by the Chemicals Business. For the three months ended
March 31, 1997 and the year ended December 31, 1996, $12 million and $85
million, respectively, of such expenses were allocated to Chemicals. The
estimated portions of such corporate costs directly attributable to
Chemicals were $5 million and $21 million, respectively, for the three
months ended March 31, 1997 and the year ended December 31, 1996.

(D) To record the assumed reduction in retiree medical and pension costs as a
result of the Spinoff. For the purpose of the Chemicals historical
financial statements, the annual costs for retiree medical and pension
liabilities generally have been allocated based upon the percentage of
payroll costs to the total Company payroll costs. In connection with the
Spinoff, Chemicals will assume retiree medical liabilities for its active
employees and former employees who last worked at a Chemicals facility. In
addition, in connection with the Spinoff, Chemicals will assume the U.S.
pension liabilities, and receive related assets, for its active employees
and for certain former employees of Chemicals who left the Company in
earlier years. The amount of these liabilities to be assumed by Chemicals
is greater than the amounts allocated historically. As a result, pension
and postretirement liabilities and costs for the Company will further
decrease after the Spinoff. See "Relationship Between the Company and
Chemicals After the Spinoff -- Employee Benefits Allocation Agreement."

(E) To exclude from continuing operations the exit costs incurred by the
Company prior to stockholder approval to separate the Chemicals Business.
Upon receipt of stockholder approval of the Spinoff, the Company will
restate its consolidated financial statements to reflect Chemicals as a
discontinued operation. These exit costs will be classified with
discontinued operations. The exit costs were not tax effected.

(F) To record additional interest expense allocated to discontinued operations
as a result of Chemicals' assumption of $1.03 billion of indebtedness
primarily assumable commercial paper. The weighted average short-term
commercial paper interest rates for the Company for the three months ended
March 31, 1997 and the year ended December 31, 1996, were 5.65% and 5.35%,
respectively. See "The Spinoff Proposal -- Financing."

(G) To record the estimated provision for income tax as a result of the pro
forma adjustments referred to in Notes (B) through (D) and (F) above at an
estimated combined U.S. federal and state income tax rate of 38%.

(H) To record the estimated effect of new selling prices and arrangements on
former intercompany sales from Chemicals to the Company and the effect of
continuing service agreements. Chemicals will sell

DEFS14A 59th Page of 156 TOC 1st Previous Next ↓Bottom Just 59th

certain products to the Company under arms-length long-term contracts with
formula-based or market-based pricing mechanisms. Chemicals will also act
as the agent for Life Sciences in purchasing additional quantities of one
of these products. The net effect of these changes in supply arrangements
and prices is to reduce the Company's cost of goods sold. See "Relationship
Between the Company and Chemicals After the Spinoff -- Raw Material Supply
Agreements" and "-- Operating Agreements."

(I) To record the estimated effect of transactions with the P4 Joint Venture.
The amounts reflect assumed accrued expenses for option fee payments from
the Company to Chemicals for the three months ended March 31, 1997 and the
year ended December 31, 1996, of $0.5 million and $2 million, respectively.
These amounts are offset by assumed payments from Chemicals to the Company
of $1.5 million and $5 million for the three months ended March 31, 1997
and the year ended December 31, 1996, respectively, for premiums related to
production taken over certain specified levels. See "Relationship Between
the Company and Chemicals After the Spinoff -- P4 Joint Venture."

(J) To record the estimated provision for income tax as a result of the pro
forma adjustments referred to in Notes (H) and (I) above at an estimated
combined U.S. federal and state income tax rate of 38%.

(K) To eliminate the historical assets, liabilities and equity of Chemicals as
of March 31, 1997. For the historical information, see the Chemicals SpinCo
Statement of Combined Financial Position as of March 31, 1997, included in
this Proxy Statement.

(L) To record the assumed contribution of $75 million in cash to Chemicals. See
"Relationship Between the Company and Chemicals After the
Spinoff -- Distribution Agreement."

(M) To record the transfer of certain assets and liabilities to, and to record
the Company's 60% investment in, the P4 Joint Venture. This venture will be
accounted for as an equity affiliate by the Company. The remaining 40%
interest will be contributed to Chemicals in connection with the Spinoff.
See "Relationship Between the Company and Chemicals After the Spinoff -- P4
Joint Venture."

(N) To record the increase in the Company's deferred tax assets resulting from
Chemicals' having an estimated combined statutory U.S. federal and state
income tax rate of 36%, which is less than the Company's estimated combined
statutory U.S. federal and state income tax rate of 38%. In addition, this
adjustment records the assumption by Chemicals of certain tax liabilities
in accordance with the tax sharing agreement. See "Relationship Between the
Company and Chemicals After the Spinoff -- Tax Sharing and Indemnification
Agreement."

(O) To record the assumption of additional postretirement liabilities,
principally for retiree medical and pensions, by Chemicals and to eliminate
the related deferred tax asset. See "Relationship Between the Company and
Chemicals After the Spinoff -- Employee Benefits Allocation Agreement." See
Note (D) above for additional information.

(P) To record the assumption of $1.03 billion of debt by Chemicals, principally
assumable commercial paper, from the Company. See "The Spinoff
Proposal -- Financing."

(Q) To record the effect on stockholders' equity related to the pro forma
adjustments referred to in Notes (L), (M), (N), (O) and (P) above as
follows (in millions of dollars):

[Download Table]

Transfer of debt................................................ $1,030
Contribution of cash............................................ (75)
Contribution of 40% interest in P4 Joint Venture................ (26)
Effect of Chemicals' assumed lower state tax rates on deferred
tax balances and transfer of certain tax liabilities.......... 24
Assumption of additional post-retirement liabilities (net of
deferred tax benefit of $107)................................. 174
------
$1,127
======

DEFS14A 60th Page of 156 TOC 1st Previous Next ↓Bottom Just 60th

MONSANTO COMPANY AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994

The following unaudited pro forma condensed consolidated statements of income
for the years ended December 31, 1995 and 1994 show the effects on reported
results of operations of the Company of assuming the proposed Spinoff was
consummated and, as a result, the results of operations of Chemicals are
presented as discontinued operations. These income statements are presented on a
pro forma basis pending the occurrence of the event that would establish the
measurement date for treatment of Chemicals as discontinued operations, namely
approval by the Company's stockholders.

The unaudited pro forma condensed consolidated statements of income should be
read in conjunction with the historical financial statements and the related
notes thereto of the Company incorporated by reference into this Proxy Statement
from the Company's Annual Report on Form 10-K for the year ended December 31,
1996. See "Where Stockholders Can Find Additional Information." The unaudited
pro forma condensed consolidated statements of income are not necessarily
indicative of the results that actually would have occurred if the Spinoff had
been consummated or of the results which may be attained in the future.

DEFS14A 61st Page of 156 TOC 1st Previous Next ↓Bottom Just 61st

MONSANTO COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED

[Enlarge/Download Table]

YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------------------------------------
DISCONTINUED OPERATIONS(A)
---------------------------------------------------------
STYRENICS THE
THE PLASTICS ADDITIONS COMPANY
COMPANY CHEMICALS BUSINESS(B) (DEDUCTIONS) SUBTOTAL RESTATED(C)
------- ------------ ----------- ------------ --------- -----------

NET SALES................. $8,962 $2,964 $ 663 $ (75)(D) $ 3,552 $ 5,410
Cost of goods sold........ 5,109 2,243 577 (75)(D) 2,722 2,387
1 (E)
(24)(F)
------ ------ ---- ----- ------ ------
GROSS PROFIT.............. 3,853 721 86 23 830 3,023
Marketing, administrative
and technological
expenses................ 2,593 410 74 6 (E) 465 2,128
(25)(F)
Amortization of intangible
assets.................. 119 119
Restructuring expenses and
other special charges
-- net................. 156 53 (11)(G) 42 114
------ ------ ---- ----- ------ ------
OPERATING INCOME.......... 985 258 12 53 323 662
Interest expense.......... (190) (36) (17)(H) (53) (137)
Interest income........... 59 59
Gain on sale of styrenics
plastics business....... 189 189 (I) 189
Other income (expense) --
net..................... 44 9 (4) 5 39
------ ------ ---- ----- ------ ------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES................... 1,087 231 8 225 464 623
Income taxes.............. 348 84 3 86 (J) 173 175
------ ------ ---- ----- ------ ------
INCOME FROM CONTINUING
OPERATIONS.............. 739 147 5 139 291 448
INCOME FROM DISCONTINUED
OPERATIONS.............. 291
------ ------
NET INCOME................ $ 739 $ 739
====== ======
Earnings per share:
Continuing operations... $ 0.77
Discontinued
operations........... 0.50
------
Total........... $ 1.27
======
Weighted average number of
shares used in the
calculation of earnings
per share............... 580.6
======

See Notes to Pro Forma Condensed Consolidated Financial Statements.

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MONSANTO COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED

[Enlarge/Download Table]

YEAR ENDED DECEMBER 31, 1994
-------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------------------------------
CHEMICALS DISCONTINUED OPERATIONS(A)
------------------------------------------------------
STYRENICS THE
THE PLASTICS ADDITIONS COMPANY
COMPANY CHEMICALS BUSINESS(B) (DEDUCTIONS) SUBTOTAL RESTATED(C)
------- ------------ ----------- ------------ -------- ------

NET SALES....................... $8,272 $3,097 $ 576 $ (80)(D) $3,593 $4,679
Cost of goods sold.............. 4,774 2,368 490 (80)(D) 2,780 1,994
2(E)
------ ------ ---- ----- ------ ------
GROSS PROFIT.................... 3,498 729 86 (2) 813 2,685
Marketing, administrative and
technological expenses........ 2,454 439 71 (35)(F) 484 1,970
9(E)
Amortization of intangible
assets........................ 81 81
Restructuring expenses and other
special charges -- net........ 40 34 34 6
------ ------ ---- ----- ------ ------
OPERATING INCOME................ 923 256 15 24 295 628
Interest expense................ (131) (29) (6)(H) (35) (96)
Interest income................. 81 81
Other income (expense) -- net... 22 1 (11) 11(F) 1 21
------ ------ ---- ----- ------ ------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES......................... 895 228 4 29 261 634
Income taxes.................... 273 79 2 11(J) 92 181
------ ------ ---- ----- ------ ------
INCOME FROM CONTINUING
OPERATIONS.................... 622 149 2 18 169 453
INCOME FROM DISCONTINUED
OPERATIONS.................... 169
------ ------
NET INCOME...................... $ 622 $ 622
====== ======
Earnings per share:
Continuing operations......... $ 0.77
Discontinued operations....... 0.29
------
Total................. $ 1.06
======
Weighted average number of
shares used in the calculation
of earnings per share......... 584.9
======

See Notes to Pro Forma Condensed Consolidated Financial Statements.

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MONSANTO COMPANY AND SUBSIDIARIES

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 UNAUDITED

(A) The "Discontinued Operations" columns in the unaudited pro forma condensed
consolidated statements of income represent the historical results of
operations of the Chemicals Business plus the effects of certain
adjustments, which are reasonable in the opinion of the Company's
management, to properly present such results as discontinued operations. For
historical information see Chemicals SpinCo Combined Statement of Income for
the years ended December 31, 1995 and 1994 included in this Proxy Statement.

(B To reclassify the historical sales, expenses and income tax provision of
the styrenics plastics business to discontinued operations. In December
1995, the Company sold its worldwide styrenics plastics business. In a
separate but related transaction, the Company sold its shares in Monsanto
Premier Kasei Co. Ltd., a styrenics plastics manufacturing joint venture in
Thailand, to one of its joint venture partners. As a result of these
transactions, the Company received $580 million, which resulted in a pretax
gain of $189 million. The styrenics plastics business was included with
Chemicals in the Company's segment reporting for periods prior to 1996, but
is not included in the Chemicals historical financial statements included
in this Proxy Statement.

(D) To account for intercompany sales and costs from Chemicals to the Company.
These sales and costs were eliminated in the Company's consolidated
financial statements, but are included in Chemicals' historical financial
results and must be added back to properly reflect the Company's sales to
external parties after the Spinoff.

(E) To record the assumed reduction in retiree medical and pension costs as a
result of the Spinoff. For the purpose of the Chemicals historical
financial statements, the annual costs for retiree medical and pension
liabilities have been allocated generally based upon the percentage of
payroll costs to the total Company payroll costs. In connection with the
Spinoff, Chemicals will assume retiree medical liabilities for its active
employees and former employees who last worked at a Chemicals facility. In
addition, in connection with the Spinoff, Chemicals will assume the U.S.
pension liabilities, and receive related assets, for its active employees
and for certain former employees of Chemicals who left the Company in
earlier years. The amount of these liabilities to be assumed by Chemicals
is significantly greater than the amounts allocated historically. As a
result, pension and postretirement liabilities and costs for the Company
will further decrease after the Spinoff. See "Relationship Between the
Company and Chemicals After the Spinoff -- Employee Benefits Allocation
Agreement."

(F) To reverse the historical Company corporate allocation to Chemicals
included in the Chemicals historical financial statements net of estimated
corporate costs retained by Chemicals after the Spinoff because Chemicals
will no longer be subject to the allocation of corporate expenses from the
Company after the Spinoff. For purposes of the historical Chemicals
financial statements, such expenses were allocated on the basis of the net
capital employed by Chemicals. For 1995 and 1994, $72 million and $69
million, respectively, of such expenses were allocated to Chemicals. The
estimated portion of such corporate costs directly attributable to
Chemicals was $23 million for 1995 and 1994.

(G) To reverse the historical Company corporate allocation of restructuring
expenses included in the Chemicals historical financial statements. For
purposes of the historical Chemicals financial statements, such expenses
were allocated on the basis of the net capital employed by the Chemicals
Business.

(H) To record additional interest expense allocated to discontinued operations
as a result of Chemicals' assumption of $1.03 billion of indebtedness. For
purposes of the historical Chemicals financial statements, the Company's
consolidated interest expense was allocated based on the percentage
relationship between the net assets utilized in the Chemicals operations and
the Company's net assets. See "The Spinoff Proposal -- Financing."

(I) To reclassify the pretax gain from the sale of the styrenics business to
discontinued operations. See Note (B) above.

(J) To record the estimated provision for income tax as a result of the
historical adjustments referred to in Notes (D) through (I) above at an
estimated combined U.S. federal and state income tax rate of 38%.

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CHEMICALS SPINCO

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined statement of financial
position as of March 31, 1997 and the unaudited pro forma condensed combined
statement of income for the three months ended March 31, 1997 and for the year
ended December 31, 1996 give effect to Chemicals as a stand-alone entity. The
pro forma condensed combined statement of financial position is presented as if
the Spinoff had occurred on March 31, 1997, and the pro forma condensed combined
statement of income is presented as if the Spinoff had occurred as of the
beginning of the periods presented. The pro forma information is presented for
illustrative purposes only and may not be indicative of the results that would
have been obtained had the transactions actually occurred on the dates assumed,
nor is it necessarily indicative of the future combined results of operations.

The pro forma condensed combined financial statements should be read in
conjunction with the historical financial statements and the related notes
thereto of Chemicals SpinCo included in this Proxy Statement.

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CHEMICALS SPINCO

PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED

[Enlarge/Download Table]

THREE MONTHS ENDED MARCH 31, 1997
------------------------------------
HISTORICAL PRO FORMA
--------- -------------------------
CHEMICALS ADJUSTMENTS CHEMICALS
--------- ----------- ---------

NET SALES...................................................... $ 719 $ (4)(A) $ 715
Cost of goods sold............................................. 543 1(B) 542
1(C)
(3)(D)
--------- ----------- ---------
GROSS PROFIT................................................... 176 (3) 173
Marketing, administrative and technological expenses........... 81 7(B) 91
(9)(D)
12(E)
--------- ----------- ---------
OPERATING INCOME............................................... 95 (13) 82
Interest expense............................................... (9) (6)(F) (15)
Other income -- net............................................ 13 13
--------- ----------- ---------
INCOME BEFORE INCOME TAXES..................................... 99 (19) 80
Income taxes................................................... 34 (7)(G) 27
--------- ----------- ---------
NET INCOME..................................................... $ 65 $ (12) $ 53
======= ========= =======
EARNINGS PER SHARE............................................. $ 0.54 $ 0.44
======= =======
Shares used in the calculation of earnings per share(1)........ 120.5 120.5
======= =======

---------------

(1) Based on the Distribution Ratio of one share of Chemicals Common Stock for
every five shares of Company Common Stock.

See Notes to Pro Forma Condensed Combined Financial Statements.

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CHEMICALS SPINCO

PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED

[Enlarge/Download Table]

YEAR ENDED DECEMBER 31, 1996
--------------------------------------
HISTORICAL PRO FORMA
--------- -------------------------
CHEMICALS ADJUSTMENTS CHEMICALS
--------- ----------- ---------

NET SALES.................................................... $ 2,977 $ (15)(A) $ 2,962
Cost of goods sold........................................... 2,325 3 (B) 2,313
3 (C)
(18)(D)
--------- ----------- ---------
GROSS PROFIT................................................. 652 (3) 649
Marketing, administrative and technological expenses......... 427 14 (B) 420
(67)(D)
46 (E)
Restructuring expenses....................................... 192 192
--------- ----------- ---------
OPERATING INCOME(1).......................................... 33 4 37
Interest expense............................................. (36) (21)(F) (57)
Other income -- net.......................................... 36 36
--------- ----------- ---------
INCOME BEFORE INCOME TAXES................................... 33 (17) 16
Income taxes................................................. 1 (6)(G) (5)
--------- ----------- ---------
NET INCOME................................................... $ 32 $ (11) $ 21
======= ========= =======
EARNINGS PER SHARE........................................... $ 0.27 $ 0.18
======= =======
Shares used in the calculation of earnings per share(2)...... 119.8 119.8
======= =======

---------------

(1) Chemicals' historical operating income in 1996 was negatively affected by
restructuring and other unusual charges which totaled $248 million. For a
description of these charges, see Note 4 to the Chemicals SpinCo Combined
Financial Statements.

(2) Based on the Distribution Ratio of one share of Chemicals Common Stock for
every five shares of Company Common Stock.

See Notes to Pro Forma Condensed Combined Financial Statements.

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CHEMICALS SPINCO

PRO FORMA STATEMENT OF CONDENSED COMBINED FINANCIAL POSITION
AS OF MARCH 31, 1997
(IN MILLIONS)
UNAUDITED

[Enlarge/Download Table]

HISTORICAL PRO FORMA
------------ ---------------------------
CHEMICALS ADJUSTMENTS CHEMICALS
------------ ----------- ---------

ASSETS
Cash and cash equivalents............................. $ 75(H) $ 75
Trade receivables..................................... $ 430 430
Miscellaneous receivables and prepaid expenses........ 73 73
Deferred income tax benefit........................... 106 (6)(I) 100
Inventories........................................... 321 321
------------ ----------- ---------
TOTAL CURRENT ASSETS............................. 930 69 999
------------ ----------- ---------
Net property, plant and equipment..................... 906 906
Investment in affiliates.............................. 378 26(J) 404
Other assets.......................................... 318 100(K) 408
(10)(I)
------------ ----------- ---------
TOTAL ASSETS.......................................... $2,532 $ 185 $ 2,717
========== ========= =======

LIABILITIES AND MONSANTO COMPANY EQUITY
Accounts payable...................................... $ 212 $ 212
Accrued liabilities................................... 434 $ 19(K) 461
8(I)
------------ ----------- ---------
TOTAL CURRENT LIABILITIES........................ 646 27 673
------------ ----------- ---------
Long-term debt........................................ 1,030(L) 1,030
Post-retirement liabilities........................... 628 262(K) 890
Other liabilities..................................... 407 407
Monsanto Company equity (deficit)..................... 851 75(H) (283)
(24)(I)
26(J)
(1,030)(L)
(181)(M)
------------ ----------- ---------
TOTAL LIABILITIES AND MONSANTO COMPANY EQUITY
(DEFICIT)........................................... $2,532 $ 185 $ 2,717
========== ========= =======

See Notes to Pro Forma Condensed Combined Financial Statements.

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CHEMICALS SPINCO

NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
UNAUDITED

(A) To record the estimated effect of new selling prices and arrangements on
former intercompany sales from Chemicals to the Company. Chemicals will
sell certain products to the Company under arms-length long-term contracts
with formula-based or market-based pricing mechanisms. Chemicals will also
act as the agent for Life Sciences in purchasing additional quantities of
one of these products. The net effect of these changes in supply
arrangements and prices is to reduce the overall net sales of Chemicals.
See "Relationship Between the Company and Chemicals After the
Spinoff -- Raw Material Supply Agreements."

(B) To record the assumed increase in retiree medical and pension costs as a
result of the Spinoff. For the purpose of the Chemicals historical
financial statements, the annual costs for retiree medical and pension
liabilities have been allocated generally based upon the percentage of
payroll costs to total Company payroll costs. In connection with the
Spinoff, Chemicals will assume retiree medical liabilities for its active
employees and former employees who last worked at a Chemicals facility. In
addition, in connection with the Spinoff, Chemicals will assume the U.S.
pension liabilities, and receive related assets, for its active employees
and for certain former employees of Chemicals who left the Company in
earlier years. The amount of these liabilities to be assumed by Chemicals
is significantly greater than the amounts allocated historically. As a
result pension and post-retirement costs for Chemicals will increase
significantly after the Spinoff. See "Relationship Between the Company and
Chemicals After the Spinoff -- Employee Benefits Allocation Agreement."

(C) To record the estimated effect of transactions with the P4 Joint Venture.
The amounts reflect assumed payments from Chemicals to the Company of $1.5
million and $5 million, for the three months ended March 31, 1997 and the
year ended December 31, 1996, respectively, for premiums related to
production taken over certain specified levels. These amounts are offset by
assumed accrued income for option fee payments from the Company to
Chemicals for the three months ended March 31, 1997 and the year ended
December 31, 1996, of $0.5 million and $2 million, respectively. See
"Relationship Between the Company and Chemicals After the Spinoff -- P4
Joint Venture."

(D) To reverse the historical Company corporate expense allocation to Chemicals
because Chemicals will no longer be subject to the allocation of corporate
expenses from the Company after the Spinoff. The allocated corporate
expenses include, among other items, executive administration, the
Company's business and organizational development initiatives, and the cost
of corporate incentives. For purposes of the historical Chemicals financial
statements, such expenses were allocated on the basis of the net capital
employed by the Chemicals Business. For the three months ended March 31,
1997 and the year ended December 31, 1996, $12 million and $85 million,
respectively, of such expenses were allocated to Chemicals.

(E) Because Chemicals will no longer be subject to the allocation of corporate
expenses from the Company after the Spinoff, a pro forma adjustment was
made to record estimated general corporate costs that Chemicals believes it
would have incurred had Chemicals been a separate public company for the
periods presented.

(F) To record additional interest expense as a result of the assumption of debt
by Chemicals from the Company. The interest rates used for the three months
ended March 31, 1997 and the year ended December 31, 1996, were 5.85% and
5.70%, respectively, and are based on weighted average short-term
commercial paper rates consistent with Chemicals' expected commercial paper
rating of A2/P2. See "The Spinoff Proposal -- Financing."

(G) To record the estimated provision for income tax as a result of the pro
forma adjustments referred to in Notes (A) through (F) above at an
estimated combined U.S. federal and state income tax rate of 36%.

(H) To record the assumed contribution of $75 million in cash to Chemicals from
the Company. See "Relationship Between the Company and Chemicals After the
Spinoff -- Distribution Agreement."

DEFS14A 69th Page of 156 TOC 1st Previous Next ↓Bottom Just 69th

(I) To record the reduction in deferred tax assets to an estimated combined
U.S. federal and state income tax rate of 36% for Chemicals and to reflect
the assumption of certain tax liabilities in accordance with the Tax
Sharing and Indemnification agreement. See "Relationship Between the
Company and Chemicals After the Spinoff -- Tax Sharing and Indemnification
Agreement."

(J) To record the contribution by the Company of a 40% interest in the P4 Joint
Venture to Chemicals. See "Relationship Between the Company and Chemicals
After the Spinoff -- P4 Joint Venture."

(K) To record the assumption of additional post-retirement liabilities by
Chemicals, principally for retiree medical and pensions, and to record the
related deferred tax asset. See "Relationship Between the Company and
Chemicals After the Spinoff -- Employee Benefits Allocation Agreement." See
Note (B) above for additional information.

(L) To record the assumption of $1.03 billion of debt by Chemicals, principally
assumable commercial paper, from the Company. See "The Spinoff
Proposal -- Financing." This debt has been classified as long-term based
upon Chemicals' ability and intent to refinance these obligations on a
long-term basis.

(M) To record the effect on Monsanto Company equity related to the pro forma
adjustment referred to in Note (K) above.

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CHEMICALS

In December 1996, the Company Board approved in principle a plan to spin off the
Company's chemical operations to the Company's stockholders. In the Spinoff,
each of the Company's stockholders will receive a pro rata share of Chemicals
Common Stock and Chemicals will become a separately traded, publicly held
company. See "The Spinoff Proposal -- Background and Reasons for the Spinoff."
The Spinoff is subject to several conditions, including stockholder approval.
See "The Spinoff Proposal -- Conditions; Termination." The Spinoff is also
conditioned upon the Company's receipt of a ruling from the IRS that the Spinoff
would generally be free from U.S. federal income taxes. See "The Spinoff
Proposal -- Material Federal Income Tax Consequences of the Spinoff."

The combined financial statements of Chemicals generally reflect the results of
operations, financial position and cash flows of the operations expected to be
transferred to Chemicals in connection with the Spinoff. Accordingly, Chemicals'
combined financial statements have been carved out from the consolidated
financial statements of the Company using the historical results of operations
and historical basis of the assets and liabilities of the Chemicals Business and
the allocation methodology described in Note 1 to the Chemicals SpinCo Combined
Financial Statements. The combined financial statements of Chemicals do not
include certain assets and liabilities which will be transferred to Chemicals in
connection with the Spinoff. See "Chemicals Spinco Unaudited Pro Forma Condensed
Combined Financial Statements" and Note 1 to the Chemicals SpinCo Combined
Financial Statements. Management believes the assumptions underlying Chemicals'
financial statements are reasonable.

The combined financial statements, however, may not necessarily reflect the
results of operations, cash flows or financial position of Chemicals in the
future, or what the results of operations, cash flows or financial position
would have been had Chemicals been a separate stand-alone public entity.

LIQUIDITY AND CAPITAL RESOURCES

Historically, Chemicals has generated sufficient cash from its operations to
fund its capital needs, including working capital. Capital expenditures averaged
$186 million per year for the past three years and were used to fund various
maintenance and capacity expansion projects. Chemicals expects that its capital
requirements for 1997 will be approximately $210 million and could increase to
between approximately $275 million and $450 million annually over the following
few years as a result of capacity expansion projects. In addition, environmental
remediation expenditures have averaged $62 million per year over the past three
years, and Chemicals expects to incur similar amounts per year over the next
several years.

Chemicals' working capital at March 31, 1997 increased to $284 million from $121
million at December 31, 1996, primarily because of lower accrued liabilities.
This increase was also affected by increases in trade receivables and
inventories. The 1997 decrease in accrued liabilities, principally wages and
benefits, and the corresponding increase in cash used in operations, was
principally the result of payouts associated with employee incentive programs
that were significantly higher than those in the prior year. The increased
incentive payouts, included the final payment of certain deferred amounts
related to the third year of a three-year incentive plan.

Effective as of the Distribution Date, the Chemicals balance sheet will include
approximately $1.03 billion of debt, primarily assumable commercial paper which
will be issued by the Company and assumed by Chemicals effective as of the
Distribution Date. The assumable commercial paper will be guaranteed by the
Company until repaid or refinanced at maturity, which may be up to 30 to 60 days
following the Distribution Date. After the Spinoff, the commercial paper will be
backed by approximately $1.2 billion in revolving credit facilities of
Chemicals.

Chemicals believes that its cash flow from operations, supplemented by periodic
additional borrowings, provides it with sufficient resources to finance
operations and planned capital needs.

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RESULTS OF OPERATIONS

Three Months Ended March 31, 1997 Compared With Three Months Ended March
31, 1996

For the three months ended March 31, 1997, Chemicals' net sales of $719 million
increased $14 million, or 2%, as compared with the same period in 1996.
Approximately $11 million of the increase can be attributed to higher average
selling prices, with the remainder of the increase attributable to higher sales
volumes and an improved sales mix. The sales increase was principally the result
of higher sales of Saflex(R) plastic interlayer which was driven by increased
demand. In addition, the sales increase benefited from higher carpet fiber sales
as a result of higher average selling prices. First quarter 1997 sales of the
other product lines were essentially even with the first quarter of the prior
year.

Chemicals' operating income for the first quarter of 1997 increased $39 million,
or 70%, versus the first quarter of 1996. However, as further discussed in Note
2 of "Notes to Interim Combined Financial Statements," operating income includes
$10 million of pretax charges associated with the adoption of SOP 96-1 for
environmental reserves at operating locations. If this charge was excluded,
operating income in the first quarter of 1997 would have increased 88% compared
with a weak operating income performance in the same quarter last year. Lower
administrative expenses, the effect of increased sales described above, and
improved manufacturing performance all contributed to the significant increase
in operating income. The decrease in administrative expenses can be attributed
primarily to cost savings realized through the various restructuring actions
taken in recent years. In addition, higher capacity utilization contributed to
the improved manufacturing performance.

The increase in "Other income (expense) -- net" was primarily the result of
higher earnings from equity affiliates, principally associated with the Flexsys
joint venture.

1996 Compared with 1995

Chemicals' net sales increased $13 million in 1996. However, as further
discussed in the Notes to the Chemicals SpinCo Combined Financial Statements,
prior year operations reflect four month sales and operating income from the
rubber chemicals business that was contributed to the formation in May 1995 of
the Flexsys 50-50 joint venture between the Company and Akzo Nobel which is
described below. Sales and operating results for the rubber chemicals business
are no longer included in Chemicals' combined totals. If the sales from this
business were excluded in 1995, Chemicals' sales would have increased $153
million, or 5%, in 1996. Approximately $204 million of the increase can be
attributed to higher sales volumes and an improved sales mix. This increase was
partially offset by the effect of lower average selling prices which totaled
approximately $51 million.

Most of the sales growth was driven by increased sales for fibers products,
primarily because of higher sales volumes of nylon and acrylic fibers. Nylon
fiber sales were considerably higher than sales in 1995 because of higher demand
in the carpet industry. Increased demand in U.S. markets and higher export
sales, particularly into China, drove the sales volume growth for acrylic
fibers. A decline in average selling prices partially offset the increase in
nylon and acrylic fiber sales. Nylon polymer sales also contributed to the sales
increase on the strength of higher sales volumes. Sales of intermediates and
phosphorus and derivative products were essentially even with the prior year.
Sales of industrial products in 1996 were up moderately from those in 1995,
principally because of higher sales volumes, led by higher sales volumes for
Therminol(R) heat transfer fluids. Higher sales volumes, partially offset by
lower average selling prices, resulted in a modest increase in the net sales of
Saflex(R) plastic interlayer in 1996. Polymer modifier sales declined slightly
in 1996, primarily due to lower sales volumes.

In 1996, operating income for Chemicals decreased $225 million from operating
income in 1995. However, profitability in both years was affected by unusual
items. Operating income in 1996 included a net charge of $248 million for
restructuring and other actions, primarily for the costs of work force
reductions, asset write-offs and facility rationalizations. Operating income in
1995 was reduced by $46 million, principally as a result of restructuring
charges for employment reductions and the costs to close several facilities. If
the unusual

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items in 1996 and 1995 and the results of the rubber chemicals business were
excluded, 1996 operating income for Chemicals would have decreased $20 million
from the comparable amount in 1995.

The positive effect of higher sales volumes and lower raw material costs on
operating income was offset by lower average selling prices, by significantly
higher administrative expenses and by higher manufacturing costs. The
manufacturing cost increase was principally associated with maintenance downtime
and capacity expansion projects. Customer demands and worldwide competitive
pressures limited Chemicals' pricing flexibility on most of its products. Future
reductions or increases in average selling prices will continue to be contingent
upon these demands and pressures.

The 1996 increase in administrative expenses was primarily due to higher costs
associated with various employee incentive programs, as well as to increased
allocations related to the Company's business and organizational development
initiatives.

The increase in "Other income (expense) -- net" was primarily the result of
higher earnings from equity affiliates, principally associated with the Flexsys
and Advanced Elastomer Systems joint ventures.

The 1996 effective income tax rate of 3% compared to the U.S. federal statutory
rate of 35% can be attributed primarily to the joint venture after tax earnings
included in "Other income (expense) -- net" and benefits from the foreign sales
corporation. It is expected that the effective income tax rate in future periods
will be significantly higher and will slightly exceed the U.S. federal statutory
rate.

Chemicals is affected by economic conditions, particularly as they relate to the
automotive and housing industries, which are cyclical businesses. In addition,
global competition and customer demands for efficiency will continue to make
price increases difficult. The prices of purchased raw materials used by
Chemicals fluctuate in the short term and are affected by factors such as plant
outages, oil prices and supply and demand. However, in the long term, Chemicals
believes that the addition of new worldwide capacity should exert downward
pressure on raw material costs.

1995 Compared with 1994

Chemicals' net sales decreased $133 million in 1995. However, net sales and
operating results for the first four months of 1995 and for all of 1994 include
the results from Chemicals' rubber chemicals business. As further discussed in
Note 4 to the Chemicals SpinCo Combined Financial Statements, on May 1, 1995,
the Company contributed the rubber chemicals business to the Flexsys joint
venture. Operations for Flexsys commenced on May 1, 1995. As a result, sales and
operating results for the rubber chemicals business are no longer included in
Chemicals' results. If the sales from this business were excluded in both 1995
and 1994, Chemicals' sales in 1995 would have increased $127 million, or 5
percent. Approximately $105 million of this increase can be attributed to the
effects of higher average selling prices, with the remainder of the increase
attributable to higher sales volumes.

Nylon intermediate sales in 1995 increased significantly from sales in 1994,
primarily on the strength of higher selling prices. In addition, Chemicals' 1995
sales increase benefited from higher sales of polymer modifiers and nylon
polymers as a result of higher average selling prices. Net sales of Saflex(R)
plastic interlayer increased modestly from sales in 1994, principally because of
favorable exchange rates. Sales volumes were essentially even with those in 1994
as expected growth in the global automotive markets failed to materialize in
1995. The 1995 increase in net sales was partially offset by lower nylon and
carpet fiber sales, as the carpet industry experienced lower consumer demand in
1995. Demand for acrylic fibers in U.S. markets was soft during 1995 and
negatively affected sales volumes. This decline was partially offset by higher
export sales, particularly in China.

Operating income for Chemicals increased slightly in 1995 from operating income
in 1994. However, unusual items affected profitability in both years. Operating
income in 1995 was reduced by $46 million, principally the result of
restructuring charges for employment reductions and the costs to close several
facilities. Operating income in 1994 was reduced by $34 million in restructuring
charges, principally related to work force reductions and costs to close several
facilities. If these unusual items and the results of the rubber chemicals

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business were excluded, operating income for Chemicals would have increased by
3% from operating income in 1994.

Operating income was positively affected by higher selling prices, the effect of
continued cost-reduction efforts, and manufacturing efficiencies, but was hurt
by higher raw material costs. Competitive pressures worldwide limited Chemicals'
ability to recover the increased raw material costs fully through increased
selling prices.

The decrease in marketing expenses was principally due to the inclusion of only
four months of marketing expenses associated with the rubber chemicals business
in 1995 operating results.

ENVIRONMENTAL MATTERS

Chemicals continues to make a strong commitment to comply with various laws and
government regulations concerning environmental matters and employee safety and
health in the United States and other countries. U.S. federal environmental
legislation having particular effect on Chemicals includes the Toxic Substances
Control Act; the Resource Conservation and Recovery Act ("RCRA"); the Clean Air
Act; the Clean Water Act; the Safe Drinking Water Act; and the Comprehensive
Environmental Response, Compensation and Liability Act (commonly known as
"Superfund"), as amended by the Superfund Amendments and Reauthorization Act.
Chemicals is also subject to the Occupational Safety and Health Act and
regulations of the Occupational Safety and Health Administration ("OSHA")
concerning employee safety and health matters. The Environmental Protection
Agency ("EPA"), OSHA and other federal agencies have the authority to promulgate
regulations which have an effect on Chemicals' operations. In addition to these
federal activities, various states have been delegated certain authority under
the aforementioned federal statutes. Many state and local governments have
adopted environmental and employee safety and health laws and regulations, some
of which are similar to federal requirements. State and federal authorities may
seek fines and penalties for violation of these laws and regulations.

Chemicals is dedicated to long-term environmental protection and compliance
programs that reduce and monitor emissions of hazardous materials into the
environment as well as to the remediation of identified existing environmental
concerns. Chemicals is among the leaders in the chemical industry's Responsible
Care performance enhancement program.

Expenditures in 1996 were approximately $9 million for environmental capital
projects and approximately $85 million for the management of environmental
programs, including the operation and maintenance of facilities for
environmental control. Chemicals estimates that during 1997 and 1998
approximately $15 million to $20 million per year will be spent on additional
capital projects for environmental protection and that expenses for the
management of environmental programs in 1997 and 1998 will continue at levels
comparable to 1996.

The Company intermittently receives notices from the EPA alleging that it is a
PRP under Superfund. In 1996, two such notices were received for Chemicals. With
respect to many of Chemicals' notices, the Company has resolved disputes,
entered partial and complete consent decrees, and executed administrative orders
with the EPA settling a portion or all of Chemicals' liability. Remediation
pursuant to such settlements is ongoing.

Chemicals' policy is to accrue costs for remediation of contaminated sites in
the accounting period in which the responsibility is established and the cost is
estimable. Chemicals' estimates of its liabilities for Superfund sites are based
on evaluations of currently available facts with respect to each individual site
and take into consideration factors such as existing technology, laws and agency
policy, and prior experience in remediation of contaminated sites. As
assessments and remediation activities progress at individual sites, these
liabilities are reviewed periodically and adjusted to reflect additional
technical, engineering and legal information that becomes available. Chemicals
had an accrued liability of $51 million as of December 31, 1996 for Superfund
sites. Major Superfund sites in this category include the noncompany-owned sites
at Brio and MOTCO in Texas, Fike/Artel in West Virginia and Woburn in
Massachusetts, which account for $34 million of the accrued amount. Because of
uncertainties primarily related to the method and extent of remediation,
potential future expenses could be as much as an additional $10 million for
these sites based upon existing technology and other currently available
information. These potential future expenses may be incurred over the next

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decade. Chemicals spent approximately $20 million in 1996 for remediation of
Superfund sites. Similar amounts can be expected in future years.

Chemicals had environmental reserves of $58 million as of December 31, 1996 for
shut-down plants and third-party sites for which Chemicals is assuming
responsibility pursuant to the Distribution Agreement. Chemicals' estimates of
its liabilities are based on evaluations of currently available facts with
respect to each individual site and take into consideration factors such as
existing technology, laws and agency policy and prior experience in remediation
of contaminated sites. Subject to these uncertainties, Chemicals currently
estimates that potential future expenses could be as much as an additional $50
million for these sites. Chemicals spent $21 million in 1996 for remediation of
these sites. Similar amounts can be expected in the future.

For solid and hazardous waste remediation at Chemicals' operating locations,
Chemicals recognizes post-closure environmental costs and remediation costs over
the estimated remaining useful life of the related facilities, not to exceed 20
years. Chemicals spent $18 million in 1996 for remediation of these facilities
and had an accrued liability of $41 million as of December 31, 1996 for these
sites. Uncertainties related to these costs are evolving government regulations,
the methods and extent of remediation and future changes in technology.
Chemicals estimates that closure costs for these facilities will be an
additional $70 million, based upon existing technology and other currently
available information.

Although the ultimate costs and results of remediation of contaminated sites
cannot be predicted with certainty, they are not expected to result in a
material adverse change in Chemicals' liquidity or financial position as
reflected in Chemicals' historical financial statements, but they could have a
material adverse effect on profitability in a given period. The impact of any
future changes in environmental law and regulation on Chemicals' liquidity,
financial position and profitability cannot be predicted with accuracy.

Effective January 1, 1997, Chemicals adopted SOP 96-1, "Environmental
Remediation Liabilities." SOP 96-1 establishes authoritative guidance regarding
the recognition, measurement and disclosure of environmental remediation
liabilities. The primary change in Chemicals' accounting principles associated
with the adoption of this SOP was an acceleration of the recognition of certain
environmental remediation liabilities at operating facilities. As a result,
Chemicals recorded an aftertax charge of $6 million in the first quarter of
1997. Additional aftertax charges in the range of $9 million to $14 million are
anticipated in 1997 as the criteria for recording these liabilities are met.
These charges are in addition to the 1997 and 1998 estimated capital
expenditures for environmental projects previously described.

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BUSINESS AND PROPERTIES OF CHEMICALS
AFTER THE SPINOFF

Chemicals produces and markets a range of high performance chemical-based
materials, including nylon and acrylic fibers and fiber intermediates, Saflex(R)
plastic interlayer, phosphorus derivatives, and specialty chemicals. These
materials are used by customers to make consumer, household, automotive and
industrial products.

Chemicals' strategic focus is built on four key technology strengths: polymer
chemistry, phosphorus chemistry, fiber technology, and process engineering
expertise. These technologies are used in various combinations to create
value-added products in ten business units: Acrilan(R) Acrylic Fibers, Carpet
Fibers, Industrial Nylon Fibers, Industrial Products, Intermediates, Nylon
Plastics & Polymers, Phosphorus Derivatives, Polymer Modifiers, Resins, and
Saflex(R) Plastic Interlayer. Chemicals has achieved leading market positions in
its key target markets. Three business units -- Carpet Fibers, Intermediates and
Saflex(R) Plastic Interlayer -- combined to provide over 50% of Chemicals' total
sales in 1996.

To compete effectively in its markets, Chemicals plans to employ a strategy
which emphasizes the following key elements:

CORE PRODUCTS AND TECHNOLOGIES: Chemicals intends to focus on its core
products and technologies throughout its ten business units. Chemicals will
continue to invest in manufacturing technology, product research and
technical and marketing support in order to continually improve its cost
and quality positions as well as its applications support and technical
service.

AGGRESSIVE COST CONTROLS AND FOCUS ON PROFITABILITY: Over the past several
years, Chemicals has restructured its product portfolio to exit
underperforming businesses. Chemicals believes that additional expense
reductions can be achieved in manufacturing and administrative functions.

SELECTED GROWTH INITIATIVES: Chemicals intends to develop the growth
potential of its core chemistries and technologies through targeted new
product introductions, innovations in related fields and selective
expansions of its presence in international markets.

PERFORMANCE INCENTIVES: Chemicals plans to provide incentives for
employees to improve cash flow, profitability and economic and shareholder
value.

In 1996, Chemicals had revenues of approximately $3.0 billion and operating
earnings of approximately $281 million, excluding restructuring costs and
unusual items. Currently, approximately one-third of Chemicals' sales are made
into markets outside the United States. See the Chemicals SpinCo Combined
Financial Statements.

Prior to June 1, 1997, the Company conducted the Chemicals Business through
various divisions and subsidiaries. On June 1, 1997, the Company began to
execute its decision to separate Chemicals into a stand-alone company by
beginning the transfer to Chemicals of the assets and liabilities related to the
Chemicals Business. The separation is expected to be substantially complete
prior to the date of the Special Meeting.

DESCRIPTION OF PRINCIPAL PRODUCTS AND COMPETITIVE SITUATION

Set forth below are descriptions of Chemicals' ten business units, in
alphabetical order.

1. Acrilan(R)Acrylic Fiber

Chemicals is the largest producer of acrylic fiber in North America. It
manufactures and markets a full line of commodity and specialty grades of this
fiber, which is used to make apparel, craft yarns, cloth for home furnishings,
and brake fibers, among other uses.

Chemicals' Acrilan(R) trademark is widely recognized in the industry, as are the
following brand names which are used to identify products made with Acrilan(R):
Wear-Dated(R) upholstery; DuraSpun(R) fibers, the Smart Yarns fibers (for
socks); and Wintuk(R), Sayelle(R) and Bounce Back(R) (fibers for craft yarn).

The principal competitor for acrylic fiber in North America is Sterling
Chemicals, Inc. Worldwide, competitors include MonteFibre S.p.A. (Italy), AKSA
Akrilik Kimya Sanayii A.S. (Turkey), Courtalds plc

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(United Kingdom) and Mitsubishi Chemicals Corporation (Japan). Acrylic fiber
also competes against other fibers such as cotton and polyester.

The primary raw material for acrylic fiber is acrylonitrile, which is produced
internally by Intermediates and supplemented with external purchases.

There are a variety of differentiated Acrilan(R) brand products, including
producer-colored fiber, pigmented UV resistant fibers, bi-component Bounce
Back(R) fibers, DuraSpun(R) abrasion-resistant fibers and technical fibers used
in friction applications, as well as precursor chemicals for carbon fibers.
These products -- and the opportunity to develop sales in other parts of the
Western Hemisphere -- represent the business unit's best opportunity for growth.
In addition, Chemicals generates significant income from the licensing of its
proprietary wet spinning acrylic technology, primarily in Asian markets.

2. Carpet Fibers

Chemicals is the largest supplier of nylon staple to the North American carpet
industry, for the residential market (new construction and replacement), the
contract market (offices, hotels, restaurants, retail and institutions) and the
rug market. Its product portfolio includes nylon 6,6 staple, bulk continuous
filament ("BCF") and acrylic staple fibers -- offering carpet mills a wide range
of performance and styling characteristics.

Chemicals' products are marketed under two of the industry's most respected
brand names: Wear-Dated(R) carpets (residential) and Ultron(R) VIP nylon
(contract). The Wear-Dated(R) name is widely recognized by consumers in North
America for its guarantee of the finished carpet's outstanding quality and
exceptional performance.

Competitive success is determined by different factors in different segments of
the market. Overall, Carpet Fibers benefits from vertical integration with
Intermediates. In the residential segment, branded products compete based on
technical advances and marketing programs, such as Chemicals' warranty offered
on Wear-Dated(R) carpets, retailer sales incentives and similar activities.

In contract markets, the basis for competition is product performance and
downstream marketing programs. The Ultron(R) VIP nylon brand offers carpet
makers an innovative mix of fiber shapes and sizes that are specifically
engineered for features such as soil-hiding ability and extra bulk and cover.
Carpet Fibers works closely with the building design community to develop new
products which address the contract market's needs. It also sells Ultron(R) SD
Solution-Dyed nylon 6,6, which offers superior colorfastness and protection
against harsh chemicals, bacterial growth and stains.

Chemicals also plans to introduce DyeNAMIX(TM) technology in 1997, a
substantially improved fiber system which permits rich, deep colors and enhances
the print clarity of carpets. This proprietary technology is environmentally
friendly, while also allowing carpet mills to achieve higher efficiencies and
lower dye costs.

The principal competitors for nylon carpet fiber in the United States are E.I.
DuPont De Nemours and Company ("DuPont"), AlliedSignal Inc. ("AlliedSignal") and
BASF AG ("BASF"). Chemicals and AlliedSignal offer both nylon staple and BCF
products, while DuPont and BASF are primarily BCF suppliers. Chemicals owns and
operates the world's largest integrated nylon manufacturing plant in Pensacola,
Florida.

A majority of Carpet Fibers' sales are generated by a few major customers in the
carpet mill industry.

Carpet Fibers receives almost all of its major raw materials from Intermediates.

3. Industrial Nylon Fibers

Chemicals makes and supplies a line of industrial-strength nylon fibers to a
variety of manufacturing customers. Industrial Nylon Fibers' product line
features continuous filament nylon 6,6 yarns in thicknesses ranging from 60 to
2000 deniers. Heavier yarns are used for applications such as bias tires for
earth movers, NASA space shuttles, aircraft and trucks; mining conveyor belts;
and cargo slings. Lighter weight yarns are used to make backpacks, ribbons,
sewing threads and dental floss. Cost per unit of performance, service
(including the ability to tailor the properties of yarns for use in specific
applications) and breadth of product

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line are the major drivers of success in the industrial fibers market. Chemicals
has built a strong presence in the bias tire and other heavy-denier segments and
in industrial sewing threads. Sales to five major tire companies account for
about 50% of total Industrial Nylon Fibers volume.

Chemicals is currently investing capital to increase spinning capacity and to
enhance spinning technology at its Greenwood, South Carolina plant. This project
will use proprietary technology (licensed from Toray Industries Inc.) to improve
product quality, enhance yarn performance and tenacity and enable Chemicals to
achieve a low-cost position in key segments of the market, including automotive
airbags and high performance tires.

Industrial Nylon Fibers receives almost all of its major raw materials from
Intermediates. Competitors in the United States include DuPont (the market
leader) and AlliedSignal.

4. Industrial Products

Chemicals is a leading producer of specialty industrial fluids and lubricants.
Its products are widely recognized in their market segments for specific
performance characteristics which result from proprietary formulations.
Substantially all of the products in this business unit are trademarked, and
include the following brands: Skydrol(R) aviation fluids; Therminol(R) heat
transfer fluids; Dequest(R) water treatment chemicals; and Glacier(R)
metalworking fluids.

The Skydrol(R) product line includes fire-resistant hydraulic fluids which are
used in more than half of the world's commercial aircraft. A new product,
Skydrol(R) 5, was introduced in 1996. It offers a range of enhanced performance
characteristics, such as improved thermal stability, improved corrosion
protection and reduced weight. The Skydrol(R) brand's major competitor is
manufactured by Exxon.

Therminol(R) heat transfer fluids are leaders in the worldwide high temperature
liquid phase market. These products, used in various types of capital equipment,
are known for remaining thermally stable at high temperatures and for their low
temperature pumping characteristics. Competitors include The Dow Chemical
Company and Nippon Steel Chemical Co., Ltd.

Dequest(R) water treatment chemicals are used to solve problems in a number of
heavy and light industrial applications. These products offer functional
properties such as sequestration, scale inhibition and corrosion control.
Competing products are marketed by Albright & Wilson plc ("Albright & Wilson")
and Bayer Corporation ("Bayer").

Launched in 1996, Glacier(R) metalworking fluids are the industry's first
environmentally safe lubricants designed for machining operations such as
grinding, drilling and threading. The fluids are biodegradable and practically
non-toxic.

Chemicals' specialty industrial fluids are sold throughout the world, with no
single customer accounting for a significant level of sales.

Industrial Products expects to develop new opportunities in its niche markets by
continuing to develop and introduce new products such as Glacier(R) and by
pursuing sales in additional geographic areas such as Asia and Latin America.
Chemicals recently formed a joint venture in Suzhou, China, to manufacture
Therminol(R) heat transfer fluids.

Industrial Products relies on a number of raw materials such as benzene, phenol
and phosphorus trichloride, most of which are processed internally by
Intermediates.

5. Intermediates

Intermediates manufactures more than three dozen "building block" chemicals
which are used by Chemicals and by other companies to make a wide variety of
finished products. Intermediates' product lines include nylon intermediates,
sold to a number of fibers and plastics manufacturers worldwide; chlorobenzenes,
used in applications such as rubber chemicals, pigments, antioxidants,
herbicides, solvents and resins; and other intermediates which are used to
produce fertilizers, detergents and animal feed supplements.

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Intermediates relies on aggressive cost control, exceptional product quality,
world-class manufacturing scale and proprietary manufacturing technology to
drive its competitive success. Its strategy is to support the competitiveness of
other Chemicals products by achieving the low-cost position on their critical
"building block" chemicals and to pursue profitable external sales of these
products. Intermediates has achieved a leading position in nylon intermediates
through a combination of proprietary technology and scale.

Intermediates obtains its key raw materials, including natural gas, cyclohexane,
propylene, benzene and chlorine, from a number of suppliers.

To meet internal demand and address external sales opportunities, Intermediates
is planning an expansion of its acrylonitrile manufacturing capacity, which will
also reduce its manufacturing costs.

The majority of the production of Intermediates is used internally, with most of
the external sales made to a limited number of customers. In some product lines,
external sales are dependent on a major customer. However, in each of these
cases, sales to internal customers account for the majority of the business
unit's production capacity.

Competitors vary by product line and by world region and include DuPont,
Rhone-Poulenc S.A. ("Rhone-Poulenc") and BASF.

6. Nylon Plastics & Polymers

Chemicals manufactures and markets a line of Vydyne(R) nylon 6,6 molding resins
and extrusion polymers and nylon 6,6 polymers for fiber applications. Vydyne(R)
nylon gives plastics manufacturers the ability to provide their products with
enhanced performance characteristics, such as heat resistance, chemical
resistance and toughness. Vydyne(R) nylon molding resins are used in
under-the-hood automotive components, electrical connectors for telephone
systems and computers, medical devices and similar applications.

Product performance, technical service, vertical integration and breadth of
product line are the major drivers of success in this market. Nylon Plastics &
Polymers relies on nylon 6,6 salt as its primary raw material. This material is
produced internally by Intermediates. The business unit's primary competitor is
DuPont.

7. Phosphorus Derivatives

Chemicals has developed an extensive franchise in phosphorus chemistry.
Chemicals is a low-cost producer of phosphorus-based chemicals, and most of its
product technologies are proprietary. It also has a joint venture in Brazil
using purified wet acid technology to produce many of these products. Chemicals
manufactures products for a wide range of industries:

Food and Beverage. Its phosphates are used in many food products to
improve texture, appearance and flavor. Branded products include
Levn-Lite(R), Pan-O-Lite(R) and Leverage(R) brand leavening agents, used in
baking; Nutrifos(R) sodium tripolyphosphate, used in meat and poultry
processing; and Katch Fish(R) phosphate, used to extend the shelf life of
fish products.

Personal Care Products. Major toothpaste manufacturers around the world
rely on Chemicals' oral care phosphates to improve the performance of their
products. Chemicals has been a leader in the development of dentrifice
agents which are used to control tartar and to polish and whiten teeth.

Specialty Chemicals. Chemicals manufactures a number of phosphorus-based
intermediates which serve as key ingredients in oil additives, pesticides
and mining chemicals. Chemicals also offers high-purity phosphoric acid,
used as a building block in the manufacture of high-purity phosphate salts.

Industrial Cleaners and Fire Retardants. Chemicals provides specialized
cleaning ingredients for commercial laundries, restaurant and hospital
dishwashing systems and vehicle wash facilities. Chemicals also makes and
sells Phos-Chek(R) fire fighting agent, used in aerial spraying to control
forest fires and wildfires.

Elemental Phosphorus. Chemicals will also offer for sale elemental
phosphorus sourced from the P4 Joint Venture.

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Its primary competitors are FMC Corporation, Albright & Wilson and
Rhone-Poulenc. The business unit's primary raw material is elemental phosphorus,
which is mined and processed in Soda Springs, Idaho, at facilities which will be
jointly owned by Chemicals and the Company through the P4 Joint Venture. See
"Relationship Between the Company and Chemicals After the Spinoff -- P4 Joint
Venture."

8. Polymer Modifiers

Chemicals manufactures and markets a line of polymer modifiers and specialty
plasticizers which are used to improve the performance of flooring products,
sealants, caulks, adhesives and other goods. Unit brands include Santicizer(R)
polymer modifiers and plasticizers, and Santotac MRS(R), a flooring additive.

Polymer Modifiers is focused on specialty applications, where technical
expertise and processing knowledge can be used to help customers obtain valuable
performance attributes in their products (e.g., mar/scratch resistance, stain
resistance, enhanced gloss and flame retardance). Competitors vary by product
line and include Bayer and Akzo Nobel.

Polymer Modifiers obtains its key raw materials from U.S. and European markets.
New products (such as Santotac MRS(R)) and geographic expansion (particularly
into central Europe and Asia) are expected to be the primary drivers of growth.

9. Resins

This business unit manufactures and markets a line of specialty resins which are
used in the manufacture of thermoset paints and coatings, pressure sensitive
adhesives, paper coatings, plastic products and other applications. Brands
include Resimene(R) amino crosslinkers, Gelva(R) pressure sensitive adhesives,
Santosol(R) solvents which have certain environmentally friendly
characteristics, Scripset(R) resins for paper sizing, Butvar(R) specialty
binders, Modaflow(R) flow and leveling agents, ClearPass(R) spray control
systems and other fabricated products.

Resins provides technical expertise to help customers obtain value-added
performance characteristics. Major competitors vary by product line and include
Cytec Industries, Inc. (coatings and surface size); National Starch and Chemical
Co. and Ashland Inc. (solution acrylic adhesives); Rohm and Haas Company and Air
Products and Chemicals, Inc. (emulsion water-based adhesives); and DuPont
(solvents which have certain environmentally friendly characteristics).

Resins relies on a number of commodity chemicals as raw materials, all of which
are readily available. New products (such as di-methyl esters, a solvent with
certain environmentally-friendly characteristics) and geographic expansion
(particularly into Europe, Latin America and Asia) are expected to be the
primary drivers of growth.

10. Saflex(R) Plastic Interlayer

Chemicals is the world's largest producer of polyvinyl butyral ("PVB"), a
plastic interlayer used in the manufacture of laminated glass for automotive and
architectural applications. The business unit's product is marketed under the
Saflex(R), Saflex SV(R) (superior value) and KeepSafe(TM) (for residential
security windows) trademarks. In 1997, Saflex(R) Plastic Interlayer will
commercialize a patented, reformulated product which is designed to provide
superior processing and application performance. Continued business development
will be driven by the introduction of the reformulated PVB product, by increased
penetration of geographic markets (especially Asia) and by the creation of new
primary demand for PVB in laminated glass worldwide. A Saflex(R) finishing plant
is scheduled to start up in Singapore in late 1997.

Six customers account for 65% to 70% of total sales of Saflex(R) products
worldwide. Saflex(R) Plastic Interlayer relies on vinyl acetate monomer,
polyvinyl alcohol and butanol as raw materials, all of which are readily
available in the U.S. and European markets. Sales volumes are influenced by
shifts in automotive production and commercial building construction, which are
cyclical businesses. The principal competitor in the manufacture of PVB is
DuPont.

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PRINCIPAL EQUITY AFFILIATES

Chemicals participates in a number of joint ventures in which it shares
management control with other companies. Principal joint ventures include
Flexsys and Advanced Elastomer Systems. Chemicals' share of the unconsolidated
net sales of Chemicals' joint ventures was $445 million in 1996. In connection
with the Spinoff, the Company and Chemicals will enter into the P4 Joint
Venture.

Flexsys, headquartered in Belgium, is the world's leading supplier of process
chemicals to the rubber industry. Its product line includes a number of branded
accelerators (Santocure(R), Thiofide(R), Thiotax(R)), pre-vulcanization
inhibitors (Santogard(R)), antidegradants and antioxidants (Flectol(R),
Santowhite(R)), and insoluble sulphur (Crystex(R)). Flexsys is a 50/50 joint
venture between Chemicals and Akzo Nobel.

Advanced Elastomer Systems, headquartered in the United States, produces and
sells thermoplastic elastomers -- materials which combine the processability of
thermoplastic and the functional performance of thermoset rubber products. The
joint venture's product lines include Santoprene(R) thermoplastic rubber and
Vistaflex(R) thermoplastic elastomer. Advanced Elastomer Systems is a 50/50
joint venture between Chemicals and Exxon.

See "Relationship Between the Company and Chemicals After the Spinoff -- P4
Joint Venture" for information about the P4 Joint Venture with the Company.

SALE OF PRODUCTS

Chemicals' products are sold directly to end users in various industries, and to
wholesalers, principally by Chemicals' own sales force. Chemicals' marketing and
distribution practices do not result in unusual working capital requirements on
a consolidated basis. Inventories of finished goods, goods in process and raw
materials are maintained to meet customer requirements and Chemicals' scheduled
production. In general, Chemicals does not manufacture its products against a
backlog of firm orders; production is geared to the level of incoming orders and
to projections of future demand. Chemicals generally is not dependent upon one
or a group of customers, and it has no material contracts with the government of
the United States, or any U.S. state or local, or foreign government. In
general, Chemicals' sales are not subject to seasonality.

RAW MATERIALS AND ENERGY RESOURCES

Chemicals is a significant purchaser of basic, commodity raw materials,
including propylene, cyclohexane, benzene and natural gas. Major requirements
for key raw materials and fuels are typically purchased pursuant to long-term
contracts. Chemicals is not dependent on any one supplier for a material amount
of its raw materials or fuel requirements, but certain important raw materials
are obtained from a few major suppliers. In general, where Chemicals has limited
sources of raw materials, it has developed contingency plans to minimize the
effect of any interruption or reduction in supply. Information regarding
specific raw materials is provided under "-- Description of Principal Products
and Competitive Situation."

While temporary shortages of raw materials and fuels may occasionally occur,
these items are generally sufficiently available to cover current and projected
requirements. However, their continuing availability and price are subject to
unscheduled plant interruptions occurring during periods of high demand, or due
to domestic and world market and political conditions, as well as to the direct
or indirect effect of U.S. and other countries' government regulations. The
impact of any future raw material and energy shortages on Chemicals' business as
a whole or in specific world areas cannot be accurately predicted. Operations
and products may, at times, be adversely affected by legislation, shortages or
international or domestic events.

PATENTS AND TRADEMARKS

As of the Spinoff, Chemicals will own a large number of patents currently owned
by the Company or its subsidiaries which relate to a wide variety of products
and processes, will have pending a substantial number of patent applications,
and will be licensed under a small number of patents owned by others. Also,
Chemicals will own a considerable number of established trademarks currently
owned by the Company or its subsidiaries

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in many countries under which it markets its products. Such patents and
trademarks in the aggregate are of material importance in the operations of the
Chemicals Business.

COMPETITION

Chemicals encounters substantial competition with respect to each of its product
lines. This competition, from other manufacturers of the same products and from
manufacturers of different products designed for the same uses, is expected to
continue in both U.S. and ex-U.S. markets. Depending on the product involved,
various types of competition are encountered, including price, delivery,
service, performance, product innovation, product recognition and quality.
Overall, Chemicals regards its principal product groups to be competitive with
many other products of other producers, and believes that it is an important
producer of many such product groups. For information regarding competition in
specific markets, see "-- Description of Principal Products and Competitive
Situation."

RESEARCH AND DEVELOPMENT

Research and development constitute an important part of Chemicals' activities.
In recent years, Chemicals' research and development expenses amounted to
approximately 2.6% of sales on average, or $76 million, $77 million and $81
million in 1994, 1995 and 1996, respectively. Chemicals focuses its research and
development expenditures on process improvements and select product development.

Chemicals actively pursues technologies from around the world that are expected
to bring value to its business. Recent examples include new technology for
converting benzene to phenol, which was licensed from Boreskov Institute of
Catalysis in Russia, and which Chemicals is actively seeking to license to third
parties; and nylon industrial spinning technology, licensed from Toray
Industries Inc. in Japan.

The Chemicals Business also licenses technologies to other firms. For example,
it recently agreed to license acrylonitrile technology to Tae Kwang Industrial
Company in Korea.

ENVIRONMENTAL MATTERS

For a discussion of environmental matters, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations of
Chemicals -- Environmental Matters."

EMPLOYEE RELATIONS

As of June 1, 1997, Chemicals had approximately 8,800 employees worldwide.
Satisfactory relations have prevailed between Chemicals and its employees.
Chemicals uses self-directed work teams, gainsharing programs, and other
initiatives to keep employees actively involved in the success of the business.
As of the Distribution Date, substantially all of the Chemicals employees will
have Chemicals Options. About 25% of the Chemicals workforce is represented by
various labor unions.

INTERNATIONAL OPERATIONS

Chemicals and affiliated companies are engaged in manufacturing, sales and
research and development in areas outside the United States, including Europe,
Canada, Latin America and Asia. Approximately one-third of Chemicals' 1996 sales
were made into markets outside the United States. Operations outside the United
States are potentially subject to a number of risks and limitations which are
not present in domestic operations, including fluctuations in currency values,
trade restrictions, investment regulations, governmental instability and other
potentially detrimental governmental practices or policies affecting U.S.
companies doing business abroad.

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PROPERTIES

The General Offices of Chemicals are located in St. Louis County, Missouri.
Chemicals also has research laboratories, research centers and manufacturing
locations worldwide. Chemicals' principal facilities as of the Spinoff, all of
which will be owned, will include:

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PLANT SITE BUSINESS UNITS SERVED
----------------------------------- ------------------------------------------------------

Anniston, Alabama Industrial Products

Augusta, Georgia Phosphorus Derivatives

Carondelet Phosphorus Derivatives
(St. Louis, Missouri)

Chocolate Bayou Industrial Products, Intermediates
(Alvin, Texas)
Decatur, Alabama Acrilan(R) Acrylic Fiber, Intermediates, Research
Center
Delaware River Industrial Products, Intermediates, Polymer Modifiers
(Bridgeport, New Jersey)

Foley, Alabama Carpet Fibers, Nylon Plastics & Polymers

Ghent, Belgium Resins, Saflex(R) Plastic Interlayer

Greenwood, South Carolina Carpet Fibers, Industrial Nylon Fibers, Intermediates,
Nylon Plastics & Polymers

Indian Orchard Research Center, Resins, Saflex(R) Plastic Interlayer
(Springfield, Massachusetts)

Krummrich Intermediates, Phosphorus Derivatives
(Sauget, Illinois)

LaSalle, Canada Polymer Modifiers, Resins

Newport, Wales (U.K.) Industrial Products, Polymer Modifiers, Resins

Pensacola, Florida Carpet Fibers, Industrial Nylon Fibers, Intermediates,
Nylon Plastics & Polymers, Research Center
Queeny Industrial Products, Polymer Modifiers, Resins
(St. Louis, Missouri)

Trenton, Michigan Phosphorus Derivatives, Resins, Saflex(R) Plastic
Interlayer

Westport Resins
(St. Louis, Missouri)

Following the Spinoff, Chemicals will own certain buildings and production
equipment, and will lease the underlying real estate, used to produce products
for the indicated business units at the following Company sites:

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PLANT SITE BUSINESS UNITS SERVED
----------------------------------- ------------------------------------------------------

Antwerp, Belgium Industrial Products, Polymer Modifiers, Saflex(R)
Plastic Interlayer

Luling, Louisiana Intermediates

Sao Jose dos Campos, Brazil Industrial Products, Phosphorus Derivatives, Saflex(R)
Plastic Interlayer

The Company will operate these facilities pursuant to arrangements described
under "Relationship Between the Company and Chemicals After the
Spinoff -- Operating Agreements."

Chemicals' principal plants are suitable and adequate for their use. Utilization
of these facilities may vary with seasonal, economic and other business
conditions, but none of the principal plants is substantially idle. The
facilities generally have sufficient capacity for existing needs and expected
near-term growth. Chemicals

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operates several facilities for third parties, principally within the Chocolate
Bayou and Pensacola sites, under long-term lease and operating agreements. In
connection with the Spinoff, Chemicals will enter into an Operating Agreement
with the Company relating to a portion of the Chocolate Bayou site. See
"Relationship Between the Company and Chemicals After the Spinoff -- Operating
Agreements."

Chemicals is an active participant in the VPP Star program, a voluntary safety
and health program administered by OSHA. Through 1996, nine of Chemicals' sites
had qualified for the VPP Star and one site for the Merit designation. In
addition, 16 of Chemicals' locations have been certified wholly or in part under
the ISO 9000 quality program.

LEGAL PROCEEDINGS

At the time of the Spinoff, Chemicals will assume from the Company, pursuant to
the Distribution Agreement, liabilities related to specified legal proceedings.
As a result, although the Company will remain the named defendant, Chemicals
will manage the litigation and indemnify the Company for costs, expenses and
judgments arising from such litigation. Most of these proceedings have arisen in
the ordinary course of business and involve claims for money damages. While the
results of litigation cannot be predicted with certainty, Chemicals does not
believe these matters or their ultimate disposition will have a material adverse
effect on Chemicals' combined financial position, profitability or liquidity in
any one year, as applicable. The following describes certain proceedings to
which the Company is a party and for which Chemicals will assume any
liabilities, pursuant to the Distribution Agreement as of the Distribution Date.

On April 12, 1985, the Company was named as a defendant in Alanis et al. v. Farm
& Home Savings, et al., filed in the District Court in Harris County, Texas, the
first of a number of lawsuits in which plaintiffs claim injuries resulting from
alleged exposure to substances present at or emanating from the Brio Superfund
site near Houston, Texas. The Company is one of a number of companies that has
sold materials to the chemical reprocessor at that site. Currently pending are
the following matters: (1) the Company is one of a number of defendants in 11
cases brought in Harris County District Court or the United States District
Court for the Southern District of Texas on behalf of 960 plaintiffs who owned
homes or lived in subdivisions near the Brio site or along Clear Creek
downstream from the site, attended school near the site or used nearby
recreational baseball fields. Plaintiffs claim to have suffered various personal
injuries and fear future disease; they assert the need for medical monitoring,
and, in the case of the homeowners, claim property damage. In addition to their
claims of personal injury, four plaintiffs in one of these cases allege business
losses. Plaintiffs seek compensatory and punitive damages in an unspecified
amount. The Company has reached an agreement in principle to settle the claims
of 811 plaintiffs in six of the cases described in this subparagraph for $10
million. Court approval of the settlements is required for 190 of these
plaintiffs who are minors; and (2) the Company is one of a number of defendants
in two actions brought in Harris County District Court and one action brought in
Galveston County District Court on behalf of 409 plaintiffs, who are former
employees of the owners/operators of the Brio site, and members of the
employees' families or persons who worked near the Brio site. Plaintiffs in one
of these actions also owned homes or lived in subdivisions near the site,
attended schools near the site or used nearby recreational ball fields.
Plaintiffs claim physical and emotional injury and seek compensatory and
punitive damages in an unspecified amount. The Company believes that it has
meritorious defenses to all of these lawsuits including lack of proximate cause,
lack of negligent or other improper conduct on the part of the Company, and
negligence of plaintiffs (or their parents) and/or of builders and developers of
the Southbend subdivision. The Company is vigorously defending these actions.

On November 15, 1993, the Company was named in Dyer et al. v. Monsanto Company,
et al., filed in the Circuit Court in St. Clair County, Alabama, the first of a
number of lawsuits in which plaintiffs claim to have sustained personal injuries
or property damage as a result of the discharge of hazardous substances,
including polychlorinated biphenyls ("PCBs"), from its Anniston, Alabama, plant
site. The following matters are currently pending: (1) the Company is a
defendant in a case pending in Circuit Court in St. Clair County, Alabama which
has been certified as a class action on behalf of all property owners in a
specified area along waterways near the plant. Plaintiffs claim loss in the
value of their property and seek compensatory and punitive damages in an
unspecified amount; (2) the Company is a defendant in eight additional cases
brought in Circuit Court in Calhoun County, Circuit Court in St. Clair County,
Circuit Court in Taladega County or

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in U.S. District Court in the Northern District of Alabama on behalf of 1,641
individual plaintiffs who own or rent homes or own or operate businesses along
waterways near the plant or who live or attend churches near the plant. An
additional case has been filed in Circuit Court in Calhoun County by one of the
churches near the plant. The individual plaintiffs claim to have suffered
various personal injuries and fear future disease; they assert the need for
medical monitoring and claim to have suffered loss in the value of their
property or commercial injury. They seek compensatory and punitive damages of $3
million or in unspecified amounts for each individual, and $20 million for the
church; and (3) the Company is a defendant in an action brought in U.S. District
Court in the Northern District of Alabama pursuant to RCRA Section 7002(a)(1)(B)
on behalf of four individuals who are plaintiffs in one of the suits pending in
Circuit Court in Calhoun County. Plaintiffs seek an order enjoining the Company
from continuing to handle improperly hazardous waste from the Anniston plant,
directing the Company immediately to remove all PCBs released from the plant and
granting plaintiffs their costs of suit, including attorney and expert witness
fees. The Company believes it has meritorious defenses to all these matters,
including lack of any physical injury or property damage to plaintiffs, lack of
any imminent or substantial endangerment to health or the environment and lack
of negligence or improper conduct on the Company's part. The Company is
vigorously defending these actions.

RISK MANAGEMENT

Chemicals has evaluated risk retention and insurance levels for product
liability, property damage and other potential areas of risk. Chemicals will
continue to devote significant effort to maintaining and improving safety and
internal control programs, which reduce its exposure to certain risks.
Management will decide the amount of insurance coverage to purchase from
unaffiliated companies and the appropriate amount of risk to retain based on the
cost and availability of insurance and the likelihood of a loss. Management
believes that the levels of risk retention which it decides to implement will be
consistent with those of other companies in the chemical industry. There can be
no assurance that Chemicals will not incur losses beyond the limits, or outside
the coverage, of its insurance. Chemicals' combined financial position,
profitability and liquidity are not expected to be affected materially by the
levels of risk retention that it accepts. For treatment of Chemicals coverage
under existing Company insurance policies in connection with the Spinoff, see
"Relationship Between the Company and Chemicals After the Spinoff --
Distribution Agreement."

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MANAGEMENT OF CHEMICALS AFTER THE SPINOFF

EXECUTIVE OFFICERS OF CHEMICALS

Set forth below are the names, ages, future titles with Chemicals and present
and past positions of the persons who are expected to serve as executive
officers of Chemicals immediately following the Spinoff. Each such individual
will be elected to the indicated office with Chemicals in anticipation of the
Spinoff and will serve at the pleasure of the Chemicals' Board of Directors (the
"Chemicals Board"). Those persons named below who are currently officers or
employees of the Company will resign from their positions with the Company by
the Distribution Date.

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PRESENT AND PAST POSITIONS
NAME AND AGE FUTURE POSITION WITH CHEMICALS SINCE JANUARY 1, 1992
------------------------- ----------------------------- ----------------------------------

Robert G. Potter, 58..... Chairman, Chief Executive Chief executive of the Company's
Officer and Director chemical businesses, since 1986.
Executive Vice President of the
Company, since 1990. Advisory
Director of the Company, since
1986.
Karl R. Barnickol, 55.... Senior Vice President, General General Counsel of the Chemicals
Counsel and Secretary Business, since 1997. Associate
General Counsel and Assistant
Secretary of the Company, since
1985.
Rodney L. Bishop, 56..... Vice President and Treasurer Treasurer of the Chemicals
Business, since 1997. General
Auditor of the Company, since
1993. Assistant Controller of the
Company, 1982-1993.
Dennis L. Cavner, 43..... Vice President, Operational Vice President, Operational
Excellence Excellence of the Chemicals
Business, since 1997. Director,
Manufacturing, Saflex(R) Plastic
Interlayer, of the Company,
1996-1997. Director,
Manufacturing, Phosphorus and
Derivatives, of the Company,
1995-1996. Plant Manager of the
Company's Muscatine, Iowa
facility, 1992-1995.
Robert A. Clausen, 52.... Senior Vice President and Chief Financial Officer of the
Chief Financial Officer Chemicals Business, since 1997.
President, Monsanto Business
Services, 1994-1997. Vice
President, Asset Management of the
Company, 1992-1994.
Sheila Feldman, 42....... Vice President, Human Vice President, Human Resources,
Resources of the Chemicals Business, since
1997. Director, Human Resources,
Monsanto Business Services and
Stewardship, 1995-1997. Director,
Human Resources, The Chemical
Group of the Company, 1993-1995.
Manager, Human Resources Planning,
The Chemical Group of the Company,
1991-1993.

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PRESENT AND PAST POSITIONS
NAME AND AGE FUTURE POSITION WITH CHEMICALS SINCE JANUARY 1, 1992
------------------------- ----------------------------- ----------------------------------

G. Bruce Greer, 36....... Vice President, Growth and Vice President, Growth and Commer-
Commercial Development cial Development of the Chemicals
Business, since 1997. Senior
Director, Strategic Change, of the
Company, 1996-1997. Associate
Manager and Principal of Gemini
Consulting, a management
consulting firm, 1992-1996.
Roger S. Hoard, 52....... Vice President and Controller Controller of the Chemicals
Business, since 1997. Senior
Director, Finance, Monsanto
Business Services, 1995-1997.
Controller, Fibers Division, The
Chemical Group of the Company,
1990-1995.
John C. Hunter III, 50... President, Chief Operating Chief Operating Officer of the
Officer and Director Chemicals Business, since 1997.
President, Fibers Business Unit of
the Company, 1995-1997. Vice
President and General Manager,
Fibers Division and Asia-Pacific,
The Chemical Group of the Company
1993-1995. Vice President and
General Manager, Asia-Pacific,
Monsanto Chemical Company,
1989-1993.
Michael E. Miller, 55.... Vice President, Shared Vice President, Shared Services
Services and Supply Chain and Supply Chain of the Chemicals
Business, since 1997. President,
Specialty Products Business Unit
of the Company, 1995-1997. Group
Vice President, Industrial
Products of the Company,
1993-1995. Senior Vice President,
Operations, The Chemical Group of
the Company, 1993-1995. Corporate
Vice President, Administration of
the Company, 1989-1993.
O. Jerry Mullis, 54...... Vice President, Growth and Vice President, Growth and Commer-
Commercial Development and cial Development and Chief
Chief Technical Officer Technical Officer of the Chemicals
Business, since 1997. Director of
Technology and MTS for Specialty
Products Division, The Chemical
Group of the Company, 1993-1997.
Director of Technology, Fibers
Division, The Chemical Group of
the Company, 1991-1993.

DIRECTORS OF CHEMICALS

Prior to the Distribution Date, the Company, as sole stockholder of Chemicals,
plans to elect the persons named in the table below to constitute the Chemicals
Board. The Chemicals Board will be divided into three classes. Directors for
each class will be elected at the annual meeting of stockholders held in the
year in which the term for such class expires and will serve thereafter for
three years.

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Information with respect to the persons who as of July 8, 1997, are expected to
serve as directors is set forth below. Chemicals may add additional directors
over the next several months.

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INITIAL
TERM
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS EXPIRES
----------------------------- -------------------------------------------------------- -------

Robert T. Blakely, 55........ Executive Vice President and Chief Financial Officer, 2000
Tenneco Inc., since 1981. Director: New York City
Ballet; Manhattan and Bronx Council of the Boy Scouts of
America.
Joan T. Bok, 67.............. Chairman of the Board, New England Electric System, 1999
since 1984. Director: Avery Dennison Corporation; John
Hancock Mutual Life Insurance Company; New England
Electric System and its subsidiaries Massachusetts
Electric Company, The Narragansett Electric Company, and
New England Power Company. Trustee: National
Osteoporosis Foundation; Woods Hole Oceanographic
Institution; Worcester Foundation for Biomedical
Research.
Paul H. Hatfield, 61......... Chairman of the Board, President and Chief Executive 2000
Officer, Petrolite Corporation, 1995-1997. Vice
President, Ralston Purina Co. and Chief Executive
Officer, Protein Technologies International, Inc., a
subsidiary of Ralston Purina Co., 1977-1995. Director:
DeKalb Genetics Corporation; Penwest, Ltd.
John C. Hunter III, 50....... Director: Missouri Baptist Hospital. See also 1998
"-- Executive Officers of Chemicals."
Howard M. Love, 67........... Chief Executive Officer, National Intergroup, Inc., 1999
1981-91; Honorary Chairman, National Steel Corporation,
formerly a subsidiary of National Intergroup, Inc.,
since 1990; Chairman and Chief Executive Officer,
1984-90. Director: AEA Investors; COMSAT Corp. Member:
The Business Council.
Frank A. Metz, Jr., 63....... Senior Vice President, Finance and Planning, and Chief 2000
Financial Officer, International Business Machines
Corporation, 1986-93; Director, 1991-93. Director:
Allegheny Power System, Inc.; Norrell Corporation.
Robert G. Potter, 58......... Director: Southdown Inc.; Stepan Company. See also 1999
"-- Executive Officers of Chemicals."
William D. Ruckelshaus, 64... See "Election of Directors to Classified Terms." 1998
John B. Slaughter, 63........ President, Occidental College since 1988. Director, 1998
National Science Foundation, 1980-82. Director: Atlantic
Richfield Company; Avery Dennison Corporation;
International Business Machines Corporation; Northrop
Grumman Corp. Member: American Academy of Arts and
Sciences; National Academy of Engineering. Fellow:
American Association for the Advancement of Science;
Institute of Electrical and Electronic Engineers.

Mrs. Bok, Messrs. Love and Metz and Dr. Slaughter will resign as directors of
the Company as of the Spinoff. Mr. Ruckelshaus will continue as a director of
the Company at and after the Spinoff.

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COMMITTEES OF THE CHEMICALS BOARD

The Chemicals Board is expected to establish several committees including an
Audit and Finance Committee, an Executive Compensation Committee (the "Chemicals
Executive Compensation Committee"), and a Governance Committee. The membership
of these committees will be established at the initial meeting of the Chemicals
Board. A description of each committee follows:

Audit and Finance Committee. The Audit and Finance Committee will be composed
of non-employee directors. It will review and monitor Chemicals' internal
controls, financial reports and accounting practices and the scope and extent of
the audits to be performed by the independent auditors and internal auditors.
The committee will also recommend to the full Chemicals Board the selection of
Chemicals' principal independent auditors. The internal auditors and the
principal independent auditors will meet with this committee, with and without
management representatives present, to discuss the results of their examination,
the adequacy of Chemicals' internal accounting control and the quality of
Chemicals' financial reporting.

The Audit and Finance Committee will also review and monitor Chemicals'
financial planning and structure so that they conform to the corporation's
requirements for growth and sound operation. The committee will also review
proposed equity and debt offerings and financial policies such as the level of
dividend payout.

Executive Compensation Committee. The Chemicals Executive Compensation
Committee will be composed of non-employee directors. It will recommend to the
Chemicals Board the establishment and modification of management incentive plans
for Chemicals. The committee will make grants and awards under these plans to
senior management of Chemicals (including its executive officers) and will
administer and interpret these plans. It is anticipated that the committee will
delegate authority to a compensation committee composed of senior managers to
make grants and awards under the incentive plans to employees other than senior
management. The Chemicals Executive Compensation Committee will also have
authority to approve the establishment, modification, and termination of other
executive compensation programs and agreements. The committee will also review
plans for executive succession and determine the salaries of the senior
management of Chemicals (including its executive officers).

Governance Committee. The Governance Committee will be composed of non-employee
directors. It will serve as a nominating committee to consider candidates for
the Chemicals Board. As such, it will develop internal criteria for the
selection of directors and criteria by which sitting directors will be
evaluated. In performing these responsibilities, the committee will consult with
the Chairman of the Chemicals Board. The committee will consider nominations of
candidates for election as director recommended by stockholders. Any such
recommendation, together with the nominee's qualifications and consent to being
considered as a nominee, should be submitted in writing by year-end to the
Secretary of Chemicals.

The committee will also develop principles and procedures for the Chemicals
Board. These principles and procedures will be reevaluated periodically to
ensure that the Chemicals Board is fulfilling its responsibilities in a manner
that effectively serves the interests of the stockholders of Chemicals. The
Governance Committee will also review and monitor the performance of Chemicals
as it affects employees, communities, customers and the environment.

COMPENSATION OF DIRECTORS

Employee directors of Chemicals will not receive a retainer or other
compensation for attendance at Chemicals Board or Chemicals Board committee
meetings. Chemicals anticipates that non-employee directors will receive an
annual retainer of $50,000, at least half of which will be paid in deferred
stock units ("DSUs") or restricted stock and the remainder of which will be
paid, in accordance with the director's election, in cash, DSUs, restricted
stock or a combination thereof. In addition, non-employee directors will receive
an option to purchase Chemicals Common Stock upon their initial election and a
smaller option grant annually. Chemicals does not expect to have a retirement
program for its directors. Actual compensation will be determined by the
Chemicals Board after the Spinoff.

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EXECUTIVE COMPENSATION

Historical Compensation

The following table sets forth compensation paid by the Company in 1996 to the
Chief Executive Officer of Chemicals and the individuals who will be executive
officers of Chemicals as of the Distribution Date and were, based on such
compensation, the most highly compensated such employees for the fiscal year
ended December 31, 1996 (the "Chemicals Named Executive Officers"). The
principal positions listed in the table are those which will be held by the
Chemicals Named Executive Officers as of the Distribution Date.

SUMMARY COMPENSATION TABLE

[Enlarge/Download Table]

LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------------------------------------- ----------------------- -------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDER- OTHER
COMPEN- STOCK LYING LTIP COMPEN-
SATION AWARDS OPTIONS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) ($)(3) (#)(4) ($)(4) ($)(5)
----------------------------- ---- --------- ----------- ------- ---------- ---------- ------- -------

R. G. Potter................. 1996 500,000 940,000 -0- -0- 800,000 -0- 54,138
Chairman, Chief
Executive Officer and
Director
K. R. Barnickol.............. 1996 197,925 207,789 -0- 491,500 -0- -0- 19,022
Senior Vice President,
General Counsel and
Secretary
R. A. Clausen................ 1996 230,000 307,150 -0- -0- 250,000 -0- 21,762
Senior Vice President and
Chief Financial Officer
J. C. Hunter III............. 1996 250,000 340,000 -0- -0- 250,000 -0- 28,077
President, Chief Operating
Officer and Director
M. E. Miller................. 1996 260,000 362,000 -0- -0- 250,000 -0- 24,337
Vice President, Shared
Services and Supply Chain

---------------
(1) 30% of the 1996 bonus amounts shown above (excluding the portion
attributable to achievement of the Company's return on equity ("ROE") goal
for each of the Chemicals Named Executive Officers) was adjusted to
recognize sustained long-term performance as described in footnote 1 to the
Long-Term Incentive Plans -- Awards in 1996 table, below, and paid in March
1997.

(2) Applicable regulations set reporting levels for certain non-cash
compensation.

(3) On December 31, 1996, Mr. Barnickol held 20,000 shares of Company Restricted
Stock having a value on that date of $788,760. These shares were received on
January 24, 1996, when they had the value shown in the table above. The
restrictions on these shares are scheduled to lapse as to one-fourth of the
shares on the first business day following each of the first four
anniversaries of the date of grant. In accordance with this schedule, 5,000
shares vested on January 27, 1997. Dividends are paid on these shares of
Company Restricted Stock at the same rate as paid to all stockholders.

(4) These columns reflect grants and payouts made under various option programs
and long-term incentive plans ("LTIPs"), respectively. No LTIP payments were
made in 1996.

(5) Amounts shown for 1996 include contributions to thrift/savings plans of the
Company as follows: Mr. Potter, $21,000; Mr. Barnickol, $8,313; Mr. Clausen,
$9,660; Mr. Hunter, $10,500; and Mr. Miller, $10,920; split dollar life
insurance premiums paid as follows: Mr. Potter, $32,468; Mr. Barnickol,
$10,563; Mr. Clausen, $11,618; Mr. Hunter, $17,577; and Mr. Miller, $13,417;
costs for supplemental medical plans of the Company as follows: Mr. Potter,
$524 and Mr. Clausen, $338; and costs for executive travel accident plans of
the Company, as follows: Mr. Potter, $146; Mr. Barnickol, $146; and Mr.
Clausen, $146.

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The following table shows grants of Company Options under the Incentive Plan to
the Chemicals Named Executive Officers during the 1996 fiscal year. In
accordance with Commission rules, the Black-Scholes option pricing model was
chosen to estimate the grant date present value of the options set forth in this
table. The Company's use of this model should not be construed as an endorsement
of its accuracy at valuing options. Accordingly, there is no assurance that the
value realized by an executive, if any, will be at or near the value estimated
by the Black-Scholes model. The following assumptions were made for purposes of
calculating the original grant date present value of the Company Options: an
option term of 4.5 years, volatility of 25%, dividend yield of 1.5%, and a
risk-free interest rate of 6.28%. As a result of the Spinoff, each Company
Option granted to the Chemicals Named Executive Officers listed below will be
replaced with either a Chemicals Option or a combination of a New Company Option
and a Chemicals Option pursuant to adjustments provided in the Employee Benefits
Allocation Agreement, and, as a result, their value may depend, in part, on the
future value of Chemicals Common Stock as well as on the future value of Company
Common Stock. See "Relationship Between the Company and Chemicals After the
Spinoff -- Employee Benefits Allocation Agreement."

OPTION GRANTS IN 1996

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GRANT
DATE
VALUE
INDIVIDUAL GRANTS ---------
-------------------------------------------------------------------------------------------
(B) (C) (F)
NUMBER OF % OF TOTAL (D) GRANT
SECURITIES OPTIONS EXERCISE DATE
UNDERLYING GRANTED TO OR BASE (E) PRESENT
OPTIONS EMPLOYEES IN PRICE EXPIRATION VALUE
(A) GRANTED(#) FISCAL YEAR ($/SHARE) DATE ($)
---------- ------------ --------- ---------- ---------

R. G. Potter 160,000(1) 0.6 30.338 04/25/06 1,459,200
240,000 1.0 35.000 04/25/06 1,735,200
240,000 1.0 40.000 04/25/06 1,351,200
160,000 0.6 45.000 04/25/06 985,600(2)
K. R. Barnickol -0- -0- -- -- --
R. A. Clausen 50,000(1) 0.2 30.338 04/25/06 456,080
75,000 0.3 35.000 04/25/06 542,250
75,000 0.3 40.000 04/25/06 422,250
50,000 0.2 45.000 04/25/06 308,000(2)
J. C. Hunter III 50,000(1) 0.2 30.338 04/25/06 456,080
75,000 0.3 35.000 04/25/06 542,250
75,000 0.3 40.000 04/25/06 422,250
50,000 0.2 45.000 04/25/06 308,000(2)
M. E. Miller 50,000(1) 0.2 30.338 04/25/06 456,080
75,000 0.3 38.000 04/25/06 542,250
75,000 0.3 40.000 04/25/06 422,260
50,000 0.2 45.000 04/25/06 308,000(2)

---------------
(1) The exercise price of $30.338 for this tranche of Company Options was the
fair market value per underlying share on April 26, 1996, the date of grant.
The three succeeding tranches have pre-established "premium" exercise prices
(prices higher than the fair market value per underlying share on the date
of grant) which must be attained within four, five, and six years,
respectively, from the date of grant and maintained for ten consecutive
trading days in order to avoid forfeiture of the Company Options in the
tranche. The $35 and $40 pre-established exercise prices have been met. All
Company Options must be held for a minimum of one year from the date of
grant before they may be exercised. These Company Options expire on the
tenth anniversary of the grant date unless forfeited earlier. The Company
Options carry stock tax withholding rights.

(2) Two of the assumptions used to calculate the grant date present value of
these Company Options varied from the assumptions set forth above because
the pre-established exercise price of these Company Options has not yet been
attained. The option term was assumed to be six years, and the risk-free
interest rate 6.37%.

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The following table provides information with respect to Company Options
exercised by the Chemicals Named Executive Officers during the 1996 fiscal year
and the value of unexercised Company Options held by Chemicals Named Executive
Officers at fiscal year end. The amounts set forth in the two columns relating
to unexercised Company Options, unlike the amounts set forth in the column
headed "Value Realized," have not been, and might never be, realized. The
underlying Company Options might not be exercised; and actual gains on exercise,
if any, would depend on the value of Company Common Stock and Chemicals Common
Stock on the date of exercise, and there can be no assurance that these values
would be realized. As a result of the Spinoff, each Company Option granted to
the Chemicals Named Executive Officers listed below will be replaced with either
a Chemicals Option or a combination of a New Company Option and a Chemicals
Option, pursuant to adjustments provided in the Employee Benefits Allocation
Agreement and, as a result, their value may, in part, depend on the future value
of Chemicals Common Stock as well as on the future value of Company Common
Stock. See "Relationship Between the Company and Chemicals After the
Spinoff -- Employee Benefits Allocation Agreement."

AGGREGATED OPTION EXERCISES IN 1996 AND
OPTION VALUES ON DECEMBER 31, 1996

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(D) (E)
---------------------- --------------------
(B) NUMBER OF SECURITIES VALUE OF UNEXERCISED
----------- (C) UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES --------- OPTIONS AT AT
(A) ACQUIRED VALUE FY-END(#)(2) FY-END ($)(2)
----- ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE
--------------------------- ----------- --------- ---------------------- --------------------

R. G. Potter............... - 0 - - 0 - 947,390/800,000 25,961,332/2,521,120
K. R. Barnickol............ 22,000 503,800 434,000/0 12,017,131/0
R. A. Clausen.............. - 0 - - 0 - 229,305/250,000 5,735,595/787,850
J. C. Hunter III........... 60,000 1,272,000 114,500/250,000 3,133,914/787,850
M. E. Miller............... 115,000 1,542,449 318,000/250,000 8,941,810/787,850

---------------
(1) The amounts in column (c) reflect the value of shares received on the
exercises of Company Options granted up to ten years earlier at fair market
values ranging from $6.90 to $11.50.

(2) Unexercised Company Options shown in columns (d) and (e) reflect grants
received over an extended period of time.

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The following table includes information with respect to awards made pursuant to
the Monsanto Executive Stock Purchase Incentive Plan (the "Company Executive
Stock Purchase Incentive Plan") to Chemicals Named Executive Officers in 1996.

LONG-TERM INCENTIVE PLANS -- AWARDS IN 1996

[Enlarge/Download Table]

PERFORMANCE
NUMBER OF OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
SHARES, PERIOD NON-STOCK PRICE-BASED PLANS
UNITS OR UNTIL -----------------------------------------
OTHER RIGHTS MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT ($) ($) ($)
(A) (B) (C) (D) (E) (F)
--------------------- --------------- ----------- ---------- --------- ------------

R. G. Potter......... N/A(1) N/A N/A 242,813 N/A
65,000 units(2) 12/31/00 799,976(3) 1,199,964(3) 2,399,927(3)
K. R. Barnickol...... N/A(1) N/A N/A 47,715 N/A
R. A. Clausen........ N/A(1) N/A N/A 72,750 N/A
20,000 units(2) 12/31/00 246,146(3) 369,220(3) 738,439(3)
J. C. Hunter III..... N/A(4) N/A N/A 468,313 N/A
20,000 units(2) 12/31/00 246,146(3) 369,220(3) 738,439(3)
M. E. Miller......... N/A(4) N/A N/A 498,620 N/A
20,000 units(2) 12/31/00 246,146(3) 369,220(3) 738,439(3)

---------------

(1) The amount shown in this line represents the sustained performance
adjustment applied this year to both the portion of the 1996 bonus described
in footnote 1 to the Summary Compensation Table and the portion of the
annual bonus withheld for 1995 because net income and capital employed
objectives were met for all three performance years under the Company's
annual incentive program for the years 1994-1996. The total of all
adjustments for sustained performance relative to an individual's cumulative
incentive awards over the 1994-1996 performance period paid in March 1997
ranges from 20% to 25% of the awards paid for the three-year period.

(2) The units represent shares purchased under the Company Executive Stock
Purchase Incentive Plan. Pursuant to this plan, each Chemicals Named
Executive Officer purchased with a full-recourse interest-bearing loan from
the Company the number of shares of the Company Common Stock equal to the
number of units next to his name. The interest rate was 6.36%, the
applicable U.S. federal rate (as determined by Section 1274(d) of the Code)
in effect at the time of purchase. The estimated future payouts shown in
this table are based upon the principal amount of the loan plus unpaid
interest at the end of the performance period (the "Ending Loan Amount") and
cannot exceed the amount to be repaid. The threshold payout represents
33 1/3% of the estimated Ending Loan Amount. In order to achieve the
threshold payout, the Chemicals Named Executive Officer must not sell the
stock purchased and must remain employed with the Company during the entire
performance cycle (which ends December 31, 2000), and the Company must have
positive cumulative net income for this period ("Service Award"). Each
Chemicals Named Executive Officer may also receive an additional award of up
to the remaining 66 2/3% of the Ending Loan Amount ("Performance Award").
The size of this Performance Award depends upon the total shareholder return
to the Company's stockholders through the year 2000 as compared with the
total shareholder return for companies in the Standard & Poor's Industrials
(the "Index"). In order to achieve the maximum payout shown in the table,
the Chemicals Named Executive Officer must earn the full Service Award, and
the Company's total shareholder return through the year 2000 must be at or
above the total shareholder return of companies at the 75th percentile of
the Index, entitling the Chemicals Named Executive Officer to the maximum
Performance Award. To achieve the target award shown in the table, the
Chemicals Named Executive Officer must earn the full Service Award, and the
Company's total shareholder return through the year 2000 must be at or above
the 50th percentile of the Index, entitling the executive to the minimum
Performance Award. Amounts paid must be applied by the Chemicals Named
Executive Officer towards payment of the outstanding principal and accrued
interest on the loan. If only the threshold or target award is received, the
outstanding loan balance would significantly exceed the payment to the
Chemicals Named Executive Officers under the

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Company Executive Stock Purchase Incentive Plan, and the executive would be
required to either sell some or all of the shares or use other personal assets
to pay off the remainder of the loan.

(3) Assumes the Company's annual dividend in effect as of December 31, 1996
remains unchanged through December 31, 2000. An increase in the dividend
would reduce the amount of the deferred incentive award. Similarly, a
decrease in the dividend would increase the amount of the deferred incentive
award. Assumes also that the Chemicals Named Executive Officer keeps the
shares of Company Common Stock purchased under the Company Executive Stock
Purchase Incentive Plan and remains an employee of the Company until
December 31, 2000. As a result of the Spinoff and the executive's consequent
termination of employment with the Company, the executive will receive a
prorated Service Award based on the number of months of service with the
Company during the performance period and be eligible to receive a prorated
Performance Award based upon the Company's relative stock price performance
through the date of termination. In addition, if the balance outstanding on
his loan after applying the aftertax proceeds of his deferred incentive
award toward repayment of the loan exceeds the value of his shares, the
Company will reimburse the participant on an aftertax basis for the amount
of such excess, provided that the amount of this payment together with the
executive's Service Award does not exceed one-third of the Ending Loan
Amount.

(4) The amount shown in this line represents the sum of (a) the award for
recognition of performance in 1996 under the 1994-1996 long-term incentive
program applicable to the executive and (b) the sustained performance
adjustment applied this year to the total of the long-term incentive award
for 1996 and the portion of the annual bonuses withheld for 1995 and 1996
because net income and capital employed objectives were met for all three
performance years under both the annual and the long-term incentive programs
for the years 1994-1996. The total of all adjustments for sustained
performance relative to an individual's cumulative incentive awards over the
1994-1996 performance period paid in March 1997 ranges from 20% to 25% of
the awards paid for the three-year period.

Pension Plans

Prior to the Spinoff, the Chemicals Named Executive Officers are eligible to
receive benefits payable under the Company's defined benefit pension plans.
Those benefits are described under "Management of the Company -- Executive
Compensation."

Average final compensation and the respective years of service at the Company as
of December 31, 1996 for the Chemicals Named Executive Officers are as follows:
Mr. Potter, $1,073,223 (31.1 years); Mr. Barnickol, $333,120 (26.4 years); Mr.
Clausen, $368,244 (27.8 years); Mr. Hunter, $423,408 (27.3 years); and Mr.
Miller, $530,604 (31.4 years).

Following the Spinoff, the Company and Chemicals will generally each be
responsible for providing pension benefits to their own employees through their
own separate pension plans. However, the Company and Chemicals may create a
multiple employer pension plan, of which they would initially be the joint
sponsors, to provide for certain benefits accrued by certain non-union employees
and retirees of the Chemicals Business. Chemicals would be primarily liable for
all contributions to fund this multiple employer pension plan, but the Company
would remain secondarily liable for such funding. In addition, the Company's
pension plan will continue to be responsible for benefits accrued under that
plan and the corresponding non-qualified pension plan by certain other retirees
of the Chemicals Business through December 31, 1997.

Treatment of Outstanding Company Stock Awards

Pursuant to the Employee Benefits Allocation Agreement, at the time of the
Spinoff, certain Company Options granted to Chemicals employees will be
converted into Chemicals Options with adjustments to preserve their value. These
adjustments will be based upon the pre-Spinoff trading value of the Company
Common Stock and the post-Spinoff trading value of the Chemicals Common Stock.
In addition, certain Company Options will be converted into two awards, one
based on Chemicals Common Stock and one based on Company Common Stock, with the
same overall value at the time of the Spinoff as the old award. Chemicals will
be responsible for delivering shares of Chemicals Common Stock upon exercise of
Chemicals

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Options, and the Company will be responsible for the delivery of shares of
Company Common Stock upon exercise of New Company Options. See "Relationship
Between the Company and Chemicals After the Spinoff -- Employee Benefits
Allocation Agreement." The holders of Company Restricted Stock (whether employed
by the Company or Chemicals after the Spinoff) will be entitled under the terms
of the Company Restricted Stock to receive the distribution of shares of
Chemicals Restricted Stock with respect to their Company Restricted Stock, and
such shares of Chemicals Restricted Stock will generally be subject to the same
restrictions as the Company Restricted Stock.

Employment and Change of Control Arrangements

Each of the Chemicals Named Executive Officers and certain other key executives
of Chemicals is a party to a change of control employment agreement (a "Change
of Control Employment Agreement") as described in "Management of the
Company -- Certain Agreements." The Spinoff will not be considered to be a
change of control that triggers the effectiveness of these Change of Control
Agreements. These Change of Control Agreements with Chemicals executives will be
assumed by Chemicals at the time of the Spinoff, and each will terminate six
months after the Spinoff unless before that time there is either a change of
control of Chemicals or the Chemicals Board ratifies such Change of Control
Agreement.

CHEMICALS INCENTIVE AND BENEFIT PLANS

Prior to the Spinoff, Chemicals will adopt an incentive plan for its management
which will authorize the Chemicals Board or the Chemicals Executive Compensation
Committee to grant non-qualified stock options, incentive stock options meeting
the requirements of the Code, stock appreciation rights, and restricted and
unrestricted shares similar to those authorized by the Incentive Plan. See
"Incentive Plan Proposal -- Material Features of the Incentive Plan." It is
anticipated that the plan will authorize the use of sufficient shares to provide
grants and awards which are competitive with those of other companies in the
chemical industry and which are intended to align the interests of management
with those of stockholders. While the precise number of shares to be authorized
has not yet been determined, it is anticipated that the plan will allow for
grants and awards on one to two percent of the outstanding shares in any one
year. In addition, it is expected that Chemicals will grant non-qualified stock
options on up to approximately 21 million shares, contemporaneously with the
Spinoff, to provide for the conversion of certain Company Options into Chemicals
Options in conjunction with the Spinoff. See "-- Treatment of Outstanding
Company Stock Awards."

Prior to or shortly after the Spinoff, Chemicals intends to adopt pension,
thrift and welfare plans generally comparable to those currently applicable to
most Company employees in the respective countries where they are employed.
Chemicals may elect to change these plans in the future as necessary or
desirable to respond to changes in economic or industry conditions or regulatory
requirements.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Indebtedness

During 1996, Mr. Potter, Mr. Clausen, Mr. Hunter and Mr. Miller all received
full-recourse, interest-bearing loans for the purchase price of the Company
Common Stock they purchased pursuant to the terms of the Company Executive Stock
Purchase Incentive Plan. The loans have an eight-year term and accrue interest
at the applicable U.S. federal rate (as determined by Section 1274(d) of the
Code) on the purchase date for loans of such maturity, compounded annually. The
applicable U.S. federal rate in effect on the purchase date was 6.36%. In
addition, the loans are secured by a pledge of the shares of Company Common
Stock acquired under the Company Executive Stock Purchase Incentive Plan.

Interest is payable prior to maturity to the extent of dividends paid on the
shares purchased, with the balance due at the maturity of the loan. The proceeds
of the deferred cash incentives awarded during the performance cycle under the
Company Executive Stock Purchase Incentive Plan must also be applied to prepay
the loans. Following such prepayment, the balance of the loans at the end of the
performance cycle, together with accrued and unpaid interest thereon, will
generally be payable in three equal installments (plus interest) on the first
three anniversaries of the end of the performance cycle. The payment of the loan
will be accelerated if an executive officer's service is terminated during the
performance cycle for any reason other than retirement or following a change of
control. In the event of retirement, there is no loan acceleration. In the event
of a change of control, the loan must be repaid over a three-year period
following such event. The loan may also be prepaid at any time at the executive
officer's option. As a result of the Spinoff and the executive's consequent
termination of employment with the Company, the executive will receive a
prorated Service Award based on the number of months of service with the Company
during the performance period and be eligible to receive a prorated Performance
Award based upon the Company's relative stock price performance through the date
of termination. In addition, if the balance outstanding on his loan after
applying the aftertax proceeds of his deferred incentive award toward repayment
of the loan exceeds the value of his shares, the Company will reimburse the
participant on an aftertax basis for the amount of such excess, provided that
the amount of this payment together with the executive's Service Award does not
exceed one-third of the Ending Loan Amount. The executive will be required to
repay the remaining Ending Loan Amount.

On May 10, 1996, Mr. Potter and the other three Chemicals Named Executive
Officers who received loans were given loans in the following amounts: Mr.
Potter, $1,962,194; Mr. Clausen, $603,752; Mr. Hunter, $603,752; and Mr. Miller,
$603,752. As of December 31, 1996, the aggregate principal balance of these
loans was $3,870,634.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF
COMPANY COMMON STOCK

BY MANAGEMENT

The following table sets forth the number of shares of Company Common Stock
beneficially owned, directly or indirectly, by each director of Chemicals, each
Chemicals Named Executive Officer and all directors and executive officers of
Chemicals as a group, as of May 31, 1997. A list of the individuals who are
expected to be executive officers of Chemicals immediately following the Spinoff
is set forth under "Management of Chemicals After the Spinoff -- Executive
Officers of Chemicals." Except as otherwise indicated, each individual named has
sole investment and voting power with respect to the securities shown. In
accordance with the Distribution Ratio, the persons listed below will receive
one share of Chemicals Common Stock for every five shares of Company Common
Stock held by them on the Distribution Date. In addition, as a result of the
Spinoff, the Company Options referenced in the table below will be converted
into either Chemicals Options or a combination of New Company Options and
Chemicals Options, in each case with the same overall value at the time of the
Spinoff as the old award. See "Relationship Between the Company and Chemicals
After the Spinoff -- Employee Benefits Allocation Agreement."

[Enlarge/Download Table]

SHARES OF SHARES UNDERLYING
COMMON STOCK OPTIONS EXERCISABLE
OWNED DIRECTLY OR WITHIN 60
NAME INDIRECTLY (A)(B) DAYS (C) TOTAL
------------------------------------------------- ----------------- ------------------- -----------

Karl R. Barnickol................................ 54,115(d) 384,000 438,115
Robert T. Blakely................................ 0 0
Joan T. Bok...................................... 13,398 13,398
Robert A. Clausen................................ 38,101 330,000 368,101
Paul H. Hatfield................................. 2,000 2,000
John C. Hunter III............................... 50,078(e) 306,500 356,578
Howard M. Love................................... 19,785(f) 19,785
Frank A. Metz, Jr................................ 10,154 10,154
Michael E. Miller................................ 38,048 468,000 506,048
Robert G. Potter................................. 251,881(g) 1,587,390 1,839,271
William D. Ruckelshaus........................... 14,610(h) 14,610
John B. Slaughter................................ 9,646(i) 9,646
All directors and executive officers
(18 persons)................................... 517,329(j) 3,399,555 3,916,884

-------------------------

(a) Includes shares held under the Company SIP: Mr. Potter, 31,406; Mr.
Barnickol, 13,583; Mr. Clausen, 166 ; Mr. Hunter, 10,366; Mr. Miller,
12,637; and directors and executive officers as a group, 91,211. With
respect to shares held under the Company SIP, employee directors and
officers have sole discretion as to voting and, within limitations provided
by the Company SIP, investment of shares. Shares are voted by the trustees
of the Company SIP in accordance with instructions from participants. If
instructions are not received by the trustees as to the voting of particular
shares, shares are to be voted in proportion to instructions actually
received from other participants in the Company SIP. Also includes shares
held under other benefit and incentive plans of the Company: Mr. Potter,
1,390; Mr. Barnickol, 16,026 ; Mr. Clausen, 1,040; Mr. Hunter, 712; and
directors and executive officers as a group, 23,299 . With respect to shares
held under other benefit and incentive plans of the Company, employee
directors and officers have sole voting power and no current investment
power.

(b) Includes the following shares received from the Company by Mrs. Bok, Messrs.
Love, Metz, and Ruckelshaus and Dr. Slaughter, who are currently directors
of the Company, as a portion of the non-employee director annual retainer:
Mrs. Bok, 660 shares; Mr. Love, 1,625 shares; Mr. Metz, 3,245 shares; Mr.
Ruckelshaus, 1,500 shares; and Dr. Slaughter, 1,625 shares. With respect to
those shares, these directors have sole voting power and no current
investment power. A number of these shares will be forfeited by four of
these directors (Mrs. Bok, Messrs. Love and Metz and Dr. Slaughter) as a
result of their resignation from the Company Board at the Spinoff: Mrs. Bok,
495; Mr. Love, 650; Mr. Metz, 1,310; and Dr. Slaughter, 650.

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(c) The Commission deems a person to have beneficial ownership of all shares
which that person has the right to purchase within 60 days. The shares
indicated represent Company Options granted under Company incentive plans.

(d) Includes 8,890 shares owned jointly by Mr. Barnickol and his wife.

(e) Includes 165 shares owned by Mr. Hunter's son.

(f) Includes 6,000 shares held in trust in which Mr. Love has an income interest
as to which he expressly disclaims beneficial ownership.

(g) Includes 32,600 shares owned by Mr. Potter's wife as to which he expressly
disclaims beneficial ownership and 495 shares owned jointly by Mr. Potter
and his wife.

(h) Includes 1,000 shares owned jointly by Mr. Ruckelshaus and his wife.

(i) Includes 681 shares owned by Dr. Slaughter's wife as to which he expressly
disclaims beneficial ownership.

(j) Includes 450 shares beneficially owned by a member of the household of an
executive officer not named above.

The percentage of shares of outstanding Company Common Stock, including Company
Options exercisable within 60 days of May 31, 1997, beneficially owned by all
persons who will be directors and executive officers of Chemicals as a group
does not exceed 1%. The percentage of such shares beneficially owned by any one
director or Chemicals Named Executive Officer does not exceed 1%.

BY OTHERS

The following table sets forth each person or entity that, to the knowledge of
the Company, beneficially owns more than 5% of the outstanding Company Common
Stock.

[Enlarge/Download Table]

AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP
OF COMPANY PERCENT OF
NAME OF BENEFICIAL OWNER COMMON STOCK CLASS
------------------------------------------------------------- ----------------- ----------

Oppenheimer Group, Inc....................................... 31,232,321(a) 5.31%
Oppenheimer Tower
World Financial Center
New York, New York 10281
FMR Corp..................................................... 29,935,145(b) 5.09%
82 Devonshire Street
Boston, Massachusetts 02109

-------------------------
(a) The ownership information disclosed above is based on a Schedule 13G with
respect to Company Common Stock filed with the Commission on February 4,
1997 by Oppenheimer Group, Inc., on behalf of itself and related companies
and certain investment advisory clients. Such 13G reports the beneficial
ownership of 31,232,321 shares of Company Common Stock. Power to vote and
dispose of all 31,232,321 shares, including 30,923,115 shares held by
Oppenheimer Capital, is shared. Oppenheimer Group, Inc. and the related
companies and investment advisory clients disclaim beneficial ownership and
shared voting and dispositive power with respect to all 31,232,321 shares.
According to a Schedule 13F filed with respect to the first quarter of 1997
by Oppenheimer Group, Inc., the 31,232,321 has been decreased to 31,116,110.

(b) The ownership information disclosed above is based on a Schedule 13G with
respect to Company Common Stock filed on February 12, 1997 with the
Commission by FMR Corp. ("FMR") on behalf of itself, certain related
companies, and certain shareholders. Such 13G reports beneficial ownership
of 29,935,145 shares of Company Common Stock. FMR, through its subsidiaries,
Fidelity Management & Research Company and Fidelity Management Trust
Company, and through Fidelity International Limited, had sole dispositive
power over all 29,935,145 shares, shared voting power as to none of these
shares, and sole voting power as to 4,483,385 of these shares. According to
a Schedule 13F filed with respect to the first quarter of 1997 by FMR, the
29,935,145 has increased to 32,441,650.

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MANAGEMENT OF THE COMPANY

EXECUTIVE COMPENSATION

The following Company Summary Compensation Table sets forth compensation earned
by the Chief Executive Officer of the Company, and the four other most highly
compensated executive officers of the Company and its subsidiaries (the "Company
Named Executive Officers") for services rendered in all capacities to the
Company during the three fiscal years ended December 31, 1996. Each of such
executives will continue as a senior executive of the Company following the
Spinoff, with the exception of Mr. Potter who will become Chairman and Chief
Executive Officer of Chemicals. Information regarding shares of Company Common
Stock and Company Options reported in this table and in the succeeding tables
has been adjusted to reflect the Company's five-for-one stock split in 1996.

COMPANY SUMMARY COMPENSATION TABLE

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LONG TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------- ----------------------- PAYOUTS
(E) (G) ------- (I)
OTHER (F) SECURITIES ALL
ANNUAL RESTRICTED UNDER- (H) OTHER
(A) COMPEN- STOCK LYING LTIP COMPEN-
NAME AND (B) (C) (D) SATION AWARDS OPTIONS PAYOUTS SATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) ($)(3) (#)(4) ($)(4) ($)(5)
----------------------------- ---- --------- ----------- ------- ---------- ---------- ------- -------

R. B. Shapiro................ 1996 800,000 2,120,000 -0- -0- 2,950,000 -0- 89,709
Chairman and 1995 685,417 1,235,600 -0- -0- 262,500 -0- 50,627
Chief Executive Officer 1994 567,500 893,905 -0- -0- 616,665 560,000 42,956
and Director
R. U. De Schutter(6)......... 1996 500,000 806,000(7) -0- -0- 350,000 -0- 50,856
Chairman and 1995 453,635 556,000 -0- -0- 200,000 -0- 61,719
Chief Executive Officer 1994 -- -- -- -- -- -- --
G. D. Searle & Co.
R. G. Potter................. 1996 500,000 940,000 -0- -0- 800,000 -0- 54,138
Executive Vice President 1995 470,834 807,926 -0- -0- 351,390 -0- 51,240
1994 456,667 645,720 -0- -0- -0- 785,000 52,778
N. L. Reding................. 1996 515,000 944,200 -0- -0- 800,000 -0- 51,135
Vice Chairman of the Board 1995 515,000 869,200 -0- -0- -0- -0- 60,742
and Director 1994 504,583 741,825 -0- -0- 466,665 -0- 56,421
H. A. Verfaillie............. 1996 500,000 940,000 -0- -0- 800,000 -0- 61,633
Executive Vice President 1995 393,333 715,200 -0- -0- 351,390 -0- 42,461
1994 320,000 459,650 -0- -0- -0- 500,000 39,295

-------------------------
(1) 30% of the 1996 bonus amounts shown above (excluding the portion
attributable to achievement of the Company's ROE goal) for each of the
Company Named Executive Officers were adjusted to recognize sustained
long-term performance as described in footnote 1 to the Company Long-Term
Incentive Plans -- Awards in 1996 table below and paid in March 1997.

(2) Applicable regulations set reporting levels for certain non-cash
compensation.

(3) There were no grants of Company Restricted Stock to Company Named Executive
Officers during the period covered in this table. Company Restricted Stock
holdings on December 31, 1996 were as follows:

- Mr. Shapiro held 125,000 shares of Company Restricted Stock having a
value on December 31, 1996, of $4,929,750. These were the remaining
shares of Company Restricted Stock from an award of 250,000 shares
received on January 22, 1993, when the award had a value of $2,621,900.
Dividends on these shares of Company Restricted Stock accrue at the
same rate as paid to all stockholders. In each of February 1995 and
February 1996, 62,500 shares and the related dividends vested because
the Company achieved its 20% ROE goal for 1994 and 1995, respectively.
An additional 62,500 shares of Company Restricted Stock and the related
dividends vested in February 1997 because the ECDC determined that the
effect of the significant charges taken in connection with the Spinoff
would not be utilized in determining whether the Company achieved its
1996 ROE goal. The final 62,500 shares of Company Restricted Stock will
vest in February 1998 if the

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Company achieves 20% ROE for 1997. Failure to achieve 20% ROE for 1997 will
result in forfeiture of the final 62,500 shares along with any related
dividends.

- Mr. Verfaillie held 31,250 shares of Company Restricted Stock having a
value on December 31, 1996, of $1,232,438. These were the remaining
restricted shares from an award of 75,000 shares received on January
22, 1993, when the award had a value of $786,570. Dividends on these
shares accrue at the same rate as paid to all stockholders. In February
1995, 12,500 shares and the related dividends vested because the return
on capital goal for his business unit was achieved for 1994. In
February 1996, 31,250 shares and the related dividends vested because
the Company achieved its 20% ROE goal for 1995. These remaining 31,250
restricted shares vested in February 1997 because the ECDC determined
that the effect of the significant restructuring charges taken in
connection with the Spinoff would not be utilized in determining
whether the Company achieved its 1996 ROE goal.

- On December 31, 1996, no shares of Company Restricted Stock were held
by any of Messrs. De Schutter, Potter, or Reding.

(4) These columns reflect grants and payouts made under various option programs
and LTIPs, respectively. No LTIP payments were made in 1996.

(5) Amounts shown for 1996 include contributions to the Company's thrift/savings
plans as follows: Mr. Shapiro, $33,600; Mr. De Schutter, $24,930; Mr.
Potter, $21,000; Mr. Reding, $21,630; and Mr. Verfaillie, $21,000; split
dollar life insurance premiums paid as follows: Mr. Shapiro, $55,963; Mr. De
Schutter, $16,145; Mr. Potter, $32,468; Mr. Reding, $29,359; and Mr.
Verfaillie, $40,487; costs for supplemental medical plans as follows: Mr. De
Schutter, $6,463; and Mr. Potter, $524; costs for executive disability, as
follows: Mr. De Schutter, $3,211; and costs for executive travel accident
plans of the Company, as follows: Mr. Shapiro, $146; Mr. De Schutter, $107;
Mr. Potter, $146; Mr. Reding, $146; and Mr. Verfaillie, $146.

(6) Mr. De Schutter became an executive officer of the Company during 1995.

(7) Consistent with the policy in the Searle business unit of the Company, the
portion of Mr. De Schutter's bonus attributable to achievement of the
Company's ROE goal was capped at $6,000.

The following table provides information with respect to Company Options granted
to the Company Named Executive Officers in 1996. In accordance with Commission
rules, the Black-Scholes option pricing model was chosen to estimate the grant
date present value of the Company Options set forth in this table. Except as set
forth in footnote 3 below, the following assumptions were made for purposes of
calculating the original grant date present value: an option term of 4.5 years,
volatility of 25%, dividend yield of 1.5%, and a risk-free interest rate of
6.28%. The Company's use of this model should not be construed as an endorsement
of its accuracy at valuing Company Options. Accordingly, there is no assurance
that the value realized by an executive, if any, will be at or near the value
estimated by the Black-Scholes model. Future compensation resulting from option
grants is based solely on the price performance of the underlying stock. As a
result of the Spinoff, each Company Option granted to the Company Named
Executive Officers listed below will be replaced with either a New Company
Option, a Chemicals Option or a combination of both, pursuant to adjustments
provided in the Employee Benefits Allocation Agreement and, as a result, their
value may depend, in part, on the future value of Company Common Stock as well
as the future value of Chemicals Common Stock. See "Relationship Between the
Company and Chemicals After the Spinoff -- Employee Benefits Allocation
Agreement."

DEFS14A 100th Page of 156 TOC 1st Previous Next ↓Bottom Just 100th

COMPANY OPTION GRANTS IN 1996

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GRANT
DATE
VALUE
INDIVIDUAL GRANTS ---------
-----------------------------------------------------------------------------------------------
(B) (C) (F)
NUMBER OF % OF TOTAL (D) GRANT
SECURITIES OPTIONS EXERCISE DATE
UNDERLYING GRANTED TO OR BASE (E) PRESENT
(A) OPTIONS EMPLOYEES IN PRICE EXPIRATION VALUE
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE ($)
--------------------------------------- ---------- ------------ --------- ---------- ---------

R. B. Shapiro.......................... 590,000(1) 2.4 30.338 04/25/06 5,380,800
885,000 3.5 35.000 04/25/06 6,398,550
885,000 3.5 40.000 04/25/06 4,982,550
590,000 2.4 45.000 04/25/06 3,634,400(3)
R. U. De Schutter...................... 100,000(2) 0.4 27.125 02/21/06 719,000
50,000(1) 0.2 30.338 04/25/06 456,000
75,000 0.3 35.000 04/25/06 542,250
75,000 0.3 40.000 04/25/06 422,250
50,000 0.2 45.000 04/25/06 308,000(3)
R. G. Potter........................... 160,000(1) 0.6 30.338 04/25/06 1,459,200
240,000 1.0 35.000 04/25/06 1,735,200
240,000 1.0 40.000 04/25/06 1,351,200
160,000 0.6 45.000 04/25/06 985,600(3)
N. L. Reding........................... 160,000(1) 0.6 30.338 04/25/06 1,459,200
240,000 1.0 35.000 04/25/06 1,735,200
240,000 1.0 40.000 04/25/06 1,351,200
160,000 0.6 45.000 04/25/06 985,600(3)
H. A. Verfaillie....................... 160,000(1) 0.6 30.338 04/25/06 1,459,200
240,000 1.0 35.000 04/25/06 1,735,200
240,000 1.0 40.000 04/25/06 1,351,200
160,000 0.6 45.000 04/25/06 985,600(3)

-------------------------
(1) The exercise price of $30.338 for this tranche of Company Options was the
fair market value per underlying share on April 26, 1996, the date of grant.
The three succeeding tranches have pre-established "premium" exercise prices
(prices higher than the fair market value per underlying share on the date
of grant) which must be attained within four, five and six years,
respectively, from the date of grant and maintained for ten consecutive
trading days in order to avoid forfeiture of the Company Options in the
tranche. The $35 and $40 pre-established exercise prices have been met. All
Company Options must be held for a minimum of one year from the date of
grant before they may be exercised. These Company Options expire on the
tenth anniversary of the grant date unless forfeited earlier. The Company
Options carry stock tax withholding rights.

(2) The exercise price of $27.125 was the fair market value per underlying share
on February 22, 1996, the date of grant. These Company Options were to
become exercisable upon the earliest of the attainment of the Company's 20%
ROE target for 1996, the attainment of other criteria as specified by the
ECDC or the ninth anniversary of the option grant date, but in no event
earlier than the first anniversary of the option grant date. The Company
Options have now become exercisable because the ECDC determined that the 20%
ROE goal for 1996 would have been achieved but for the significant charges
taken in connection with the Spinoff. The Company Options have a ten-year
term and carry stock tax withholding rights.

(3) Two of the assumptions used to calculate the grant date present value of
these Company Options varied from the assumptions set forth above because
the pre-established exercise price of these Company Options has not yet been
attained. The option term was assumed to be six years and the risk-free
interest rate was assumed to be 6.37%.

DEFS14A 101st Page of 156 TOC 1st Previous Next ↓Bottom Just 101st

The following table provides information with respect to exercises of Company
Options by Company Named Executive Officers in 1996 and the value of Company
Options held by Company Named Executive Officers at year-end. The amounts set
forth in the two columns relating to unexercised Company Options, unlike the
amounts set forth in the column headed "Value Realized," have not been, and
might never be, realized. The underlying Company Options might not be exercised,
and actual gains on exercise, if any, would depend on the value of Company
Common Stock and Chemicals Common Stock on the date of exercise. As a result of
the Spinoff, each Company Option granted to the Company Named Executive Officers
listed below will be replaced with either a New Company Option, a Chemicals
Option or a combination of both, pursuant to adjustments provided in the
Employee Benefits Allocation Agreement and, as a result, their value may, in
part, depend on the future value of Company Common Stock as well as the future
value of Chemicals Common Stock. See "Relationship Between the Company and
Chemicals After the Spinoff -- Employee Benefits Allocation Agreement."

AGGREGATED COMPANY OPTION EXERCISES IN 1996 AND
COMPANY OPTION VALUES ON DECEMBER 31, 1996

[Enlarge/Download Table]

(D)
-------------------
(E)
NUMBER OF --------------------
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
(B) (C) AT AT
----------- --------- FY-END(#)(2) FY-END($)(2)
(A) SHARES VALUE ------------------- --------------------
-------------------------------- ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($)(1) UNEXERCISABLE UNEXERCISABLE
-------------------------------- ----------- --------- ------------------- --------------------

R. B. Shapiro................... 82,500 1,492,739 1,758,835/2,950,000 46,418,358/9,296,630
R. U. De Schutter............... 84,500 1,295,434 302,000/350,000 7,354,426/2,019,150
R. G. Potter.................... -0- -0- 947,390/800,000 25,961,332/2,521,120
N. L. Reding.................... 64,000 153,756 1,398,000/800,000 36,913,500/2,521,120
H. A. Verfaillie................ -0- -0- 675,890/800,000 17,919,762/2,521,120

-------------------------
(1) The amounts in column (c) reflect the value of shares received on the
exercises of Company Options granted up to nine years ago at fair market
values ranging from $8.706 to $11.600.

(2) Unexercised Company Options shown in columns (d) and (e) reflect grants
received over an extended period of time.

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The following table includes information with respect to awards made pursuant to
the Company Executive Stock Purchase Incentive Plan and the Searle Phantom Stock
Option Plan of 1986 (the "Searle Phantom Plan") to Company Named Executive
Officers in 1996.

COMPANY LONG-TERM INCENTIVE PLANS -- AWARDS IN 1996

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PERFORMANCE
OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF SHARES, PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR OTHER MATURATION -----------------------------------------
NAME RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
(A) (#)(B) (C) ($)(D) ($)(E) ($)(F)
---------------- ----------------- ------------ --------- --------- ---------

R. B. Shapiro... N/A(1) N/A N/A 424,500 N/A
180,000 units(2) 12/31/00 2,215,317(3) 3,322,976(3) 6,645,951(3)
R. U. De
Schutter...... N/A(1) N/A N/A 243,000 N/A
20,000 units(2) 12/31/00 246,146(3) 369,220(3) 738,439(3)
25,000 "options" N/A N/A -0-(0%) N/A
for units(4) 630,000(5%)
1,590,000(10%)
R. G. Potter.... N/A(1) N/A N/A 242,813 N/A
65,000 units(2) 12/31/00 799,976(3) 1,199,964(3) 2,399,927(3)
N. L. Reding.... N/A(1) N/A N/A 228,750 N/A
65,000 units(2) 12/31/00 799,976(3) 1,199,964(3) 2,399,927(3)
H. A.
Verfaillie.... N/A(1) N/A N/A 224,250 N/A
65,000 units(2) 12/31/00 799,976(3) 1,199,964(3) 2,399,927(3)

-------------------------
(1) The amount shown in this line represents the sustained performance
adjustment applied this year to both the portion of the 1996 bonus described
in footnote 1 to the Company Summary Compensation Table and the portion of
the annual bonus withheld for 1995 because net income and capital employed
objectives were met for all three performance years under the annual
incentive program for the years 1994-1996. These sustained performance
adjustments are as follows: Mr. Shapiro, $424,500; Mr. De Schutter,
$243,000; Mr. Potter, $242,813; Mr. Reding, $228,750; and Mr. Verfaillie,
$224,250. The total of all adjustments for sustained performance relative to
an individual's cumulative incentive awards over the 1994-1996 performance
period that were paid in March 1997 ranges from 20% to 25% of the awards
that will actually be paid for the three-year period.

(2) The units represent shares purchased under the Company Executive Stock
Purchase Incentive Plan. Pursuant to this plan, each Company Named Executive
Officer purchased with a full-recourse interest-bearing loan from the
Company the number of shares of the Company Common Stock equal to the number
of units next to his name. The interest rate was 6.36%, the applicable U.S.
federal rate (as determined by Section 1274(d) of the Code), in effect at
the time of purchase. The estimated future payouts shown in this table are
based upon the Ending Loan Amount and cannot exceed the amount to be repaid.
The threshold payout represents a Service Award equal to 33 1/3% of the
estimated Ending Loan Amount. In order to receive the Service Award, the
Company Named Executive Officer must not sell the stock purchased and must
remain employed with the Company during the entire performance cycle (which
ends December 31, 2000), and the Company must have positive cumulative net
income for this period. Each Company Named Executive Officer may also
receive a Performance Award of up to the remaining 66 2/3% of the Ending
Loan Amount. The size of this Performance Award depends upon the total
shareholder return to the Company's stockholders through the year 2000 as
compared with the total shareholder return for companies in the Index. In
order to achieve the maximum payout shown in the table, the Company Named
Executive Officer must earn the full Service Award, and the Company's total
shareholder return through the year 2000 must be at or above the total
shareholder return of companies at the 75th percentile of the Index,
entitling the Company Named Executive Officer to the maximum Performance
Award. To achieve the target award shown in the table, the Company Named
Executive

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Officer must earn the full Service Award, and the Company's total
shareholder return through the year 2000 must be at or above the 50th
percentile of the Index, entitling the executive to the minimum Performance
Award. Amounts paid must be applied by the Company Named Executive Officer
towards payment of the outstanding principal and accrued interest on the
loan. If only the threshold or target award is received, the outstanding
loan balance would significantly exceed the payment to the Company Named
Executive Officers under the Company Executive Stock Purchase Incentive
Plan, and the executive would be required to either sell some or all of the
shares or use other personal assets to pay off the remainder of the loan.

(3) Assumes the Company's annual dividend in effect at December 31, 1996 remains
unchanged through December 31, 2000. An increase in the dividend would
reduce the amount of the deferred incentive award. Similarly, a decrease in
the dividend would increase the amount of the deferred incentive award.
Assumes also that the Company Named Executive Officer keeps the shares of
Company Common Stock purchased under the Company Executive Stock Purchase
Incentive Plan and remains an employee of the Company until December 31,
2000.

(4) Mr. De Schutter's "options" were awarded under the Searle Phantom Plan,
which gave participants the opportunity to receive the appreciation in the
value of a hypothetical share of Searle stock. Such "shares" represented
units of valuation created solely for purposes of measuring the increase, if
any, in the value of Searle as determined by using such factors and methods
as deemed appropriate, including analyses by independent investment bankers.
Company Options to receive the appreciation in the value of these units were
granted for a ten-year period. The target values shown above assume various
hypothetical rates of appreciation over the original term of the grant. In
February 1997, the ECDC decided to terminate the Searle Phantom Plan and to
credit Mr. De Schutter and other active participants in the Searle Phantom
Plan with a combination of cash and Company Options representing current and
anticipated future appreciation of the units.

Pension Plans

The following table illustrates the annual normal retirement benefits payable
under the Company's defined benefit pension plans in effect in 1996 and
applicable to Messrs. Shapiro, De Schutter, Potter, Reding and Verfaillie. The
benefit levels in the table assume retirement at age 65 and payment in the form
of a single life annuity.

[Enlarge/Download Table]

YEARS OF SERVICE
-------------------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35 40
------------ -------- -------- -------- -------- -------- -------- ---------- ----------

$ 400,000 $ 28,000 $ 56,000 $ 84,000 $112,512 $142,512 $172,512 $ 202,512 $ 252,512
600,000 42,000 84,000 127,512 172,512 217,512 262,512 307,512 352,512
800,000 56,000 112,512 172,512 232,512 292,512 352,512 412,512 472,512
1,000,000 70,000 142,512 217,512 292,512 367,512 442,512 517,512 592,512
1,200,000 84,000 172,512 262,512 352,512 442,512 532,512 622,512 712,512
1,400,000 98,000 202,512 307,512 412,512 517,512 622,512 727,512 832,512
1,600,000 112,512 232,512 352,512 472,512 592,512 712,512 832,512 952,512
1,800,000 127,512 262,512 397,512 532,512 667,512 802,512 937,512 1,072,512
2,000,000 142,512 292,512 442,512 592,512 742,512 892,512 1,042,512 1,192,512

Generally, compensation utilized for pension formula purposes includes salary
and annual bonus reported in columns (c) and (d) of the Summary Compensation
Table and the Company Summary Compensation Table, respectively. However, the
portion of the annual bonus attributable to achievement of 20% ROE is not
included in the pension formula.

The annual normal retirement benefits payable under the Company's pension plans
to the Company Named Executive Officers are the greater of 1.4% of average final
compensation multiplied by years of service, without reduction for Social
Security or other offset amounts, or 1.5% of average final compensation
multiplied by years of service, less a 50% Social Security offset. Average final
compensation for purposes of these plans is

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the greater of (1) average compensation received during the final 36 months of
employment or (2) average compensation received during the highest three of the
final five calendar years of employment.

Average final compensation and the respective years of service at the Company as
of December 31, 1996, are as follows: Mr. Shapiro, $1,582,795 (6.6 years); Mr.
Potter, $1,073,223 (31.1 years); Mr. Reding, $1,188,695 (41.3 years); and Mr.
Verfaillie, $789,222 (13.0 years). Mr. De Schutter's benefit under the Company's
defined benefit pension plans will be based on his years of service with the
Company and his average final compensation at Searle, which were as of December
31, 1996, $888,722 (21.5 years); Mr. Shapiro and Mr. De Schutter also accrue
benefits under the Searle and NutraSweet defined benefit pension plans described
below. Mr. Shapiro's benefit will be based on his years of service at NutraSweet
and his average final compensation at the Company. Mr. De Schutter's benefit
will be based on both his years of service and average final compensation at
Searle.

In addition to the retirement benefits for Mr. Verfaillie based on his 13 years
of service as a U.S. employee, Mr. Verfaillie is also eligible for regular
retirement benefits based on his 7.8 years of service as a non-U.S. employee. In
addition, he participates in the Company's regular, non-qualified pension plan
designed to protect retirement benefits for employees serving in more than one
country. However, his total retirement benefits from the combined plans when
considering his total service of 20.8 years are expected to be generally
comparable to the benefits described in this section.

The following table illustrates the annual normal retirement benefits payable
under the Searle and NutraSweet defined benefit pension plans applicable to Mr.
De Schutter and Mr. Shapiro. The benefit levels in the table assume retirement
at age 65 and payment in the form of a single life annuity.

[Enlarge/Download Table]

YEARS OF SERVICE
----------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
------------ -------- -------- -------- -------- -------- -------- ----------

$ 600,000 $ 52,664 $105,328 $157,992 $210,656 $263,320 $315,984 $ 315,984
800,000 70,664 141,328 211,992 282,656 353,320 423,984 423,984
1,000,000 88,664 177,328 265,992 354,656 443,320 531,984 531,984
1,200,000 106,664 213,328 319,992 426,656 533,320 639,984 639,984
1,400,000 124,664 249,328 373,992 498,656 623,320 747,984 747,984
1,600,000 142,664 285,328 427,992 570,656 713,320 855,984 855,984

The annual normal retirement benefits payable under the Searle and NutraSweet
pension plans are (1) 1.8% of average final compensation (the average
compensation for the highest consecutive 60 of the last 120 months of employment
preceding retirement) multiplied by years of service (up to a maximum of 30
years) less (2) 1.67% of estimated annual Social Security benefits at age 65
multiplied by years of service (up to a maximum of 30 years). Generally,
compensation utilized for pension formula purposes includes salary and bonus
reported in columns (c) and (d) of the Company Summary Compensation Table.
However, the portion of the annual bonus attributable to achievement of 20% ROE
is not included in the pension formula.

Average final compensation under the pension formula and years of service at
Searle or NutraSweet as of December 31, 1996 for Mr. De Schutter and Mr. Shapiro
are as follows: Mr. De Schutter, $731,700 (11.5 years) and Mr. Shapiro,
$1,303,661 (11.5 years).

Effective January 1, 1997, the defined benefit pension plans for the Company,
Searle and NutraSweet were changed. The new defined benefit pension plans
consist of two accounts: a "Prior Plan Account" and a "Cash Balance Account."
The opening balance of the Prior Plan Account was the lump sum value of the
executive's December 31, 1996 monthly retirement benefit earned prior to January
1, 1997 under the old defined benefit pension plans described above, calculated
using the assumption that the monthly benefit would be payable at age 55 with no
reduction for early payment. For each year of the executive's continued
employment with the Company, the executive's Prior Plan Account will be
increased by 4% to recognize that prior plan benefits would have grown as a
result of pay increases. For each year following December 31, 1996 during which
the executive is employed, 3% of annual compensation in excess of the Social
Security wage base and a percentage (based on age) of annual compensation
(salary and annual bonus) will be credited to the Cash Balance Account. The
applicable percentages and age ranges are: 3% before age 30, 4% for ages 30 to
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40 to 44, 6% for ages 45 to 49, and 7% for age 50 and over. In addition, the
Cash Balance Account of executives who earned benefits under the Company's old
defined benefit pension plans will be credited each year (for up to 10 years
based on prior years of service with the Company) following December 31, 1996
during which the executive is employed with an amount equal to a percentage
(based on age) of annual compensation. The applicable percentages and age ranges
are: 2% before age 30, 3% for ages 30 to 39, 4% for ages 40 to 44, 5% for ages
45 to 49, and 6% for age 50 and over.

Mr. Shapiro will be provided supplemental retirement benefits which recognize
his experience prior to employment by the Company. Subject to certain service
requirements, the Company will provide Mr. Shapiro with supplemental retirement
benefits equal to 12% of average final compensation. The supplemental retirement
benefits become vested in the event of a change of control of the Company. The
estimated annual supplemental benefits payable to Mr. Shapiro upon retirement at
age 65 are $253,194. Mr. Shapiro will also receive the same Company contribution
to the retiree medical plan as an eligible retiree with 30 years of service. The
value of this benefit will be determined at retirement based on age, the premium
paid for medical coverage, and projected premium cost increases.

If the total of the benefits payable to Mr. De Schutter under the Company's and
Searle's defined benefit pension plans described above do not equal the benefit
Mr. De Schutter would have received if all his service had been with the
Company, he will be provided supplemental retirement benefits in an amount equal
to the benefits he would have received under the Company's plans had all his
years of service been with the Company less the benefits provided by the Searle
plans. It is estimated that there will be no annual supplemental benefit payable
to Mr. De Schutter if he retires at age 65.

CERTAIN AGREEMENTS

The Company will enter into Change of Control Employment Agreements with each of
the Company Named Executive Officers and certain other key executives. These
Change of Control Employment Agreements will replace the Key Executive
Employment Agreements currently in effect for the executive officers and such
other key executives. Each such Change of Control Employment Agreement becomes
effective upon a "change of control" of the Company (as defined in the Change of
Control Employment Agreement). Each Change of Control Employment Agreement
provides for the continuing employment of the executive after the change of
control on terms and conditions no less favorable than those in effect before
the change of control. If the executive's employment is terminated by the
Company without "cause" or if the executive terminates his or her own employment
for "good reason" (each as defined in the Change of Control Employment
Agreement), the executive is entitled to severance benefits equal to a
"multiple" of his or her annual compensation (including bonus) and continuation
of certain benefits for a number of years equal to the multiple. The multiple is
three for the Company Named Executive Officers and two or three for the other
executives (or, in either case, the shorter number of years until the
executive's normal retirement date). In addition, each of the Company Named
Executive Officers and the other executives who are entitled to a severance
multiple of three is entitled to receive the severance benefits if he or she
voluntarily terminates his or her own employment during the 30-day period
beginning on the first anniversary of certain changes of control. Finally, the
executives are entitled to an additional payment, if necessary, to make them
whole as a result of any excise tax imposed by the Code on certain change of
control payments (unless the safe harbor below which the excise tax is imposed
is not exceeded by more than 10%, in which event the payments will be reduced to
avoid the excise tax).

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Robson, Senior Advisor, Robertson, Stephens & Company, was first elected a
director of the Company on September 26, 1996. Robertson, Stephens & Company has
provided investment banking services to the Company in 1996 and is continuing to
provide similar services to the Company in 1997.

Mr. Kantor, who was elected director of the Company on April 25, 1997, is a
partner at the law firm of Mayer, Brown & Platt, which provided services to the
Company in 1996 and is providing services to the Company in 1997.

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Consistent with applicable regulations, no information has been solicited or
provided regarding transactions between the Company and any individual for the
period during which the individual did not serve as a director or executive
officer.

During 1996, Mr. Shapiro, the other Company Named Executive Officers, and the
other nine executive officers of the Company received full-recourse,
interest-bearing loans for the purchase price of the Company Common Stock they
purchased pursuant to the terms of the Company Executive Stock Purchase Plan.
The loans have an eight-year term and accrue interest at the applicable U.S.
federal rate (as determined by Section 1274(d) of the Code) on the purchase date
for loans of such maturity, compounded annually. For Mr. Shapiro and the other
Company Named Executive Officers the applicable U.S. federal rate is 6.36%. For
two other executive officers who purchased shares at a later date because of
promotion or hiring into a position eligible for participation in the Company
Executive Stock Purchase Plan, the rates are 6.72% and 6.60%, respectively. In
addition, the loans are secured by a pledge of the shares of Company Common
Stock acquired under the Company Executive Stock Purchase Plan.

On May 10, 1996, Mr. Shapiro and the other Company Named Executive Officers
received loans in the following amounts: Mr. Shapiro, $5,433,768; Mr. De
Schutter, $603,752; Mr. Potter, $1,962,194; Mr. Reding, $1,962,194; and Mr.
Verfaillie, $1,962,194. The aggregate amount of loans made pursuant to the
Company Executive Stock Purchase Plan to all executive officers as a group
(including the Company Named Executive Officers) during 1996 was $21,902,996. As
of December 31, 1996, the aggregate principal balance of such loans was
$22,436,741.

In addition, one executive officer (not a Company Named Executive Officer) who
participates in the Company Executive Stock Purchase Plan also has a loan from
the Company pursuant to the terms of the Company's Employee Stock Purchase Plan
(the "Company ESPP"), a plan open generally to all regular full-time and regular
part-time employees of the Company, for shares of Company Common Stock he
contracted to purchase over a 40-month period by means of payroll deductions. No
interest is charged on loans under the Company ESPP. The executive has two
contracts to purchase shares outstanding, one entered into on December 21, 1994
and the other entered into on June 28, 1996. The executive's largest aggregate
amount of indebtedness outstanding during 1996 under the Company ESPP was
$32,792, and the aggregate amount outstanding as of December 31, 1996 under the
Company ESPP was $24,741.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OF COMPANY COMMON STOCK

BY MANAGEMENT

Information is set forth below regarding beneficial ownership of Company Common
Stock by (1) each person who is a director of the Company; (2) each Company
Named Executive Officer; and (3) all directors and executive officers as a
group. Except as otherwise noted, each person has sole voting and investment
power as to his or her shares. All information is as of May 31, 1997.

[Enlarge/Download Table]

Joan T. Bok...................................... 13,398 -- 13,398
Richard U. De Schutter........................... 108,312 542,000 650,312
Robert M. Heyssel................................ 14,071(d) -- 14,071
Michael Kantor................................... 800(e) -- 0
Gwendolyn S. King................................ 4,555 -- 4,555
Philip Leder..................................... 8,884 -- 8,884
Howard M. Love................................... 19,785(f) -- 19,785
Frank A. Metz, Jr................................ 10,154 -- 10,154
Jacobus F. M. Peters............................. 4,705 -- 4,705
Robert G. Potter................................. 251,881(g) 1,587,390 1,839,271
Nicholas L. Reding............................... 299,117(h) 2,038,000 2,337,117
John S. Reed..................................... 37,305 -- 37,305
John E. Robson................................... 1,359 -- 1,359
William D. Ruckelshaus........................... 14,610(i) -- 14,610
Robert B. Shapiro................................ 567,524 3,740,619 4,308,143
John B. Slaughter................................ 9,646(j) -- 9,646
Hendrik A. Verfaillie............................ 157,279(k) 1,315,890 1,473,169
25 directors and executive officers as a group... 2,066,973(l) 13,764,794 15,831,767

-------------------------
(a) Includes shares held under the Company SIP: Mr. De Schutter, 14,732; Mr.
Potter, 31,406; Mr. Reding, 37,869; Mr. Shapiro, 3,732; Mr. Verfaillie,
14,924; and directors and executive officers as a group, 133,630. With
respect to shares held under the Company SIP, employee directors and
officers have sole discretion as to voting and, within limitations provided
by the Company SIP, investment of shares. Shares are voted by the trustees
of the Company SIP in accordance with instructions from participants. If
instructions are not received by the trustees as to the voting of particular
shares, shares are to be voted in proportion to instructions actually
received from other participants in the Company SIP. Also includes shares
held under other benefit and incentive plans of the Company: Mr. De
Schutter, 1,080; Mr. Potter, 1,390; Mr. Reding, 1,570; Mr. Shapiro, 62,500;
Mr. Verfaillie, 235; and directors and executive officers as a group,
92,626. With respect to shares held under other benefit and incentive plans
of the Company, employee directors and officers have sole voting power and
no current investment power.

(b) Includes the following shares received on varying dates as a portion of the
non-employee director annual retainer and with the restrictions on sale
described under "Election of Directors to Classified Terms -- Compensation
of Directors": Mrs. Bok, 660 shares; Dr. Heyssel, 4,555 shares; Mrs. King,
4,225 shares; Dr. Leder, 3,245 shares; Mr. Love, 1,625 shares; Mr. Metz,
3,245 shares; Mr. Reed, 1,500 shares; Mr. Robson, 1,350 shares; Mr.
Ruckelshaus, 1,500 shares; and Dr. Slaughter, 1,625 shares. With respect to
such shares, non-employee directors have sole voting power and no current
investment power.

(c) The Commission deems a person to have beneficial ownership of all shares
which that person has the right to acquire within 60 days. The shares
indicated represent Company Options granted under Company incentive plans.
The shares under option cannot be voted.

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(d) Includes 1,500 shares owned by Dr. Heyssel's wife.

(e) Mr. Kantor was elected a director of the Company on April 25, 1997.
Consistent with the Company Board's determination to suspend annual retainer
stock grants pursuant to a review of the Company's director compensation
policy, Mr. Kantor did not receive a grant upon his election.

(f) Includes 6,000 shares held in trusts in which Mr. Love has an income
interest as to which he expressly disclaims beneficial ownership.

(g) Includes 32,600 shares owned by Mr. Potter's wife as to which he expressly
disclaims beneficial ownership and 495 shares owned jointly by Mr. Potter
and his wife.

(h) Includes 1,056 shares owned by Mr. Reding's son and 416 shares owned by Mr.
Reding's daughter.

(i) Includes 1,000 shares owned jointly by Mr. Ruckelshaus and his wife.

(j) Includes 681 shares owned by Dr. Slaughter's wife as to which he expressly
disclaims beneficial ownership.

(k) Includes 77,120 shares owned jointly by Mr. Verfaillie and his wife.

(l) Includes 26,930 shares as to which certain executive officers not named
above have shared voting and investment power; and 873 shares under contract
pursuant to the Company ESPP.

The percentage of shares of outstanding Company Common Stock, including Company
Options exercisable within 60 days of May 31, 1997, beneficially owned by all
directors and executive officers as a group is 2.66%. The percentage of such
shares beneficially owned by any one director of the Company or Company Named
Executive Officer does not exceed 1%.

-------------------------

BY OTHERS

See the table under "Security Ownership of Certain Beneficial Owners of
Chemicals Common Stock and Company Common Stock -- By Others" for certain
information regarding the only known beneficial owners of more than 5% of the
Company Common Stock.

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MARKET INFORMATION CONCERNING COMPANY COMMON STOCK

The Company Common Stock is listed and traded principally on the NYSE. As of the
close of business on June 27, 1997, the Special Meeting Record Date, there were
589,494,131 shares of Company Common Stock outstanding and held of record by
56,572 holders. The following table sets forth, for the fiscal periods
indicated, the high and low sales prices per share of Company Common Stock on
the NYSE Composite Tape and the amounts of cash dividends paid per share of
Company Common Stock. Information provided below is adjusted for the Company's
five-for-one stock split in 1996.

[Enlarge/Download Table]

CASH
DIVIDENDS
FISCAL HIGH LOW PAID
------------------------------------------------------- --- --- ---------

1995
First Quarter........................................ 16 1/8 13 5/8 .126
Second Quarter....................................... 18 1/4 15 7/8 .138
Third Quarter........................................ 20 7/8 18 .138
Fourth Quarter....................................... 25 19 1/2 .138
1996
First Quarter........................................ 31 3/4 23 .138
Second Quarter....................................... 34 1/2 28 1/8 .150
Third Quarter........................................ 37 7/8 26 1/8 .150
Fourth Quarter....................................... 43 1/4 36 1/2 .150
1997
First Quarter........................................ 41 1/2 34 3/4 .150
Second Quarter....................................... 46 1/2 37 .160
Third Quarter through July 8, 1997................... 48 5/8 43 5/32

On December 6, 1996, the last trading day prior to the public announcement of
the proposed Spinoff, the high and low sales prices of Company Common Stock were
$41.875 and $40.125, respectively. On July 8, 1997, the closing sale price per
share of Company Common Stock on the NYSE Composite Tape was 47 7/8.
Stockholders should obtain current market quotations for Company Common Stock.

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DESCRIPTION OF CHEMICALS CAPITAL STOCK

AUTHORIZED CAPITAL STOCK

Chemicals' present authorized capital stock consists of ten shares of Chemicals
Common Stock, of which all ten shares are issued and outstanding and are owned
by the Company. Prior to the Distribution Date, the Chemicals Charter will be
amended by the Chemicals Board and by the Company, as sole stockholder of
Chemicals. Under the amended Chemicals Charter, which will be substantially in
the form set forth as an exhibit to the Registration Statement, the total number
of shares of all classes of stock that Chemicals will have authority to issue
under the Chemicals Charter will be 610,000,000, of which 10,000,000 will be
shares of preferred stock, $0.01 par value (the "Chemicals Preferred Stock"),
and 600,000,000 will be shares of Chemicals Common Stock. No shares of Chemicals
Preferred Stock will be issued in connection with the Spinoff. Based on the
number of shares of Company Common Stock outstanding at June 27, 1997,
approximately 118 million shares of Chemicals Common Stock, constituting
approximately 20% of the authorized Chemicals Common Stock, will be issued to
stockholders of the Company in the Spinoff. All of the shares of Chemicals
Common Stock issued in the Spinoff will be validly issued, fully paid and
nonassessable.

CHEMICALS COMMON STOCK

The holders of Chemicals Common Stock will be entitled to one vote for each
share on all matters voted on by stockholders, including elections of directors,
and, except as otherwise required by law or provided in any resolution adopted
by the Chemicals Board with respect to any series of Chemicals Preferred Stock,
the holders of Chemicals Common Stock will exclusively possess all voting power.
The Chemicals Charter does not provide for cumulative voting for the election of
directors. Subject to any preferential rights of any outstanding series of
Chemicals Preferred Stock designated by the Chemicals Board from time to time,
the holders of Chemicals Common Stock will be entitled to such dividends as may
be declared from time to time by the Chemicals Board from funds available
therefor, and, upon liquidation, will be entitled to receive pro rata all assets
of Chemicals available for distribution to such holders. See "RISK
FACTORS -- Dividend Policies."

CHEMICALS PREFERRED STOCK

The Chemicals Board will be authorized to provide for the issue of shares of
Chemicals Preferred Stock, in one or more series, and to fix for each such
series such voting powers, designations, preferences and relative,
participating, optional and other special rights, and such qualifications,
limitations or restrictions, as are stated in the resolutions adopted by the
Chemicals Board providing for the issue of such series and as are permitted by
the Delaware Law. See "Certain Antitakeover Effects of Certain Charter and
By-Laws Provisions and the Company Rights and the Chemicals Rights -- Preferred
Stock." In connection with the Chemicals Rights Agreement between Chemicals and
First Chicago Trust Company of New York, as rights agent, to be adopted by
Chemicals and to be effective as of the Distribution Date (the "Chemicals Rights
Agreement"), the Chemicals Board will designate a series of Chemicals Preferred
Stock. For a description of the terms of such Preferred Stock, see "-- Chemicals
Rights."

CHEMICALS RIGHTS

In connection with the Spinoff, the Chemicals Board intends to adopt the
Chemicals Rights Agreement, effective as of the Distribution Date. Prior to the
Distribution Date, the Chemicals Board will declare a dividend of one Chemicals
Right to be paid on the Distribution Date in respect of each share of the
Chemicals Common Stock to the holder of record thereof as of the Distribution
Date. Each Chemicals Right will entitle the registered holder to purchase from
Chemicals one one-hundredth of a share of Series A Junior Participating
Preferred Stock, $0.01 par value, of Chemicals ("Chemicals Junior Preferred
Stock") at a price per one one-hundredth of a share to be determined by the
Chemicals Board prior to the Distribution Date (the "Purchase Price"), subject
to adjustment. The terms of the Chemicals Rights will be set forth in the
Chemicals Rights Agreement.

Until the earlier to occur of (1) ten days following a public announcement that
a person or group of affiliated or associated persons (an "Acquiring Person")
has acquired beneficial ownership of 20% or more of the then

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outstanding shares of Chemicals Common Stock or (2) ten business days (or such
later date as may be determined by action of the Chemicals Board prior to such
time as any person or group becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding shares of
Chemicals Common Stock (the earlier of such dates being called the "Chemicals
Rights Distribution Date"), the Chemicals Rights will be evidenced by the
certificates representing shares of Chemicals Common Stock.

The Chemicals Rights Agreement will provide that until the Chemicals Rights
Distribution Date (or earlier redemption or expiration of the Chemicals Rights),
the Chemicals Rights will be transferred with and only with the shares of
Chemicals Common Stock. Until the Chemicals Rights Distribution Date (or earlier
redemption or expiration of the Chemicals Rights), certificates representing
shares of Chemicals Common Stock will contain a notation incorporating the terms
of the Chemicals Rights by reference. Until the Chemicals Rights Distribution
Date (or earlier redemption or expiration of the Chemicals Rights), the
surrender for transfer of any certificates representing shares of Chemicals
Common Stock will also constitute the transfer of the Chemicals Rights
associated with the shares of Chemicals Common Stock represented by such
certificate. As soon as practicable following the Chemicals Rights Distribution
Date, separate certificates evidencing the Chemicals Rights ("Chemicals Rights
Certificates") will be mailed to holders of record of the shares of Chemicals
Common Stock as of the close of business on the Chemicals Rights Distribution
Date and such separate Chemicals Rights Certificates alone will evidence the
Chemicals Rights.

The Chemicals Rights will not be exercisable until the Chemicals Rights
Distribution Date. The Chemicals Rights will expire on the tenth anniversary of
the Distribution Date (the "Final Expiration Date"), unless the Final Expiration
Date is extended or unless the Chemicals Rights are earlier redeemed or
exchanged by Chemicals, in each case, as described below.

The Purchase Price payable, and the number of shares of Chemicals Junior
Preferred Stock or other securities or property issuable, upon exercise of the
Chemicals Rights are subject to adjustment from time to time to prevent dilution
(1) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the shares of Chemicals Junior Preferred Stock, (2) upon
the grant to holders of the shares of Chemicals Junior Preferred Stock of
certain rights or warrants to subscribe for or purchase shares of Chemicals
Junior Preferred Stock at a price, or securities convertible into shares of
Chemicals Junior Preferred Stock with a conversion price, less than the
then-current market price of the shares of Chemicals Junior Preferred Stock or
(3) upon the distribution to holders of the shares of Chemicals Junior Preferred
Stock of evidences of indebtedness or assets (excluding regular periodic cash
dividends paid out of earnings or retained earnings or dividends payable in
shares of Chemicals Junior Preferred Stock) or of subscription rights or
warrants (other than those referred to above).

The number of outstanding Chemicals Rights and the number of one one-hundredths
of a share of Chemicals Junior Preferred Stock issuable upon exercise of each
Chemicals Right are also subject to adjustment in the event of a stock split of
Chemicals Common Stock or a stock dividend on Chemicals Common Stock payable in
Chemicals Common Stock or subdivisions, consolidations or combinations of
Chemicals Common Stock occurring, in any such case, prior to the Chemicals
Rights Distribution Date.

Shares of Chemicals Junior Preferred Stock purchasable upon exercise of the
Chemicals Rights will not be redeemable. Each share of Chemicals Junior
Preferred Stock will be entitled to a minimum preferential quarterly dividend
payment of $1.00 per share but will be entitled to an aggregate dividend equal
to 100 times the dividend declared per share of Chemicals Common Stock. In the
event of liquidation, the holders of the Chemicals Junior Preferred Stock will
be entitled to a minimum preferential liquidation payment of $100 per share but
will be entitled to an aggregate payment equal to 100 times the payment made per
share of Chemicals Common Stock. Each share of Chemicals Junior Preferred Stock
will have 100 votes, together with Chemicals Common Stock. Finally, in the event
of any merger, consolidation or other transaction in which Chemicals Common
Stock is exchanged, each share of Chemicals Junior Preferred Stock will be
entitled to receive an amount equal to 100 times the amount received per share
of Chemicals Common Stock. These rights are protected by customary antidilution
provisions.

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Because of the nature of the dividend, liquidation and voting rights of
Chemicals Junior Preferred Stock, the value of the one one-hundredth interest in
a share of Chemicals Junior Preferred Stock purchasable upon exercise of each
Chemicals Right should approximate the value of one share of Chemicals Common
Stock.

In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision will be made so that each holder
of a Chemicals Right, other than Chemicals Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the right
to receive upon exercise thereof at the then-current exercise price that number
of shares of Chemicals Common Stock having a market value of two times the
exercise price of the Chemicals Right (such right being referred to as a "Flip-
in-Right"). In the event that, at any time on or after the date that any person
has become an Acquiring Person, Chemicals is acquired in a merger or other
business combination transaction or 50% or more of consolidated assets or
earning power are sold, proper provision will be made so that each holder of a
Chemicals Right will thereafter have the right to receive, upon the exercise
thereof at the then-current exercise price of the Chemicals Right, that number
of shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the
Chemicals Right.

At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding shares of Chemicals Common Stock, the
Chemicals Board may exchange the Chemicals Rights (other than Chemicals Rights
owned by such person or group which will have become void), in whole or in part,
at an exchange ratio of one share of Chemicals Common Stock, or one
one-hundredth of a share of Chemicals Junior Preferred Stock, per Chemicals
Right (subject to adjustment).

With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price. No fractional shares of Chemicals Junior Preferred Stock will be
issued (other than fractions which are integral multiples of one one-hundredth
of a share of Chemicals Junior Preferred Stock, which may, at the election of
the Chemicals Board, be evidenced by depositary receipts) and in lieu thereof,
an adjustment in cash will be made based on the market price of the shares of
Chemicals Junior Preferred Stock on the last trading day prior to the date of
exercise.

At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
shares of Chemicals Common Stock, the Chemicals Board may redeem the Chemicals
Rights in whole, but not in part, at a price of $.01 per Chemicals Right (the
"Redemption Price"). The redemption of the Chemicals Rights may be made
effective at such time, on such basis and with such conditions as the Chemicals
Board in its sole discretion may establish. Immediately upon any redemption of
the Chemicals Rights, the right to exercise the Chemicals Rights will terminate
and the only right of the holders of Chemicals Rights will be to receive the
Redemption Price.

The terms of the Chemicals Rights may be amended by the Chemicals Board without
the consent of the holders of the Chemicals Rights, including an amendment to
lower (1) the threshold at which a person becomes an Acquiring Person and (2)
the percentage of Chemicals Common Stock proposed to be acquired in a tender or
exchange offer that would cause the Chemicals Rights Distribution Date to occur,
to not less than the greater of (a) the sum of .001% and the largest percentage
of the outstanding Chemicals Common Stock then known to Chemicals to be
beneficially owned by any person or group of affiliated or associated persons
and (b) 10%, except that, from and after such time as any person or group of
affiliated or associated persons becomes an Acquiring Person, no such amendment
may adversely affect the interests of the holders of the Chemicals Rights.

Until a Chemicals Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Chemicals, including, without limitation, the right
to vote or to receive dividends.

The Chemicals Rights will have certain antitakeover effects. See "Certain
Antitakeover Effects of Certain Charter and By-Laws Provisions and the Company
Rights and the Chemicals Rights -- Preferred Share Purchase Rights."

The foregoing summary of certain terms of the Chemicals Rights is qualified in
its entirety by reference to the form of the Chemicals Rights Agreement, a copy
of which will be filed as an exhibit to the Registration Statement. The
Chemicals Rights are being registered under the Exchange Act, together with
Chemicals

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Common Stock, pursuant to the Registration Statement. In the event that the
Chemicals Rights become exercisable, Chemicals will register the shares of
Chemicals Junior Preferred Stock for which the Chemicals Rights may be exercised
in accordance with applicable law.

PREEMPTIVE RIGHTS

No holder of any stock of Chemicals of any class authorized at the Distribution
Date will then have any preemptive right to subscribe to any securities of
Chemicals of any kind or class.

CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN
CHARTER AND BY-LAWS PROVISIONS AND THE
COMPANY RIGHTS AND THE CHEMICALS RIGHTS

GENERAL

Both the Company Charter, including certain of the Company Charter Amendments,
if the Company Charter Proposal is approved, and the Chemicals Charter will
contain provisions that will make more difficult the acquisition of control of
the Company or Chemicals, respectively, by means of a tender offer, open market
purchases, a proxy fight or otherwise that are not approved by their respective
boards. The Company By-Laws and the Chemicals By-Laws will also contain
provisions that could have an antitakeover effect.

The purposes of such provisions of the Company Charter and the Company By-Laws
and the Chemicals Charter and the Chemicals By-Laws are to discourage certain
types of transactions, described below, which may involve an actual or
threatened change of control of the Company or Chemicals and to encourage
persons seeking to acquire control of the Company or Chemicals to negotiate the
terms of any proposed business combination or offer with their respective
boards. The provisions are designed to reduce the vulnerability of the Company
or Chemicals to an unsolicited proposal for a takeover that does not contemplate
the acquisition of all outstanding shares or is otherwise unfair to stockholders
of the Company or Chemicals, or an unsolicited proposal for the restructuring or
sale of all or part of the Company or Chemicals. The Company believes that, as a
general rule, such proposals would not be in the best interests of the Company,
Chemicals and the stockholders of each. These provisions will help ensure that
the Company Board or the Chemicals Board, if confronted by a surprise proposal
from a third party which has acquired a block of stock, will have sufficient
time to review the proposal and appropriate alternatives to the proposal and to
act in what it believes to be the best interests of the stockholders.

There has been a marked increase in hostile takeover activity during the last
three years. The Company believes that the provisions discussed herein may
provide some measure of protection for stockholders against certain potentially
coercive takeover tactics. Such takeover tactics include the accumulation of
substantial stock positions in public companies by third parties as a prelude to
proposing a takeover, a restructuring or a sale of all or part of the company or
another similar extraordinary corporate action. Such actions are often
undertaken by a third party without advance notice to, or consultation with, the
management or board of directors of a company. In many cases, the purchaser
seeks representation on a company's board of directors in order to increase the
likelihood that its proposal will be implemented by a company. If a company
resists the efforts of the purchaser to obtain representation on the company's
board, a purchaser may commence a proxy contest to have its nominees elected to
the board of directors in place of certain directors or in place of the entire
board of directors. In some cases, a purchaser may not truly be interested in
taking over a company, but may use the threat of a proxy fight and/or a bid to
take over a company as a means of forcing the company to repurchase its equity
position at a substantial premium over market price.

The Company believes that the imminent threat of removal of the Company's or
Chemicals' management or board of directors in such situations would severely
curtail the ability of management or the board of directors to negotiate
effectively with such purchasers. Management or the board of directors would be
deprived of the time and information necessary to evaluate the takeover
proposal, to study alternative proposals and to help ensure that the best price
is obtained in any transaction involving the Company or Chemicals which may
ultimately be undertaken. If the real purpose of a takeover bid were to force
the Company or Chemicals to repurchase an accumulated stock interest at a
premium price, management or the board of directors would

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face the risk that, if it did not repurchase the purchaser's stock interest, the
Company's or Chemicals' business and management would be disrupted, perhaps
irreparably.

These provisions, individually and collectively, will make difficult and may
discourage a merger, tender offer or proxy fight, even if such transaction or
occurrence may be favorable to the interests of the stockholders, and may delay
or frustrate the assumption of control by a holder of a large block of Chemicals
Common Stock or Company Common Stock and the removal of incumbent management,
even if such removal might be beneficial to stockholders. Furthermore, these
provisions may deter or could be used to frustrate a future takeover attempt
which is not approved by the incumbent board of directors, but which the holders
of a majority of the shares may deem to be in their best interests or in which
stockholders may receive a substantial premium for their stock over prevailing
market prices of such stock. By discouraging takeover attempts these provisions
might have the incidental effect of inhibiting certain changes in management
(some or all of the members of which might be replaced in the course of a change
of control) and also the temporary fluctuations in the market price of the stock
which often result from actual or rumored takeover attempts.

Set forth below is a description of such provisions in the Company Charter
Amendments, the Company Charter and the Company By-Laws, and the Chemicals
Charter and the Chemicals By-Laws. Such description is intended as a summary
only and is qualified in its entirety by reference to the Company Charter
Amendments set forth herein under "The Company Charter Proposal," and the
Company Charter and the Company By-Laws, which are exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 and the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997,
respectively, and the Chemicals Charter and the Chemicals By-Laws, which will be
filed as exhibits to the Registration Statement. Capitalized terms used and not
defined herein are defined in the Company Charter or the Company By-Laws and the
Chemicals Charter or the Chemicals By-Laws, as the case may be.

CLASSIFIED BOARDS OF DIRECTORS

The Company Charter Proposal provides for the Company Board to be divided into
three classes serving staggered terms. In addition, the Chemicals Charter will
provide for the Chemicals Board to be divided into three classes serving
staggered terms so that directors' initial terms will expire either at the 1998,
1999 or 2000 Annual Meeting of Chemicals stockholders. Starting with the 1998
Annual Meeting of Chemicals stockholders, one class of directors would be
elected each year for three-year terms. See "Management of Chemicals After the
Spinoff -- Directors of Chemicals" and "The Company Charter Proposal --
Classification of the Company Board and Related Provisions."

The classification of directors will have the effect of making it more difficult
for stockholders to change the composition of the Company Board or the Chemicals
Board, as the case may be, in a relatively short period of time. At least two
annual meetings of stockholders, instead of one, will generally be required to
effect a change in a majority of the Company Board or the Chemicals Board. Such
a delay may help ensure that the Company Board or the Chemicals Board, if
confronted by a stockholder's attempt to force a stock repurchase at a premium
above market price, a proxy contest or an extraordinary corporate transaction,
will have sufficient time to review the proposal and appropriate alternatives to
the proposal and to act in what they believe are the best interests of the
stockholders. The Company also believes that a classified board of directors
will help to assure the continuity and stability of the Company Board and the
Chemicals Board and the Company's or Chemicals' business strategies and policies
as determined by their respective boards of directors, because generally a
majority of the directors at any given time will have had prior experience as
directors of the Company or Chemicals, as the case may be.

The classified board provision could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
the Company or Chemicals, as the case may be, even though such an attempt might
be beneficial to the company and its stockholders. The classified board
provision could thus increase the likelihood that incumbent directors will
retain their positions.

NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES

The Company Charter currently provides that the number of directors constituting
the whole Company Board is to be fixed as provided in the Company By-Laws by the
Company Board or the stockholders and that

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vacancies caused by an increase in the number of directors or otherwise may be
filled by the Company Board in the manner provided in the Company By-Laws. The
Company Charter Amendments provide and the Chemicals Charter will provide that
the number of directors will be fixed from time to time, in each case,
exclusively by the Company Board or the Chemicals Board, respectively. In
addition, the Company Charter Amendments provide and the Chemicals Charter will
provide that, subject to any rights of the holders of preferred stock, $0.01 par
value, of the Company ("Company Preferred Stock") or Chemicals Preferred Stock,
only a majority of the board of directors then in office shall have the
authority to fill any vacancies on the board of directors. Accordingly, the
Company Board or the Chemicals Board could prevent any stockholder from
obtaining majority representation on the respective board of directors by
enlarging such board of directors and filling the new directorships with its own
nominees.

Moreover, while the Company Charter currently permits removal of directors with
or without cause by vote of the holders of a majority of the outstanding stock,
the Chemicals Charter will provide and the Company Charter Amendments provide
that directors may be removed only for cause and only by the affirmative vote of
holders of at least 80% of the voting power of all of the then-outstanding
shares of Chemicals Common Stock or Company Common Stock, as the case may be,
voting together as a single class. This provision, when coupled with the
provisions of the Chemicals Charter and the Company Charter Amendments
authorizing only their respective board of directors to fill vacant
directorships, would preclude stockholders from removing incumbent directors
without cause and filling the vacancies created by such removal with their own
nominees.

LIMITATIONS ON STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS

Under the Delaware Law, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken by the stockholders
of a Delaware corporation may be taken without a meeting, without prior notice
and without a stockholder vote if a written consent setting forth the action to
be taken is signed by the holders of outstanding stock having the requisite
number of shares that would be necessary to authorize such action at a meeting
at which all shares entitled to vote thereon were present and voted. The Company
Charter does not currently preclude stockholder action by written consent. The
Company Charter Amendments provide and the Chemicals Charter will provide that
stockholder action can be taken only at an annual or special meeting of
stockholders, and prohibit stockholder action by written consent in lieu of a
meeting. If the Company Charter Proposal is approved, conforming changes would
be made to the Company By-Laws. The Company By-Laws and the Chemicals By-Laws
each provide that, subject to the rights of holders of any series of the
relevant preferred stock, special meetings of stockholders can be called only by
the Chairman of the Board, the President or pursuant to resolution of the
respective board of directors. Stockholders are not permitted to call a special
meeting or to require that the respective board of directors call a special
meeting of stockholders. Moreover, the business permitted to be conducted at any
special meeting of stockholders is limited to the purpose or purposes of the
meeting as stated in the notice of the meeting.

The provisions of the Company Charter Amendments and the Chemicals Charter
restricting stockholder action by written consent may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting
unless a special meeting is called by the Chairman of the Board, the President
or pursuant to a board resolution. These provisions would also prevent the
holders of a majority of the voting power of Company Common Stock or Chemicals
Common Stock, as the case may be, from using the written consent procedure to
take stockholder action and from taking action by consent without giving all the
stockholders of the Company or Chemicals entitled to vote on a proposed action
the opportunity to participate in determining such proposed action. Moreover, a
stockholder could not force stockholder consideration of a proposal over the
opposition of the Company Board or the Chemicals Board, as the case may be, by
calling a special meeting of stockholders prior to the time the board believed
such consideration to be appropriate.

ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS

The Company By-Laws establish and the Chemicals By-Laws will establish an
advance notice procedure with regard to the nomination, other than by or at the
direction of the respective board of directors, of candidates for election as
directors (the "Nomination Procedure") and with regard to certain matters to be
brought before an annual meeting of stockholders (the "Business Procedure").

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Pursuant to the Company By-Laws and the Chemicals By-Laws, the Nomination
Procedure provides that only persons who are nominated by, or at the direction
of, the board of directors or by a stockholder of record who has given timely
prior written notice to the Secretary of the Company or Chemicals, respectively,
prior to the meeting at which directors are to be elected will be eligible for
election as directors. The Business Procedure provides that at an annual meeting
only such business can be conducted as has been brought before the meeting
pursuant to the notice of the meeting, by, or at the direction of, the board of
directors or by a stockholder of record who has given timely prior written
notice to the Secretary of such stockholder's intention to bring such business
before the meeting. To be timely, notice must generally be received by the
Company or Chemicals, as applicable, not less than 60 days nor more than 90 days
prior to the first anniversary of the previous year's annual meeting. For notice
of a stockholder nomination to be made at a special meeting at which directors
are to be elected to be timely, such notice must be received not earlier than
the 90th day before such meeting and not later than the later of (1) the 60th
day prior to such meeting and (2) the tenth day after public announcement of the
date of such meeting is first made.

Under the Nomination Procedure, notice to the Company or Chemicals, as the case
may be, from a stockholder who proposes to nominate a person at a meeting for
election as director must contain certain information about that person,
including such person's consent to be nominated and such information as would be
required to be included in a proxy statement soliciting proxies for the election
of the proposed nominee, and certain information about the stockholder proposing
to nominate that person or the beneficial owner, if any, on whose behalf the
nomination is made. Under the Business Procedure, notice relating to the conduct
of business must contain certain information about such business and about the
stockholder who proposes to bring the business before the meeting including a
brief description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting, the class and
number of shares of stock beneficially owned by such stockholder, and by the
beneficial owner, if any, on whose behalf the proposal is made, and any material
interest of such stockholder, and such beneficial owner in the business so
proposed. If the Chairman or other officer presiding at a meeting determines
that a person was not nominated in accordance with the Nomination Procedure,
such person will not be eligible for election as a director, or if he or she
determines that other business was not properly brought before such meeting in
accordance with the Business Procedure, such business will not be conducted at
such meeting.

The purpose of the Nomination Procedure is, by requiring advance notice of
nominations by stockholders, to afford the Chemicals Board or the Company Board,
as the case may be, a meaningful opportunity to consider the qualifications of
the proposed nominees and, to the extent deemed necessary or desirable by such
boards, to inform stockholders about such qualifications. The purpose of the
Business Procedure is, by requiring advance notice of proposed business, to
provide a more orderly procedure for conducting annual meetings of stockholders
and, to the extent deemed necessary or desirable by the Chemicals Board or the
Company Board to provide such board with a meaningful opportunity to inform
stockholders, prior to such meetings, of any business proposed to be conducted
at such meetings, together with any recommendation as to the board's position or
belief as to action to be taken with respect to such business, so as to enable
stockholders better to determine whether they desire to attend such meeting or
grant a proxy to the board as to the disposition of any such business. Although
the Chemicals By-Laws will not give and the Company By-Laws do not give the
Chemicals Board or the Company Board, as the case may be, any power to approve
or disapprove stockholder nominations for the election of directors or of any
other business desired by a stockholder to be conducted at an annual meeting,
the Chemicals By-Laws and the Company By-Laws may have the effect of precluding
a nomination for the election of directors or precluding the conducting of
business at a particular annual meeting if the proper procedures are not
followed, and may discourage or deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of the Company or Chemicals, as the case may be,
even if the conduct of such solicitation or such attempt might be beneficial to
the Company or Chemicals and their stockholders.

PREFERRED STOCK

The Company Charter authorizes and the Chemicals Charter will authorize the
Company Board and the Chemicals Board, respectively, to establish series of
preferred stock and to determine, with respect to any series of preferred stock,
the voting powers, full or limited, or no voting powers, and such designations,
preferences and

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relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof as are stated in the board
resolutions providing for such series. The number of authorized shares of
Company Preferred Stock is 10,000,000 and the number of authorized shares of
Chemicals Preferred Stock is 10,000,000.

The Company and Chemicals believe that the availability of such preferred stock
will provide the Company and Chemicals with increased flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs which might arise. Having such authorized shares available for issuance
will allow the Company and Chemicals to issue shares of preferred stock without
the expense and delay of a special stockholder's meeting. The authorized shares
of preferred stock, as well as shares of common stock, will be available for
issuance without further action by stockholders, unless such action is required
by applicable law or the rules of any stock exchange on which the Company and
Chemicals securities may be listed. Although neither the Company Board nor the
Chemicals Board has any intention at the present time of doing so, they could
issue a series of preferred stock that could, subject to certain limitations
imposed by the securities laws and stock exchange rules, depending on the terms
of such series, impede the completion of a merger, tender offer or other
takeover attempt. For instance, such series of preferred stock might impede a
business combination by including class voting rights that would enable the
holder to block such a transaction. The Company Board and the Chemicals Board
will make any determination to issue such shares based on their judgment as to
the best interests of either company and its then existing stockholders. The
Company Board or the Chemicals Board, in so acting, could issue preferred stock
having terms which could discourage an acquisition attempt or other transaction
that some, or a majority, of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then market price of such stock. The terms of the Company Rights Agreement
are similar to the terms of the Chemicals Rights Agreement described under the
caption "Description of Chemicals Capital Stock -- Chemicals Rights." The
authorized and unissued preferred stock of each of the Company and Chemicals, as
well as the authorized and unissued common stock of the Company and Chemicals,
would be available, and the Company Charter and the Chemicals Charter explicitly
authorize use of their capital stock, for the above purposes.

COMMON STOCK

The Company Charter presently authorizes the issuance of 850 million shares of
Company Common Stock and, if the Company Charter Proposal is approved, the
Company Charter will authorize one billion shares of Company Common Stock. At
the Spinoff, the Chemicals Charter will authorize the Chemicals Board to issue
up to 600 million shares of Chemicals Common Stock of which approximately 118
million are expected to be issued in the Spinoff.

The increased number of authorized shares of Company Common Stock will provide
the Company, and the authorized but unissued Chemicals Common Stock will provide
Chemicals, with the ability to meet future capital needs and to provide shares
for possible acquisitions and stock dividends or stock splits. The Company Board
and the Chemicals Board would each have the ability, in the event of a proposed
merger, tender offer or other attempt to gain control of the company that was
not approved by such board, to issue additional common stock that would dilute
the stock ownership of the acquiror. Except as provided under the terms of the
Company Rights Agreement and the Chemicals Rights Agreement, the Company and
Chemicals do not currently contemplate any issuance of common stock that might
be deemed to have an antitakeover purpose.

AMENDMENT OF CERTAIN CHARTER PROVISIONS AND THE BY-LAWS

The Company Charter and the Company By-Laws may currently be amended by the
affirmative vote of the majority of the outstanding shares of Company Common
Stock. The Company Charter Amendments contain and the Chemicals Charter will
contain provisions requiring the affirmative vote of the holders of at least 80%
of the outstanding Company Common Stock or the Chemicals Common Stock,
respectively, to amend the provisions of such charters pertaining to
classification of the respective boards of directors, the number of directors,
filling vacancies in the respective boards of directors, removal of directors
and the requirement that stockholders can act only at annual or special meetings
and not by written consent. The Company Charter Amendments require and the
Chemicals Charter and the Chemicals By-Laws will also require the vote of at
least 80% of the outstanding Company Common Stock and the Chemicals Common
Stock, respectively, for stockholders to adopt, amend or repeal any provision of
the Company By-Laws or the Chemicals By-Laws,

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respectively. These provisions will make it more difficult for stockholders to
make changes in the Company Charter and the Company By-Laws or the Chemicals
Charter and the Chemicals By-Laws, respectively, including changes designed to
facilitate the exercise of control over the Company or Chemicals. In addition,
the requirement for approval by at least an 80% stockholder vote will enable the
holders of a minority of the Company's or Chemicals' capital stock to prevent
holders of a less-than-80% majority from amending the indicated provisions of
the Company Charter and the Company By-Laws or the Chemicals Charter and the
Chemicals By-Laws, respectively.

PREFERRED SHARE PURCHASE RIGHTS

The Company has entered into the Company Rights Agreement and Chemicals will
enter into the Chemicals Rights Agreement. Each of the Company Rights and the
Chemicals Rights will have certain antitakeover effects. Each of the Company
Rights and the Chemicals Rights will cause substantial dilution to a person or
group that attempts to acquire the Company or Chemicals and thereby effect a
change in the composition of the Company Board or Chemicals Board on terms not
approved by the Company Board or the Chemicals Board, respectively, including by
means of a tender offer at a premium to the market price, other than an offer
conditioned on a substantial number of Rights being acquired. The Company Rights
and the Chemicals Rights should not interfere with any merger or business
combination approved by the Company Board or Chemicals Board, as the case may
be, since the Company Rights or the Chemicals Rights may be redeemed by the
Company or Chemicals, respectively, at the applicable redemption price prior to
the time that a person or group has become an Acquiring Person. See "Description
of Chemicals Capital Stock -- Chemicals Rights."

ANTITAKEOVER LEGISLATION

Business Combinations (as defined herein) of either the Company or Chemicals
would be subject to the applicable voting requirements, if any, specified under
the Delaware Law, the Company Charter or the Chemicals Charter, as the case may
be, and the rules of the NYSE or other applicable stock exchange. In general,
under current provisions of the Delaware Law, most mergers and consolidations,
the sale of substantially all of the assets and any reclassification of
securities or plan for the dissolution of a corporation must be approved by the
board of directors of the corporation and by the vote of the holders of a
majority of the outstanding shares entitled to vote thereon. Under each of the
Company Charter and the Chemicals Charter, the holder of each currently
outstanding share of Company Common Stock and Chemicals Common Stock,
respectively, is entitled to one vote per share on all such matters. Under the
rules of the NYSE, acquisitions involving substantial security holders or the
issuance of additional shares of common stock aggregating 20% or more of the
outstanding shares of common stock require the approval of the holders of a
majority of the shares voting thereon.

In addition, Section 203 of the Delaware Law ("Section 203") prohibits certain
"Business Combination" (as defined in Section 203) transactions between a
publicly held Delaware corporation, such as the Company or Chemicals, and any
Interested Stockholder (as defined herein) for a period of three years after the
date the Interested Stockholder became an Interested Stockholder, unless (1)
prior to the Interested Stockholder becoming an Interested Stockholder, either
the proposed Business Combination or the proposed acquisition of stock which
would make such Interested Stockholder an Interested Stockholder was approved by
the company's board of directors, (2) in the same transaction in which the
Interested Stockholder becomes an Interested Stockholder, the Interested
Stockholder acquires at least 85% of the voting stock of the company (excluding
shares owned by directors who are also officers and certain shares held in
employee stock plans), or (3) the Interested Stockholder obtains the approval of
a company's board of directors and the approval of the holders of at least
two-thirds of the outstanding shares of a company's voting stock other than any
shares of voting stock held by the Interested Stockholder.

For purposes of Section 203, an "Interested Stockholder" is any person that (1)
beneficially owns 15% or more of the outstanding voting stock of the company or
(2) is an affiliate or associate of the company and at any time within the
preceding three-year period was the beneficial owner of 15% or more of the
outstanding voting stock of the company, together, in each case, with the
affiliates and associates of such person.

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The Business Combination transactions to which Section 203 applies include: (1)
any merger or consolidation with an Interested Stockholder; (2) any sale, lease,
exchange, or other disposition to or with an Interested Stockholder (except
proportionately as a stockholder of the company) of 10% or more of the company's
assets; (3) any issuance or transfer of stock to the Interested Stockholder
except pursuant to the exercise of previously outstanding options or rights; (4)
any transaction involving the company that has the effect of increasing the
Interested Stockholder's percentage ownership; and (5) any loan, guarantee, or
other financial benefit provided by or through the company to the Interested
Stockholder, except proportionately as a stockholder of such company.

Section 203 should encourage persons interested in acquiring the Company or
Chemicals to negotiate in advance with the relevant board of directors since the
higher stockholder voting requirements imposed would not be invoked if such
person, prior to acquiring 15% of the Company's or Chemicals' voting stock, as
the case may be, obtains the approval of the relevant board of directors for
such stock acquisition or for the proposed business combination transaction
(unless such person acquires 85% or more of such voting stock in the
transaction). As stated above, in the event of a proposed acquisition of the
Company or Chemicals, the Company believes that the interests of the Company's
or Chemicals' stockholders will best be served by a transaction that results
from negotiations based upon careful consideration of the proposed terms, such
as the price to be paid to minority stockholders, the form of consideration paid
and tax effects of the transaction.

In addition, Section 203 should tend to prevent certain of the potential
inequities of business combinations which are part of a two-tier transaction.
Any merger, consolidation or similar transaction following a partial tender
offer not approved by a board of directors under Section 203 would have to be
approved by the holders of at least two-thirds of the remaining shares of stock
unless the acquiror obtains 85% or more of Company's voting stock in such
partial tender offer. Section 203 should also tend to discourage the
accumulation of large blocks of the Company's or Chemicals' stock by third
parties which each of the respective boards of directors believes can be
disruptive to the stability of each of the respective companies' important
relationships with its employees, customers and major lenders, since the
acquiror would run the risk of being required to wait three years in order to
eliminate the remaining public stockholders of the Company or Chemicals if the
two-thirds stockholder vote could not be obtained.

Section 203 will not prevent a hostile takeover of the Company or Chemicals. It
may, however, make more difficult or discourage a takeover of the Company or
Chemicals or the acquisition of control of the Company or Chemicals by a
principal stockholder and thus the removal of incumbent management. Some
stockholders may find this disadvantageous in that they may not be afforded the
opportunity to participate in takeovers which are not approved by the board of
directors, but in which they might receive, for at least some of their shares, a
substantial premium above the market price at the time of a tender offer or
other acquisition transaction. Section 203 should not prevent or discourage
transactions in which an acquiring person is willing to negotiate in good faith
with the Company Board or the Chemicals Board, as the case may be, and is
prepared to pay the same price to all stockholders of each class of the
Company's or Chemicals' voting stock, respectively.

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LIABILITY AND INDEMNIFICATION OF OFFICERS AND
DIRECTORS OF CHEMICALS

LIMITATION OF LIABILITY OF CHEMICALS DIRECTORS

The Chemicals Charter will provide that a director of Chemicals will not be
personally liable to Chemicals or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (1) for any breach
of the director's duty of loyalty to Chemicals or its stockholders, (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the Delaware Law, which
concerns unlawful payments of dividends, stock purchases or redemptions, or (4)
for any transaction from which the director derived an improper personal
benefit.

While the Chemicals Charter will provide directors with protection from awards
for monetary damages for breaches of their duty of care, it does not eliminate
such duty. Accordingly, the Chemicals Charter will have no effect on the
availability of equitable remedies such as an injunction or rescission based on
a director's breach of his or her duty of care. The provisions of the Chemicals
Charter described above apply to an officer of Chemicals only if he or she is a
director of Chemicals and is acting in his or her capacity as director, and do
not apply to officers of Chemicals who are not directors.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Chemicals Charter will provide that each person who is or was or has agreed
to become a director or officer of Chemicals, or each such person who is or was
serving or has agreed to serve at the request of Chemicals as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, will be indemnified by Chemicals, in accordance with
the Chemicals By-Laws, to the fullest extent permitted from time to time by the
Delaware Law, as the same exists or may hereafter be amended or any other
applicable laws as presently or hereafter in effect. Chemicals may be required
to indemnify any person seeking indemnification in connection with a proceeding
(or part thereof) initiated by such person only if such proceeding (or part
thereof) was authorized by the Chemicals Board or is a proceeding to enforce
such person's claim to indemnification pursuant to the rights granted by the
Chemicals Charter or otherwise by Chemicals. In addition, Chemicals may enter
into one or more agreements with any person providing for indemnification
greater than or different from that provided in the Chemicals Charter.

The Chemicals By-Laws will provide that each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit, or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director, officer or employee of
Chemicals or any such person who is or was serving at the request of Chemicals
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such Proceeding is
alleged action in an official capacity as a director, officer or employee or in
any other capacity while serving as a director, officer or employee, will be
indemnified and held harmless by Chemicals to the fullest extent authorized by
the Delaware Law as the same exists or may in the future be amended against all
expense, liability and loss (including attorneys' fees, judgments, fines,
Employee Retirement Income Security Act of 1974, as amended, excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith; provided, however, except as
described in the next paragraph with respect to Proceedings to enforce rights to
indemnification, Chemicals will indemnify any such person seeking
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if such Proceeding (or part thereof) was authorized by the
Chemicals Board.

Pursuant to the Chemicals By-Laws, if a claim is not paid in full by Chemicals
within 30 days after a written claim has been received by Chemicals, the
claimant may at any time thereafter bring suit against Chemicals to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
will also be entitled to be paid the expense of prosecuting such claim. The
Chemicals By-Laws will provide that it will be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any Proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to Chemicals) that the
claimant has not met the standard of conduct which makes it permissible

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under the Delaware Law for Chemicals to indemnify the claimant for the amount
claimed, but the burden of proving such defense will be on Chemicals.

The Chemicals By-Laws will provide that the right to indemnification conferred
therein is a contract right and includes the right to be paid by Chemicals the
expenses incurred in defending any Proceeding in advance of its final
disposition, subject to certain exceptions and conditions.

The Chemicals By-Laws will provide that the right to indemnification and the
payment of expenses incurred in defending a Proceeding in advance of its final
disposition conferred in the Chemicals By-Laws will not be exclusive of any
other right which any person may have or may in the future acquire under any
statute, provision of the Chemicals Charter, the Chemicals By-Laws, agreement,
vote of stockholders or disinterested directors or otherwise.

SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING

For inclusion in the Company's proxy statement and form of proxy, any proposals
of stockholders intended to be presented at the 1998 Annual Meeting of the
Company must be received by the Company no later than November 13, 1997.

Subject to completion of the Spinoff, it is expected that the 1998 Annual
Meeting of Chemicals will be held on April 22, 1998. For inclusion in Chemicals'
proxy statement and form of proxy, any proposals of stockholders intended to be
presented at the 1998 Annual Meeting of Chemicals must be received by Chemicals
no later than November 11, 1997.

SOLICITATION OF PROXIES

The Company will bear the expense of preparing, printing and mailing this proxy
material, as well as the cost of any required solicitation. The Company has
engaged Georgeson & Company Inc., a proxy solicitation firm, to assist by mail
or telephone, in person or otherwise in the solicitation of proxies. The fee of
Georgeson & Company Inc. is expected to be approximately $35,000 plus expenses.
A few regular employees of the Company may also participate in the solicitation,
without additional compensation. In addition, the Company will reimburse banks,
brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred in forwarding proxy materials to beneficial owners of the
Company's stock and obtaining their proxies.

WHERE STOCKHOLDERS CAN FIND ADDITIONAL INFORMATION

The Company files annual, quarterly and special reports, proxy statements and
other information with the Commission. You may read and copy any reports, proxy
statements and other information we file at the Commission's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Our filings with the Commission are also available to the public from
commercial document retrieval services and at the Commission's site on the
Internet's world wide web at "http://www.sec.gov". Reports and other information
concerning the Company can also be read and copied at the offices of the NYSE,
20 Broad Street, New York, New York 10005.

Under the Exchange Act, Chemicals will file with the Commission the Registration
Statement covering the shares of Chemicals Common Stock and Chemicals Rights to
be issued in connection with the Spinoff. It is expected that Chemicals will
file the Registration Statement with the Commission prior to the date of the
Special Meeting and request effectiveness of the Registration Statement prior to
the Spinoff. As allowed by Commission rules, this Proxy Statement does not
contain all of the information you can find in the Registration Statements or
the exhibits to the Registration Statement. Once those exhibits are filed, you
will be able to read and copy them by the means described above. The
descriptions in this Proxy Statement of the documents filed as exhibits to the
Registration Statement are summaries, and you should read the exhibits
themselves for further information.

The Commission allows the Company to "incorporate by reference" information into
this Proxy Statement. This means that the Company can disclose important
information to you by referring you to another document

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filed separately with the Commission. The information incorporated by reference
is deemed to be part of this Proxy Statement, except for any information
superseded by information contained directly in this Proxy Statement. This Proxy
Statement incorporates by reference the documents set forth below that the
Company has previously filed with the Commission. These documents contain
important information about the Company and its financial condition.

[Enlarge/Download Table]

COMPANY COMMISSION FILINGS (FILE NO. 1-2516) PERIOD
--------------------------------------------------------------------------------------------

Annual Report on Form 10-K................................... Year ended December 31, 1996
Quarterly Report on Form 10-Q................................ Period ended March 31, 1997

The Company is also incorporating by reference additional documents that it
files with the Commission pursuant to Section 13(a), 13(c), 14 or 15 of the
Exchange Act between the date of this Proxy Statement and the date of the
Special Meeting. These include Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K.

The Company may have previously sent you some of the documents incorporated by
reference, but Company stockholders can obtain any of them through the Company,
the Commission, the Commission's Internet web site or the NYSE as described
above. The Company will provide these documents, without charge, excluding the
exhibits, if you call us at (314) 694-3655 or write to us at:

Monsanto Company -- D2000
800 N. Lindbergh Boulevard
St. Louis, Missouri 63167
U.S.A.

Exhibits which are specifically incorporated by reference into any information
contained in the Proxy Statement will also be provided without charge by the
Company. There will be a charge sufficient to defray copying costs for other
exhibits.

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INDEX OF DEFINED TERMS

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PAGE
----

Acquiring Person.................................. 105
Advanced Elastomer Systems........................ 22
affiliates........................................ 26
Akzo Nobel........................................ 30
Albright & Wilson................................. 72
AlliedSignal...................................... 71
Amended Article VIII.............................. 34
Amended Article X................................. 35
Anti-Morris Trust Proposal........................ 26
BASF.............................................. 71
BCF............................................... 71
Bayer............................................. 72
broker non-votes.................................. 16
Business Combination.............................. 113
Business Procedure................................ 110
Calgene........................................... 42
Calgene Acquisition............................... 42
Change of Control Employment Agreement............ 89
Chemicals......................................... 15
Chemicals Board................................... 80
Chemicals Business................................ 22
Chemicals By-Laws................................. 21
Chemicals Charter................................. 21
Chemicals Common Stock............................ 15
Chemicals Executive Compensation Committee........ 83
Chemicals Junior Preferred Stock.................. 105
Chemicals Named Executive Officers................ 84
Chemicals Options................................. 26
Chemicals Preferred Stock......................... 105
Chemicals Restricted Stock........................ 31
Chemicals Right................................... 15
Chemicals Rights Agreement........................ 105
Chemicals Rights Certificates..................... 106
Chemicals Rights Distribution Date................ 106
Chemicals SpinCo.................................. 15
Code.............................................. 20
Commission........................................ 28
Company........................................... 15
Company Board..................................... 15
Company By-Laws................................... 15
Company Charter................................... 15
Company Charter Amendments........................ 15
Company Charter Proposal.......................... 15
Company Common Stock.............................. 15
Company DRP....................................... 16
Company ESPP...................................... 101
Company Executive Stock Purchase Incentive Plan... 87
Company Named Executive Officers.................. 93
Company Options................................... 31
Company PAYSOP.................................... 16
Company Plans..................................... 41
Company Preferred Stock........................... 110
Company Restricted Stock.......................... 31
Company Rights.................................... 24
Company Rights Agreement.......................... 24
Company SIP....................................... 16
Credit Facilities................................. 27
Delaware Law...................................... 34
Distribution Agent................................ 23
Distribution Agreement............................ 22
Distribution Date................................. 23
Distribution Ratio................................ 24
Distribution Record Date.......................... 23

PAGE
----

DSUs.............................................. 83
DuPont............................................ 71
ECDC.............................................. 40
Employee Benefits Allocation Agreement............ 30
Ending Loan Amount................................ 87
EPA............................................... 68
Exchange Act...................................... 17
Exxon............................................. 30
Final Expiration Date............................. 106
Flexsys........................................... 22
Flip-in-Right..................................... 107
FMR............................................... 92
Guest............................................. 33
holding period.................................... 44
Incentive Plan.................................... 15
Incentive Plan Proposal........................... 15
Index............................................. 87
Intellectual Property Agreements.................. 32
Interested Stockholder............................ 113
IRS............................................... 20
Kelco............................................. 22
Life Sciences Business............................ 22
LTIPs............................................. 84
New Article XI.................................... 35
New Company Options............................... 31
Nomination Procedure.............................. 110
NYSE.............................................. 20
Operating Agreements.............................. 33
Operator.......................................... 33
OSHA.............................................. 68
P4 Joint Venture.................................. 32
PCBs.............................................. 78
Performance Award................................. 87
Proceeding........................................ 115
Proposals......................................... 15
Proxy Statement................................... 15
PRP............................................... 18
Purchase Price.................................... 105
PVB............................................... 74
Redemption Price.................................. 107
RCRA.............................................. 68
Registration Statement............................ 28
Rhone-Poulenc..................................... 73
ROE............................................... 84
Searle............................................ 29
Searle Phantom Plan............................... 97
Section 203....................................... 113
Securities Act.................................... 17
Service Award..................................... 87
Service Provider.................................. 32
Service User...................................... 32
SFAS.............................................. 10
SOP............................................... 19
Special Meeting................................... 15
Special Meeting Record Date....................... 16
Spinoff........................................... 15
Spinoff Proposal.................................. 15
Substituted Options............................... 31
Superfund......................................... 68
Tax Sharing and Indemnification Agreement......... 26
Transition Services............................... 32
Transition Services Agreement..................... 32

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INDEX TO FINANCIAL STATEMENTS

[Enlarge/Download Table]

PAGE
----

CHEMICALS SPINCO
Report of Independent Auditors...................................................... F-2
Statement of Combined Income for the three years ended December 31, 1996............ F-3
Statement of Combined Financial Position at December 31, 1996 and December 31,
1995............................................................................. F-4
Statement of Combined Cash Flow for the three years ended December 31, 1996......... F-5
Notes to Combined Financial Statements.............................................. F-6

Interim Combined Financial Statements (Unaudited):
Statement of Combined Income for the three months ended March 31, 1997 and 1996..... F-21
Statement of Combined Financial Position at March 31, 1997.......................... F-22
Statement of Combined Cash Flow for the three months ended March 31, 1997 and
1996............................................................................. F-23
Notes to Interim Combined Financial Statements...................................... F-24

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REPORT OF INDEPENDENT AUDITORS

To the stockholders of Monsanto Company:

We have audited the accompanying statement of combined financial position of the
chemicals business that will comprise "Chemicals SpinCo" (as described in Note 1
to the combined financial statements) as of December 31, 1996 and 1995, and the
related statements of combined income and cash flow for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such combined financial statements referred to above present
fairly, in all material respects, the financial position of "Chemicals SpinCo"
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

Deloitte & Touche LLP Signature

Deloitte & Touche LLP
St. Louis, Missouri

May 1, 1997, except for the
Subsequent Event section of
Note 1, as to which the
date is July 10, 1997

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CHEMICALS SPINCO

STATEMENT OF COMBINED INCOME

[Enlarge/Download Table]

YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
(IN MILLIONS)

NET SALES........................................................... $2,977 $2,964 $3,097
Cost of goods sold.................................................. 2,325 2,243 2,368
------ ------ ------
GROSS PROFIT........................................................ 652 721 729
Marketing expenses.................................................. 172 179 202
Administrative expenses............................................. 167 136 138
Technological expenses.............................................. 88 95 99
Restructuring expenses -- net....................................... 192 53 34
------ ------ ------
OPERATING INCOME.................................................... 33 258 256
Interest expense.................................................... (36) (36) (29)
Other income (expense) -- net....................................... 36 9 1
------ ------ ------
INCOME BEFORE INCOME TAXES.......................................... 33 231 228
Income taxes........................................................ 1 84 79
------ ------ ------
NET INCOME.......................................................... $ 32 $ 147 $ 149
====== ====== ======

See Notes to Combined Financial Statements.

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CHEMICALS SPINCO

STATEMENT OF COMBINED FINANCIAL POSITION

[Enlarge/Download Table]

DECEMBER 31,
----------------
1996 1995
------ ------
(IN MILLIONS)

ASSETS
CURRENT ASSETS:
Trade receivables, net of allowances of $7 in 1996 and $6 in 1995........... $ 412 $ 369
Miscellaneous receivables and prepaid expenses.............................. 80 113
Deferred income tax benefit................................................. 108 92
Inventories................................................................. 291 311
------ ------
TOTAL CURRENT ASSETS........................................................ 891 885
PROPERTY, PLANT AND EQUIPMENT:
Land........................................................................ 18 15
Buildings................................................................... 367 368
Machinery and equipment..................................................... 2,622 2,581
Construction in progress.................................................... 121 88
------ ------
Total property, plant and equipment......................................... 3,128 3,052
Less accumulated depreciation............................................... 2,217 2,140
------ ------
NET PROPERTY, PLANT AND EQUIPMENT........................................... 911 912
INVESTMENTS IN AFFILIATES................................................... 366 344
LONG-TERM DEFERRED INCOME TAX BENEFIT....................................... 194 172
OTHER ASSETS................................................................ 121 149
------ ------
TOTAL ASSETS................................................................ $2,483 $2,462
====== ======

LIABILITIES AND MONSANTO COMPANY EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................ $ 223 $ 230
Wages and benefits.......................................................... 156 114
Restructuring reserves...................................................... 79 39
Miscellaneous accruals...................................................... 312 271
------ ------
TOTAL CURRENT LIABILITIES................................................... 770 654
POST-RETIREMENT LIABILITIES................................................. 634 632
OTHER LIABILITIES........................................................... 423 421
MONSANTO COMPANY EQUITY..................................................... 656 755
------ ------
TOTAL LIABILITIES AND MONSANTO COMPANY EQUITY............................... $2,483 $2,462
====== ======

See Notes to Combined Financial Statements.

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CHEMICALS SPINCO

STATEMENT OF COMBINED CASH FLOW

[Enlarge/Download Table]

YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
----- ----- -----
(IN MILLIONS)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OPERATING ACTIVITIES:
Net income............................................................ $ 32 $ 147 $ 149
Adjustments to reconcile to Cash Provided by Operations:
Items that did not use (provide) cash:
Deferred income taxes............................................ (45) 25 (23)
Depreciation and amortization.................................... 166 162 219
Restructuring expenses........................................... 192 53 34
Other............................................................ 43 1 (7)
Working capital changes that provided (used) cash:
Accounts receivable.............................................. (43) 64 (27)
Inventories...................................................... 20 (78) 48
Accounts payable and accrued liabilities......................... (33) (61) (59)
Other............................................................ 24 (13) 12
Other items......................................................... (20) 20 8
----- ----- -----
TOTAL CASH PROVIDED BY OPERATIONS..................................... 336 320 354
----- ----- -----
INVESTING ACTIVITIES:
Property, plant and equipment purchases............................... (192) (179) (187)
Acquisition and investment payments................................... (17) (51) (4)
Investment and property disposal proceeds............................. 4 51 73
----- ----- -----
CASH USED IN INVESTING ACTIVITIES..................................... (205) (179) (118)
----- ----- -----
FINANCING ACTIVITIES:
Net transactions with Monsanto Company................................ (131) (141) (236)
----- ----- -----
CASH USED IN FINANCING ACTIVITIES..................................... (131) (141) (236)
----- ----- -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... -- -- --
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR..................................................... -- -- --
----- ----- -----
END OF YEAR........................................................... $ -- $ -- $ --
===== ===== =====

See Notes to Combined Financial Statements.

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CHEMICALS SPINCO
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

1. BASIS OF PRESENTATION

Combined Financial Statements

The accompanying combined financial statements have been prepared on a basis
which reflects the historical financial statements of Chemicals SpinCo
("Chemicals") assuming that the operations of Monsanto Company (the "Company")
expected to be contributed to Chemicals in connection with the spinoff of
Chemicals to the Company's stockholders (the "Spinoff") were organized as a
separate legal entity, owning certain net assets of the Company. Generally, only
those assets and liabilities of the ongoing chemicals business expected to be
transferred to Chemicals prior to the Spinoff were included in the Statement of
Combined Financial Position.

The Company provided certain general and administrative services to Chemicals,
including finance, legal, treasury, information systems and human resources. The
cost for these services was allocated to Chemicals based upon the percentage
relationship between the net assets utilized in Chemicals' operations and the
Company's total net assets, as well as other methods which management believes
to be reasonable. These allocations were $85 million, $72 million and $69
million in 1996, 1995 and 1994, respectively. As a result of the Spinoff,
Chemicals will be required to perform these general and administrative services
using its own resources or purchased services and will be responsible for the
costs and expenses associated with the management of a public company. Chemicals
management estimates that the cost of such general and administrative expenses
on a stand-alone basis would have been approximately $46 million in 1996.

As described in Notes 9, 10 and 11, Chemicals employees and retirees participate
in various Company pension, health care, savings and other benefit plans. The
costs and certain obligations related to these plans are included in Chemicals
combined financial statements generally based on the percentage of Chemicals
payroll costs to total Company payroll cost.

Certain assets and liabilities related to the Chemicals operations have been
managed and controlled by the Company on a centralized basis. Such assets and
liabilities have been allocated to Chemicals in the manner described in
preceding paragraphs for allocating general and administrative expenses and
benefit plans. A portion of the following assets and liabilities have been
determined in this manner: other assets, accounts payable, post-retirement
liabilities, miscellaneous accruals and other liabilities.

The Company uses a centralized approach to cash management and the financing of
its operations. As a result, cash and cash equivalents and debt were not
allocated to Chemicals in the historical financial statements. Chemicals
generally has not had borrowings except amounts due to the Company. Interest
expense has been allocated to Chemicals in the combined financial statements to
reflect Chemicals' pro rata share of the financing structure of the Company.
This allocation in the combined financial statements is based upon the
percentage relationship between the net assets utilized in the Chemicals
operations and the Company's net assets.

The allocation methodology followed in preparing the combined financial
statements may not necessarily reflect the results of operations, cash flows, or
financial position of Chemicals in the future, or what the results of
operations, cash flows, or financial position would have been had Chemicals been
a separate stand-alone public entity.

Pending Spinoff

In December 1996, the Company's board of directors approved in principle a plan
to spin off the Company's chemical operations to the stockholders of the
Company. In the Spinoff, each of the Company's stockholders will receive a pro
rata share of the voting common stock of Chemicals in a special dividend and
Chemicals will become a separately traded, publicly held company. The Spinoff is
subject to several conditions, including

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stockholder approval. The Company has filed a request for a ruling from the U.S.
Internal Revenue Service (the "IRS") that this transaction generally would be
free from U.S. federal income taxes.

The Spinoff will be accomplished through a distribution agreement that will
provide for, among other things, the assets to be contributed to Chemicals and
the liabilities to be assumed by Chemicals, certain of which assets and
liabilities have not been included in the accompanying Statement of Combined
Financial Position. Those assets and liabilities include, among other things: a
joint venture interest in the Company's elemental phosphorus business and a
defined amount of cash and debt.

The Company and Chemicals will also enter into an employee benefits and
compensation allocation agreement to set forth the manner in which assets and
liabilities under employee benefit plans and other employment-related
liabilities will be divided between them. Certain assets and liabilities related
to the plans have not been included in the accompanying Statement of Financial
Position. These include, among other things, assets and liabilities for: the
U.S. defined benefit pension plans, workers' compensation and additional
obligations for health care and other post-retirement benefits that Chemicals is
expected to retain for substantially all retired U.S. employees.

The final determination of the assets to be contributed to Chemicals and the
liabilities to be assumed by Chemicals will be made pursuant to the agreements
to be entered into between the Company and Chemicals in connection with the
Spinoff. As of the date of the Spinoff, the effect of the final transfer will be
treated as a direct increase or decrease in "Monsanto Company Equity" in the
Statement of Combined Financial Position.

Regardless of the allocation of the assets and liabilities described in the
preceding paragraphs, Chemicals' Statement of Combined Income includes all of
the related costs of doing business including an allocation of certain general
corporate expenses from the Company which were not directly related to
Chemicals.

Subsequent Event

On July 10, 1997, management approved the asset and liability allocation which
set forth the assets to be contributed to Chemicals and the liabilities to be
assumed by Chemicals in connection with the Spinoff. Included in those assets
and liabilities are the following material items which have not been included in
the accompanying Statements of Combined Financial Position: a joint venture
interest in the Company's elemental phosphorus business, cash of $75 million,
debt of $1.03 billion, accrued net pension liability for the U.S. defined
benefit pension plans, and additional obligations for healthcare and other
postretirement benefits. The following unaudited pro forma amounts give effect
to those items, as well as certain other items, as set forth in the unaudited
pro forma condensed financial statements included in the Proxy Statement for the
Monsanto Company Special Meeting of Stockholders to be held on August 18, 1997.
The following unaudited pro forma amounts are presented as if the Spinoff had
occurred on March 31, 1997 and December 31, 1996, with respect to the unaudited
pro forma condensed Statements of Combined Financial Position amounts and as of
January 1, 1997 and 1996 with respect to the unaudited pro forma condensed
Statement of Combined Income amounts for the three months ended March 31, 1997
and for the year ended December 31, 1996, respectively.

Unaudited pro forma condensed Statements of Combined Financial Position as of
March 31, 1997 and December 31, 1996:

[Enlarge/Download Table]

MARCH 31, DECEMBER 31,
1997 1996
--------- ------------

Total Assets................................................. $ 2,717 $2,660
Long-term debt............................................... 1,030 1,030
Post-retirement liabilities.................................. 890 876
Monsanto Company (deficit)................................... (283) (440)
Total Liabilities and Monsanto Company Deficit............... 2,717 2,660

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Unaudited pro forma Statements of Combined Income for the three months ended
March 31, 1997 and the year ended December 31, 1996:

[Enlarge/Download Table]

THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------

Income Before Income Taxes................................. $ 80 $ 16
Net Income................................................. 53 21
Earnings per Share......................................... $ 0.44 $ 0.18

The effect of the employee benefits and compensation allocation is an increase
in the retiree medical and pensions costs allocation of $17 million for the year
ended December 31, 1996 in excess of the amounts allocated to Chemicals in
Chemicals' historical financial statements.

The pro forma information is presented for illustrative purposes only and may
not be indicative of the results that would have been obtained had the
transactions actually occurred on the dates assumed, nor is it necessarily
indicative of the future combined results of operations.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Combination

The combined financial statements include the accounts of Chemicals as described
in Note 1. Other companies in which Chemicals has a significant interest (20 to
50 percent) are included in "Investments in Affiliates" in the Statement of
Combined Financial Position. Chemicals' share of these companies' net earnings
or losses is included in "Other income (expense) -- net" in the Statement of
Combined Income.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
that affect revenues and expenses during the period reported. Estimates are
adjusted when necessary to reflect actual experience. Significant estimates are
used when accounting for the allocation of financial statement amounts between
the Company and Chemicals, restructuring reserves, environmental reserves,
self-insurance reserves, employee benefit plans, asset impairments, and
contingencies.

Currency Translation

The financial statements for most of Chemicals' ex-U.S. operations are
translated into U.S. dollars at current exchange rates. Unrealized currency
adjustments in the Statement of Combined Financial Position are accumulated in
equity. The financial statements of ex-U.S. operations in hyperinflationary
economies, principally Brazil, are translated at either current or historical
exchange rates, as appropriate. These currency adjustments are included in net
income.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost. The cost of plant and
equipment is depreciated over weighted average periods of 18 years for buildings
and 10 years for machinery and equipment, by the straight-line method.

Impairment of Long-lived Assets

Impairment tests of long-lived assets are made when conditions indicate a
possible loss. Such impairment tests are based on a comparison of undiscounted
cash flows to the recorded value of the asset. If an impairment is indicated,
the asset value is written down to its fair value based upon discounted cash
value, using an appropriate discount rate.

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Inventory Valuation

Inventories are stated at cost or market, whichever is less. Actual cost is used
to value raw materials and supplies. Standard cost, which approximates actual
cost, is used to value finished goods and goods in process. Standard cost
includes direct labor and raw materials, and manufacturing overhead based on
practical capacity. The cost of certain inventories (76 percent as of December
31, 1996) is determined by using the last-in, first-out "LIFO" method, which
generally reflects the effects of inflation or deflation on cost of goods sold
sooner than other inventory cost methods. The cost of other inventories
generally is determined by using the first-in, first-out "FIFO" method.

Income Taxes

Chemicals does not file separate tax returns. It is included in the consolidated
returns filed by the Company and its subsidiaries in various U.S. and ex-U.S.
jurisdictions. The tax provisions reflected in the Statement of Combined Income
have been computed as if Chemicals was a separate company. The accompanying
Statement of Combined Financial Position includes deferred tax amounts
applicable to Chemicals. Taxes currently payable and income tax payments are
recorded directly by the Company and, as a result, amounts related to Chemicals
are included in "Net transactions with Monsanto Company" in the Statement of
Combined Cash Flow.

Earnings per Share

Historical earnings per share have not been presented as Chemicals was wholly
owned by the Company.

Environmental Remediation

Costs for remediation of waste disposal sites are accrued in the accounting
period in which the responsibility is established and when the cost is
estimable. Post-closure and remediation costs for hazardous and other waste
facilities at operating locations are accrued over the estimated life of the
facility as part of its anticipated closure cost. Environmental liabilities are
not discounted, and they have not been reduced for any claims for recoveries
from insurance or third parties. In those cases where insurance carriers or
third-party indemnitors have agreed to pay any amounts and management believes
that collectability of such amounts is probable, the amounts are reflected as
receivables in the combined financial statements.

3. TRANSACTIONS WITH THE COMPANY

Chemicals participates in the Company's centralized cash management system.
Under this system, cash received from Chemical's operations is transferred to
the Company's centralized cash accounts and cash disbursements are funded from
the centralized cash accounts.

Included in the Statement of Combined Income are sales to the Company of $63
million, $75 million, and $80 million in 1996, 1995, and 1994, respectively.
Such sales are made at the Company's established transfer prices.

As specified in Note 1, the Company provided certain general and administrative
services to Chemicals. The cost of these services, also included in such
statement, are $85 million, $72 million, and $69 million in 1996, 1995, and
1994, respectively. Interest expense charged to Chemicals represents an
allocation from the Company of its total interest expense. The allocated
interest expense to Chemicals was $36 million, $36 million, and $29 million in
1996, 1995, and 1994, respectively.

4. RESTRUCTURING AND OTHER ACTIONS

In December 1996, Chemicals recorded pretax restructuring and other special
charges totaling $256 million ($164 million aftertax) to cover the costs
associated with the closure or sale of certain facilities, asset write-offs, and
workforce reductions. Approximately 900 positions are expected to be eliminated
by these actions. Included in these charges were pretax amounts for asset
impairments totaling $56 million. These write-offs

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were necessary primarily because of excess production capacity, coupled with
insufficient demand for certain products. Asset values were written down to
their discounted cash values, using appropriate discount rates.

In December 1995, the Company's board of directors approved a restructuring
plan. The pretax charge associated with these actions was $66 million ($57
million aftertax) and covered the costs of work force reductions, business
consolidations, facility closures and the exit from nonstrategic businesses and
facilities. This plan was substantially completed by the end of 1996 and reduced
employment by approximately 100 people.

In December 1994, the Company and Akzo Nobel N.V. agreed to form a 50-50 joint
venture by combining their respective rubber chemicals businesses. The venture
partners agreed to bear the one-time costs required to integrate their
respective rubber chemicals businesses into the joint venture. For Chemicals,
these integration costs, which totaled $40 million pretax ($25 million
aftertax), were primarily for the cost of reducing the work force by
approximately 120 people and for special termination benefits for approximately
300 people transferring from Chemicals to the joint venture. The charge for
these actions was recorded in the first quarter of 1995. On May 1, 1995, the
joint venture, known as Flexsys, L.P. ("Flexsys"), began operations and is
accounted for as an equity affiliate. Accordingly, Chemicals share of the
earnings of Flexsys after that date has been reflected in "Other income
(expense) -- net" in the Statement of Combined Income. Chemicals' results of
operations for 1995 and 1994 included net sales of $140 million and $400
million, respectively, from the rubber chemicals business. Operating income for
this business during these periods was not significant.

Other items that affected Chemicals' results of operations in 1995 included the
receipt in the first and third quarters of settlement payments from various
insurers related to environmental and other insurance litigation. The combined
effect of these settlements totaled $88 million pretax ($55 million aftertax).
In addition, the Company settled a lawsuit related to a Comprehensive
Environmental Response, Compensation and Liability site, commonly known as
"Superfund," in La Marque, Texas. The suit was brought by IT Corporation ("IT"),
a subsidiary of International Technology Corp., and claimed, among other things,
breach of a contract calling for IT to perform incineration and remediation work
at the site. The Company settled the suit by paying $41 million pretax ($25
million aftertax), and Chemicals recorded the payment in the third quarter of
1995.

In December 1994, the Company's board of directors approved a plan to eliminate
redundant staff activities and to consolidate certain staff and administrative
business functions. The plan, which was substantially completed by the end of
1995, reduced worldwide employment by approximately 140 people. In addition,
Chemicals closed certain facilities and terminated certain programs. The pretax
expense related to these actions was $34 million ($21 million aftertax).

The components of the pretax expense (income) related to the restructuring
programs and the other actions included in the accompanying Statement of
Combined Income were:

[Download Table]

1996 1995 1994
---- ---- ----

Cost of employee reductions................................ $157 $ 22 $27
Shutdown and consolidation of various facilities and
departments.............................................. 33 44 7
Asset impairments.......................................... 56
Insurance-related settlement (income)...................... (88)
Litigation settlement...................................... 41
Joint venture integration costs............................ 40
Other costs................................................ 10
---- ---- ----
Total............................................... $256 $ 59 $34
==== ==== ====

Restructuring expenses are recorded based on estimates prepared at the time the
restructuring actions are approved by the board of directors. The balance in
restructuring reserves as of December 31, 1996, was $265 million. It is
earmarked primarily for work force reduction costs, asset impairments, and the
costs associated with shutdowns and consolidation of various facilities and
departments. Management believes that

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the balance of these reserves as of December 31, 1996, is adequate for
completion of those activities. Restructuring actions during the last three
years have reduced these liabilities by approximately $300 million.
Approximately two-thirds of these reductions were recorded for write-offs and
expenditures related to the termination or sale of nonstrategic products and
facilities. The remaining reductions were primarily related to the cost of work
force reduction programs, most of which have been completed.

The pretax expenses (income) related to the restructuring programs and the other
unusual items were recorded in the Statement of Combined Income in the following
categories:

[Download Table]

1996 1995 1994
---- ---- ----

Cost of goods sold.......................................... $ 56 $(7)
Restructuring expenses -- net............................... 192 53 $34
---- ---- ----
Decrease in operating income.............................. 248 46 34
Other expense(1)............................................ 8 13
---- ---- ----
Total decrease in income before income taxes.............. $256 $59 $34
==== ==== ====

-------------------------
(1) In 1996 and 1995, other expense includes Chemicals' share of restructuring
actions undertaken by Flexsys.

Net income decreased by $164 million, $52 million and $21 million, in 1996, 1995
and 1994, respectively, because of these restructurings and unusual items.

5. INVESTMENTS IN AFFILIATES

At December 31, 1996, Chemicals' investments in affiliates consisted principally
of its 50 percent interests in Flexsys, the rubber chemicals joint venture, and
the Advanced Elastomer Systems, L.P. ("AES") joint venture for which Chemicals
uses the equity method of accounting. Summarized combined financial information
for the Flexsys and AES joint ventures follows (results of operations for 1995
reflects eight months of operations for Flexsys):

[Download Table]

1996 1995 1994
------ ------ ------

Results of operations

Net sales........................................ $ 779 $ 628 $ 200
Net income....................................... 64 3 21

Financial position
Total assets..................................... $ 853 $ 854
Total liabilities................................ $ 237 $ 290

6. INVENTORY VALUATION

The components of inventories were:

[Download Table]

1996 1995
----- -----

Finished goods................................................ $ 258 $ 266
Goods in process.............................................. 47 53
Raw materials and supplies.................................... 126 145
----- -----
Inventories, at FIFO cost..................................... 431 464
Excess of FIFO over LIFO cost................................. (140) (153)
----- -----
TOTAL......................................................... $ 291 $ 311
===== =====

Inventories at FIFO approximate current cost. The effect of LIFO inventory
liquidations increased pretax income by $5 million in 1996 and was not material
in 1995.

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7. INCOME TAXES

The components of income before income taxes were:

[Download Table]

1996 1995 1994
---- ---- ----

United States.............................................. $11 $221 $138
Outside United States...................................... 22 10 90
---- ---- ----
TOTAL...................................................... $33 $231 $228
==== ==== ====

The components of income tax expense charged to operations were:

[Download Table]

1996 1995 1994
---- ---- ----

Current:

U.S. federal............................................ $ 13 $ 39 $ 72
U.S. state.............................................. 2 7 5
Outside United States................................... 31 13 25
---- ---- ----
46 59 102
---- ---- ----
Deferred:
U.S. federal............................................ (21) 23 (28)
U.S. state.............................................. (1) 3 1
Outside United States................................... (23) (1) 4
---- ---- ----
(45) 25 (23)
---- ---- ----
TOTAL..................................................... $ 1 $ 84 $ 79
==== ==== ====

Factors causing the Chemicals' effective tax rate to differ from the U.S.
federal statutory rate were:

[Download Table]

1996 1995 1994
---- ---- ----

U.S. federal statutory rate................................. 35% 35% 35%
U.S. state income taxes..................................... 1 3 2
Assumed tax benefit of foreign sales corporation............ (23) (4) (2)
Taxes related to foreign income, net of credits............. 3 4 --
Income from equity affiliates recorded net of tax........... (13) (1) (1)
Other....................................................... -- (1) 1
---- ---- ----
EFFECTIVE INCOME TAX RATE................................... 3 % 36% 35%
==== ==== ====

Deferred income tax balances were related to:

[Download Table]

1996 1995
----- -----

Property............................................... $(176) $(181)
Post-retirement benefits............................... 248 260
Restructuring reserves................................. 92 18
Environmental liabilities.............................. 57 64
Inventory.............................................. 4 5
Other.................................................. 77 98
----- -----
NET ASSET.............................................. $ 302 $ 264
===== =====

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8. MONSANTO COMPANY EQUITY

The following is an analysis of the Company's investment in Chemicals:

[Download Table]

1996 1995 1994
---- ---- ----

Balance at beginning of year.............................. $755 $741 $809
Net income................................................ 32 147 149
Foreign currency translation adjustment................... -- 8 19
Net transactions with the Company......................... (131) (141) (236)
---- ---- ----
Balance at end of year.................................... $656 $755 $741
==== ==== ====

9. POST-RETIREMENT BENEFITS -- PENSIONS

Chemicals' employees participate in the Company's noncontributory pension plans.
No detailed information regarding the funded status of the plans and components
of net periodic pension cost, as it relates to Chemicals is available. The
information that follows relates to all of the Company's pension plans. The
components of pension cost for these plans were:

[Download Table]

1996 1995 1994
----- ----- -----

Service cost for benefits earned during the year....... $ 83 $ 70 $ 75
Interest cost on benefit obligation.................... 287 291 269
Assumed return on plan assets(1)....................... (322) (326) (317)
Amortization of unrecognized net (gain) loss........... 9 (25) (12)
----- ----- -----
Total.................................................. $ 57 $ 10 $ 15
===== ===== =====

--------------------------------
(1) Actual returns (losses) on plan assets were $558 million, $671
million and $(142) million in 1996, 1995 and 1994, respectively.

Pension cost allocated to Chemicals in 1996, 1995 and 1994 was $18 million, $1
million, and $4 million, respectively.

Chemicals is expected to retain costs related to its active employees and
certain former employees who last worked at a Chemicals facility following the
proposed Spinoff. Consequently, future pension costs for Chemicals after the
Spinoff are likely to be different when compared to historical amounts. Separate
actuarial calculations will be performed as of the date of the Spinoff.

Pension benefits are based on the employee's years of service and/or
compensation level. Pension plans are funded in accordance with the Company's
long-range projections of the plans' financial conditions. These projections
take into account benefits earned and expected to be earned, anticipated returns
on pension plan assets, and income tax and other regulations.

Pension costs are determined through the use of the preceding year-end rate
assumptions. Assumptions used as of December 31 for the principal plans were:

[Download Table]

1996 1995 1994
----- ----- -----

Discount rate.......................................... 7.50% 7.25% 8.50%
Assumed long-term rate of return on plan assets........ 9.50% 9.50% 9.50%
Annual rates of salary increase (for plans that base
benefits on final compensation level)................ 4.50% 4.50% 5.00%

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The funded status of the Company's pension plans at year-end was:

[Download Table]

1996 1995
------ ------

PLAN ASSETS AT FAIR VALUE.................................... $3,817 $3,690
------ ------
Actuarial present value of plan benefits:
Vested..................................................... $3,495 $3,457
Nonvested.................................................. 154 145
------ ------
Accumulated benefit obligation............................... 3,649 3,602
Effect of projected future salary increases.................. 377 385
------ ------
PROJECTED BENEFIT OBLIGATION(1).............................. $4,026 $3,987
------ ------
Deficiency of plan assets over projected benefit
obligation................................................. $ (209) $ (297)
Less:
Unrecognized initial net gain.............................. 94 119
Unrecognized prior service costs........................... (264) (192)
Unrecognized subsequent net gain (loss).................... 241 (5)
------ ------
ACCRUED NET PENSION LIABILITY(2)............................. $ 280 $ 219
====== ======

--------------------------------
(1) Included $228 million in 1996 and $204 million in 1995 for unfunded
plans.
(2) Included $138 million in 1996 and $152 million in 1995 for unfunded
plans.

Included in the preceding table are plan assets and projected benefit
obligations for the principal U.S. plans of approximately $3.327 billion and
$3.264 billion, respectively, as of December 31, 1996. Plan assets consist
principally of common stocks and U.S. government and corporate obligations.
Contributions to these plans were neither required nor made in 1996, 1995 and
1994 because the Company's principal pension plans are adequately funded, using
assumed returns.

A final determination of the assets to be contributed and the liabilities to be
assumed by Chemicals with respect to the U.S. plans has not been finalized.
Accordingly, the corresponding net pension asset or liability has not been
included in the accompanying Statement of Combined Financial Position.

10. POST-RETIREMENT BENEFITS -- HEALTH CARE AND OTHER

Chemicals' employees participate in the Company benefit programs which provide
certain health care and life insurance benefits for retired employees. No
detailed information regarding the components of the total cost and obligations
of these post-retirement benefits, as it relates to Chemicals is available.
Substantially all regular, full-time U.S. employees and certain employees in
other countries may become eligible for these benefits if they reach retirement
age while employed by the Company or Chemicals. These post-retirement benefits
are unfunded and are generally based on the employee's years of service and/or
compensation level. The costs of post-retirement benefits are accrued by the
date the employees become eligible for the benefits.

The components of the total cost of the Company's post-retirement benefits,
principally health care and life insurance, were:

[Download Table]

1996 1995 1994
---- ---- ----

Service cost for benefits earned during the year......... $ 25 $ 21 $ 23
Interest cost on benefit obligation...................... 88 94 87
Amortization of unrecognized net (gain) loss............. 2 (2) 7
---- ---- ----
TOTAL.................................................... $115 $113 $117
==== ==== ====

Post-retirement benefit costs allocated to Chemicals in 1996, 1995 and 1994 were
$50 million, $54 million, and $55 million, respectively.

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Post-retirement costs are determined by using the preceding year-end rate
assumptions. Assumptions used as of December 31 for the principal plans were:

[Download Table]

1996 1995 1994
----- ----- -----

Discount rate........................................ 7.50% 7.25% 8.50%
Initial trend rate for health care costs(1).......... 8.00% 9.00% 11.50%
Ultimate trend rate for health care costs............ 5.00% 5.00% 5.50%

--------------------------------
(1) The initial trend rate for health care costs declines by 1 percent per
year to 5 percent for years after the year 2001.

A 1 percent increase in the assumed trend rate for health care costs would have
increased the cost of 1996 post-retirement health care benefits by $4 million
and the accumulated benefit obligation by $48 million as of December 31, 1996.

As of December 31, the status of the Company's obligations for post-retirement
health care and life insurance benefit plans, and employee disability benefit
plans was:

[Download Table]

1996 1995
------ ------

ACCUMULATED BENEFIT OBLIGATION:
Retirees................................................... $ 938 $1,006
Eligible active employees.................................. 60 52
Other active employees..................................... 251 213
------ ------
TOTAL........................................................ $1,249 $1,271
Unrecognized benefits from prior service................... 27 34
Unrecognized subsequent net loss........................... (28) (81)
------ ------
ACCRUED LIABILITY............................................ $1,248 $1,224
====== ======

The assumptions used to compute the accumulated benefit obligation of the
principal plans were changed as of December 31, 1996. That resulted in a
decrease of approximately $28 million in the obligation.

Chemicals' portion of this liability was approximately $671 million and $696
million, as of December 31, 1996 and 1995, respectively.

Following the Spinoff, Chemicals is expected to retain the obligations for
post-retirement benefits for approximately two-thirds of retired U.S. employees
of the Company. Consequently, future post-retirement costs for Chemicals after
the Spinoff are likely to be different and are likely to increase when compared
to historical amounts. Separate actuarial calculations will be performed as of
the date of the Spinoff.

11. EMPLOYEE SAVINGS PLANS

For some employee savings plans, employee contributions are matched in part by
the Company. Chemicals' employees participate in these plans. The value of these
contributions for Chemicals in each of 1996, 1995 and 1994 was approximately $11
million.

The information that follows relates to the Company's Employee Stock Ownership
Plan (the "ESOP"). The ESOP held 18.6 million shares of the Company's common
stock as of December 31, 1996. The ESOP acquired shares by using proceeds from
the issuance of long-term notes and debentures that are guaranteed by the
Company and from a $50 million loan from the Company. A portion of the ESOP
shares is allocated each year to employee savings accounts as matching
contributions. In 1996, 752,515 shares were allocated to participants under the
plan, leaving 12,623,080 unallocated shares as of December 31, 1996.
Compensation expense is equal to the cost of the shares allocated to
participants, less dividends paid on the shares held by the

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ESOP. Dividends on the common stock owned by the ESOP are being used to repay
the ESOP borrowings, which totaled $180 million as of December 31, 1996.

[Download Table]

1996 1995 1994
---- ---- ----

Total ESOP expense.......................................... $17 $26 $29
Interest portion of total ESOP expense...................... 14 16 17
Cash contribution........................................... 16 18 19
Dividends paid on ESOP shares held.......................... 11 10 9

12. STOCK OPTION PLANS

The Company has two fixed option plans in which Chemicals' employees
participated. Under the Management Incentive Plan of 1996, the Company may grant
options to key officers and management employees for up to 46,250,000 shares of
common stock. Under this plan, the exercise price of each option equals not less
than the fair market value of the Company's stock on the date of grant, and an
option's maximum term is 10 years. Options are granted at the discretion of the
Company's board of directors' Executive Compensation and Development Committee
or its delegate. Options generally vest upon the earlier of the achievement of
business performance targets or upon the ninth anniversary of the option grant
date. Options granted to senior management vest upon the attainment of
pre-established prices within specified time periods. Under the Company's Shared
Success Stock Option Plan, the majority of regular full-time and regular
part-time employees of the Company have been granted options on 200 shares of
common stock. The maximum number of shares for which stock options may be
granted under this plan totals 13,500,000. Approximately 5,246,200 options,
which vest in April 1999, were outstanding under this plan as of December 31,
1996. Under this plan, the exercise price of each option is determined by the
committee administering the plan and generally equals the market price of the
Company's stock on the date of grant. An option's maximum term is 10 years.

Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation." As
permitted by the standard, the Company has elected to continue following the
guidance of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," for measurement and recognition of stock-based
transactions with employees. Accordingly, no compensation cost has been
recognized for the Company's option plans. Had the determination of compensation
cost for these plans been based on the fair value at the grant dates for awards
under these plans, consistent with the method of SFAS No. 123, Chemicals' net
income would have been reduced to the pro forma amounts indicated below:

[Download Table]

1996 1995
---- ----

Net income:
As reported..................................................... $32 $147
Pro forma....................................................... 18 144

The resulting compensation expense may not be representative of compensation
expense to be incurred on a pro forma basis in future years.

The fair value of each option grant is estimated on the date of grant by using
the Black-Scholes option-pricing model. The following weighted-average
assumptions were used for grants in 1996 and 1995:

[Download Table]

1996 1995
---- ----

Expected dividend yield........................................... 1.5% 3.0%
Expected volatility............................................... 25.0% 20.0%
Risk-free interest rates.......................................... 6.0% 7.1%
Expected option lives (years)..................................... 4.0 4.5

The weighted-average fair values of options granted during 1996 and 1995 were
$6.43 and $3.99, respectively.

Options to purchase Company common stock under the above plans will be converted
into either options to purchase Chemicals common stock, adjusted options to
purchase Company common stock or a combination

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of both. The total value of the options prior to the conversion will be equal to
the combined value of the resulting options at the date of the Spinoff.

13. COMMITMENTS AND CONTINGENCIES

Commitments, principally in connection with uncompleted additions to property,
were approximately $37 million as of December 31, 1996. The Company was
contingently liable as a guarantor for bank loans and for discounted customers'
receivables relating to Chemicals totaling approximately $16 million and $7
million as of December 31, 1996 and 1995, respectively. Future minimum payments
under noncancelable operating leases and unconditional purchase obligations are
$23 million for 1997, $48 million for 1998, $15 million for 1999, $5 million for
2000, $3 million for 2001, and $3 million thereafter.

Chemicals has entered into agreements with customers to supply a guaranteed
quantity of certain products annually at prices specified in the agreements. In
return, the customers have advanced funds to Chemicals to cover the costs of
expanding capacity to provide the guaranteed supply. Chemicals has recorded the
advances as deferred credits and amortizes the amounts to income as the
customers purchase the products. At December 31, 1996, the unamortized deferred
credits were approximately $68 million.

The more significant concentrations in Chemicals' trade receivables at year-end
were:

[Download Table]

1996 1995
---- ----

U.S. chemical industry........................................... $129 $182
U.S. carpet industry............................................. 79 74
European chemical industry....................................... 36 55

Management does not anticipate losses on its trade receivables in excess of
established allowances.

Chemicals' Statement of Combined Financial Position included accrued liabilities
of $150 million and $184 million as of December 31, 1996 and 1995, respectively,
for the remediation of identified waste disposal sites. Expenditures related to
remediation activities were $59 million in 1996, $68 million in 1995, and $58
million in 1994.

Chemicals' future remediation expenses for waste disposal sites are affected by
a number of uncertainties, including, but not limited to, the method and extent
of remediation, the percentage of material attributable to Chemicals at the
sites relative to that attributable to other parties, and the financial
capabilities of the other potentially responsible parties. Because of the
uncertainties associated with remediation activities, Chemicals' potential
future expenses to remediate these sites could approximate an additional $60
million beyond amounts already accrued.

Post-closure and remediation costs for hazardous and other waste facilities are
accrued over the estimated life of the facility as part of its anticipated
closure cost. Chemicals' estimated closure costs for these facilities could
reach approximately $70 million (beyond amounts already accrued) based upon
existing technology and currently available information. Uncertainties related
to these costs include evolving government standards, the method and extent of
remediation, and future changes in technology.

In October 1996, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities,"
which is effective for Chemicals' in 1997. SOP 96-1 establishes authoritative
guidance regarding the recognition, measurement and disclosure of environmental
remediation liabilities. The preliminary estimate of the 1997 charges resulting
from the adoption of this statement is in the range of $15 million to $20
million after tax.

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The Company is a party to a number of lawsuits and claims relating to Chemicals,
for which Chemicals will assume responsibility in the Spinoff and which
Chemicals intends to defend vigorously. Such matters arise out of the normal
course of business and relate to product liability, government regulation,
including environmental issues, and other issues. Certain of the lawsuits and
claims seek damages in very large amounts. Although the results of litigation
cannot be predicted with certainty, management's belief, based upon the advice
of Chemicals' counsel, is that the final outcome of such litigation will not
have a material adverse effect on Chemicals' combined financial position,
profitability or liquidity in any one year, as applicable.

14. SUPPLEMENTAL DATA

Supplemental income statement data were:

[Download Table]

1996 1995 1994
------ ------ ------

Raw material and energy costs......................... $1,059 $ 929 $1,196
Employee compensation and benefits.................... 715 794 831
Current income and other taxes........................ 134 152 207
Rent expense.......................................... 29 31 34
Technological expenses:
Research and development............................ 81 77 76
Engineering, commercial development and patent...... 7 18 23
------ ------ ------
Total technological expenses.......................... 88 95 99
Interest expense:
Total interest cost................................. 41 42 35
Less capitalized interest........................... (5) (6) (6)
------ ------ ------
NET INTEREST EXPENSE.................................. 36 36 29
Currency losses including equity in affiliates'
currency gains and losses........................... 2 3 6

15. SEGMENT AND GEOGRAPHIC DATA

Chemicals is engaged in one industry segment - the production and marketing of a
range of high-performance chemical-based materials. Its products include a range
of performance materials, including nylon and acrylic fibers, Saflex(R) plastic
interlayer, phosphorus derivatives, and other specialty chemicals. The markets
served include automotive, housing, electronics and food. Chemicals is a 50-50
partner in two key joint ventures, Flexsys, the rubber chemicals joint venture,
and the AES joint venture. Geographic data for Chemicals follows:

[Enlarge/Download Table]

EUROPE- ASIA- LATIN ELIMINATIONS- COMBINED
US AFRICA PACIFIC CANADA AMERICA CORPORATE TOTAL
------ ------- ------- ------ ------- ------------- --------

NET SALES
1996............... $2,355 $ 415 $ 67 $ 74 $ 66 -- $2,977
1995............... 2,238 477 96 88 65 -- 2,964
1994............... 2,288 515 121 96 77 -- 3,097
OPERATING INCOME
1996............... $ 19 $ 28 $ 2 $ (2) (15) $ 1 $ 33
1995............... 237 40 (26) 2 6 (1) 258
1994............... 173 76 (5) 6 7 (1) 256
IDENTIFIABLE ASSETS
1996............... $1,697 $ 303 $ 33 $ 27 $ 65 $ 358 $2,483
1995............... 1,542 383 59 49 93 336 2,462
1994............... 1,389 671 128 52 83 112 2,435

The data above are prepared on an "entity basis," which means that net sales,
operating income and identifiable assets of each legal entity are assigned to
the geographic area where that legal entity is located. For

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example, a sale from the United States to Latin America is reported as a U.S.
export sale. Interarea sales, which are sales between Chemicals locations in
different world areas, were made on a market price basis.

Interarea sales have been excluded from the above table based upon the world
area shipped from and were:

[Enlarge/Download Table]

EUROPE- ASIA- LATIN ELIMINATIONS-
US AFRICA PACIFIC CANADA AMERICA CORPORATE TOTAL
------ ------- ------- ------ ------- ------------- ------

1996................ $ 204 $ 31 $ 8 $ 20 $ 2 $(265) $ --
1995................ 218 44 21 19 2 (304) --
1994................ 209 86 5 20 1 (321) --

The operating income reported for the individual geographic areas does not
include the income recognized in other areas, principally the United States, on
the interarea sales. Direct export sales from the United States to third-party
customers outside the United States were $345 million for 1996, $331 million for
1995 and $274 million for 1994.

Sales and operating income for the geographic segments do not include financial
results from joint venture companies in which Chemicals does not have management
control. Chemicals' share of the income or loss of these companies is reflected
in "Other income (expense) -- net" in the Statement of Combined Income.
Chemicals' share of the unconsolidated net sales and income or loss of these
companies for 1996 follows:

[Download Table]

CHEMICALS' SHARE
----------------
NET INCOME
SALES (LOSS)
----- ------

United States................................................. $ 126 $ 14
Europe-Africa................................................. 268 (1)
Asia-Pacific.................................................. 25 --
Latin America................................................. 26 --

Geographic area operating income was affected by the 1996, 1995 and 1994
restructuring and other unusual items as follows -- income (expense):

[Download Table]

1996 1995 1994
----- ---- ----

United States............................................ $(187) $(13) $(50)
Europe-Africa............................................ (36) -- 15
Asia-Pacific............................................. (2) (33) (2)
Canada................................................... (4) -- --
Latin America............................................ (19) -- 3
----- ---- ----
Total.................................................. $(248) $(46) $(34)
===== ==== ====

16. QUARTERLY DATA -- UNAUDITED

[Download Table]

FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ------

Net Sales....................... 1996 $ 705 $ 749 $ 753 $ 770 $2,977
1995 802 756 705 701 2,964
Gross Profit.................... 1996 160 175 200 117 652
1995 189 183 165 184 721
Operating Income (Loss)......... 1996 56 62 96 (181) 33
1995 85 71 73 29 258
Net Income (Loss)............... 1996 36 47 61 (112) 32
1995 53 41 41 12 147

Net income for the fourth quarter of 1996 included an aftertax charge of $164
million for restructuring actions.

Net income in the first quarter of 1995 included an aftertax gain of $23 million
for insurance-related settlement payments and an aftertax charge of $25 million
for integration costs related to the formation of the Flexsys joint venture.

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In the third quarter of 1995, net income included an aftertax gain of $32
million for the receipt of settlement payments related to environmental
insurance litigation, and an aftertax charge of $25 million for the settlement
of a lawsuit related to a Superfund site in La Marque, Texas.

Net income for the fourth quarter of 1995 included an aftertax charge of $57
million for restructuring actions.

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CHEMICALS SPINCO

STATEMENT OF COMBINED INCOME
(UNAUDITED)
(IN MILLIONS)

[Enlarge/Download Table]

THREE MONTHS
ENDED MARCH 31,
---------------
1997 1996
---- ----

NET SALES................................................................... $719 $705
Cost of goods sold.......................................................... 543 545
---- ----
GROSS PROFIT................................................................ 176 160
Marketing expenses.......................................................... 36 40
Administrative expenses..................................................... 27 42
Technological expenses...................................................... 18 22
---- ----
OPERATING INCOME............................................................ 95 56
Interest expense............................................................ (9) (8)
Other income (expense) -- net............................................... 13 5
---- ----
INCOME BEFORE INCOME TAXES.................................................. 99 53
Income taxes................................................................ 34 17
---- ----
NET INCOME.................................................................. $ 65 $ 36
==== ====

See Notes to Interim Combined Financial Statements.

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CHEMICALS SPINCO

STATEMENT OF COMBINED FINANCIAL POSITION
(IN MILLIONS)

[Enlarge/Download Table]

MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(UNAUDITED)

ASSETS
CURRENT ASSETS:
Trade receivables, net of allowances of $5 in 1997 and $7 in 1996... $ 430 $ 412
Miscellaneous receivables and prepaid expenses...................... 73 80
Deferred income tax benefit......................................... 106 108
Inventories......................................................... 321 291
------ ------
TOTAL CURRENT ASSETS................................................ 930 891
PROPERTY, PLANT AND EQUIPMENT:
Land................................................................ 18 18
Buildings........................................................... 358 367
Machinery and equipment............................................. 2,609 2,622
Construction in progress............................................ 148 121
------ ------
Total property, plant and equipment................................. 3,133 3,128
Less accumulated depreciation....................................... 2,227 2,217
------ ------
NET PROPERTY, PLANT AND EQUIPMENT................................... 906 911
INVESTMENTS IN AFFILIATES........................................... 378 366
LONG-TERM DEFERRED INCOME TAX BENEFIT............................... 190 194
OTHER ASSETS........................................................ 128 121
------ ------
TOTAL ASSETS........................................................ $ 2,532 $2,483
====== ======

LIABILITIES AND MONSANTO COMPANY EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ 212 $ 223
Wages and benefits.................................................. 72 156
Restructuring reserves.............................................. 82 79
Miscellaneous accruals.............................................. 280 312
------ ------
TOTAL CURRENT LIABILITIES........................................... 646 770
POSTRETIREMENT LIABILITIES.......................................... 628 634
OTHER LIABILITIES................................................... 407 423
MONSANTO COMPANY EQUITY............................................. 851 656
------ ------
TOTAL LIABILITIES AND MONSANTO COMPANY EQUITY....................... $ 2,532 $2,483
====== ======

See Notes to Interim Combined Financial Statements.

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CHEMICALS SPINCO

STATEMENT OF COMBINED CASH FLOW
(UNAUDITED)
(IN MILLIONS)

[Enlarge/Download Table]

THREE MONTHS
ENDED
MARCH 31,
--------------
1997 1996
----- ----

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income................................................................... $ 65 36
Adjustments to reconcile to Cash Provided by Operations:
Items that did not use (provide) cash:
Deferred income taxes................................................... 6 33
Depreciation and amortization........................................... 45 44
Other................................................................... (12) (2)
Working capital changes that provided (used) cash:
Accounts receivable..................................................... (18) (61)
Inventories............................................................. (30) (8)
Accounts payable and accrued liabilities................................ (124) (47)
Other................................................................... 7 6
Other items................................................................ (41) (49)
----- ----
TOTAL CASH USED IN OPERATIONS................................................ (102) (48)
INVESTING ACTIVITIES:
Property, plant and equipment purchases...................................... (38) (45)
Acquisition and investment payments.......................................... -- (2)
----- ----
CASH USED IN INVESTING ACTIVITIES............................................ (38) (47)
----- ----
FINANCING ACTIVITIES:
Net transactions with Monsanto Company....................................... 140 95
----- ----
CASH PROVIDED BY FINANCING ACTIVITIES........................................ 140 95
----- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. -- --
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR............................................................ -- --
----- ----
END OF YEAR.................................................................. $ -- $ --
===== ====

See Notes to Interim Combined Financial Statements.

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CHEMICALS SPINCO

NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

1. BASIS OF PRESENTATION AND SUBSEQUENT EVENT

Basis of Presentation

The accompanying unaudited financial statements have been prepared on a basis
which reflects the historical financial statements of Chemicals SpinCo
("Chemicals") assuming that the operations of Monsanto Company (the "Company")
expected to be contributed to Chemicals prior to the spinoff of Chemicals to the
Company's stockholders (the "Spinoff") were organized as a separate legal
entity, owning certain net assets of the Company.

These financial statements should be read in conjunction with the Basis of
Presentation and Significant Accounting Policies as set forth in Notes 1 and 2,
respectively, to the Combined Financial Statements of Chemicals as of December
31, 1996 and 1995 and for each of the three years in the period ended December
31, 1996.

The accompanying unaudited interim combined financial statements reflect all
adjustments which in the opinion of management are necessary to present fairly
the financial position, results of operations and cash flows for the interim
periods reported. Such adjustments, other than the adjustment described in Note
2 below, are of a normal, recurring nature. The results of operations for the
three-month period ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year.

Subsequent Event

Unaudited pro forma condensed Statements of Combined Financial Position as of
March 31, 1997 and December 31, 1996:

[Enlarge/Download Table]

MARCH 31, DECEMBER 31,
1997 1996
--------- ------------

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Unaudited pro forma Statements of Combined Income for the three months ended
March 31, 1997 and the year ended December 31, 1996:

[Enlarge/Download Table]

THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------

2. ACCOUNTING CHANGE

Effective January 1, 1997, Chemicals adopted the American Institute of Certified
Public Accountants' Statement of Position ("SOP") 96-1, "Environmental
Remediation Liabilities." SOP 96-1 establishes authoritative guidance regarding
the recognition, measurement and disclosure of environmental remediation
liabilities. The primary change in Chemicals' accounting principles associated
with the adoption of this SOP was an acceleration of the recognition of certain
environmental remediation liabilities at operating facilities. As a result,
Chemicals recorded an aftertax charge of $6 million in the first quarter of
1997. Additional aftertax charges in the range of $9 million to $14 million are
anticipated in 1997 as the criteria for recording these liabilities are met.

3. INVENTORIES

The components of inventories as of March 31, 1997 and December 31, 1996 were as
follows:

[Download Table]

MARCH 31, DECEMBER 31,
1997 1996
--------- ------------

Finished goods....................................... $ 271 $ 258
Goods in process..................................... 56 47
Raw materials and supplies........................... 139 126
--------- ------------
Inventories, at FIFO cost............................ 466 431
Excess of FIFO over LIFO cost........................ (145) (140)
--------- ------------
TOTAL................................................ $ 321 $ 291
======= ==========

4. INTERCOMPANY TRANSACTIONS

Included in the Statement of Combined Income are sales to the Company of $20
million and $13 million in both 1997 and 1996, respectively. Such sales are made
at the Company's established transfer prices. In addition, the Company provided
certain general and administrative services to Chemicals. The cost of these
services, also included in such statement are $12 million and $17 million in
1997 and 1996, respectively. Interest expense charged to Chemicals represents an
allocation from the Company of its total interest expense. The allocated
interest expense to Chemicals was $9 million and $8 million in 1997 and 1996,
respectively.

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5. MONSANTO COMPANY EQUITY

The following is an analysis of the Company's investment in Chemicals:

[Download Table]

1997
----

Balance at beginning of period........................................ $656
Net income............................................................ 65
Foreign currency translation adjustment............................... (10)
Net transactions with Monsanto Company................................ 140
----
Balance at end of period.............................................. $851
====

6. COMMITMENTS AND CONTINGENCIES

Chemicals' Statement of Combined Financial Position included accrued liabilities
of $154 million and $150 million as of March 31, 1997 and December 31, 1996,
respectively, for the remediation of identified waste disposal sites. Although
the ultimate costs and results of remediation of contaminated sites cannot be
predicted with certainty, they are not expected to result in a material adverse
change in Chemicals' liquidity or financial position as reflected in Chemicals'
historical financial statements, but they could have a material adverse effect
on profitability in any given period.

The Company is a party to a number of lawsuits and claims relating to Chemicals,
for which Chemicals will assume responsibility in the Spinoff and, which
Chemicals intends to defend vigorously. Such matters arise out of the normal
course of business and relate to product liability, government regulation,
including environmental issues, and other issues. Certain of the lawsuits and
claims seek damages in very large amounts. Although the results of litigation
cannot be predicted with certainty, management's belief, based upon the advice
of Chemicals' counsel, is that the final outcome of such litigation will not
have a material adverse effect on Chemicals' combined financial position,
profitability or liquidity in any one year, as applicable.

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ANNEX A

FORM OF
CERTIFICATE OF AMENDMENT
OF THE
MONSANTO COMPANY
RESTATED CERTIFICATE OF INCORPORATION

Monsanto Company, a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation").

DOES HEREBY CERTIFY:

FIRST: That at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth a proposed amendment of the Restated
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:

RESOLVED, that the Restated Certificate of Incorporation of this corporation be
amended by changing the first paragraph of Article IV thereof to read as
follows:

ARTICLE IV: CAPITAL STOCK

The total number of shares of all classes of stock which the Corporation shall
have authority to issue is 1,010,000,000 shares, to be divided into two classes
consisting of (a) ten million (10,000,000) shares of preferred stock without par
value (hereinafter designated "Preferred Stock"), and (b) one billion
(1,000,000,000) shares of common stock of a par value of $2 per share
(hereinafter designated "Common Stock").

FURTHER RESOLVED, that the Restated Certificate of Incorporation of this
Corporation be amended by amending and restating Article VIII thereof to read as
follows:

ARTICLE VIII: DIRECTORS

Subject to the rights of the holders of any series of Preferred Stock to elect
additional directors under specified circumstances, the number of directors of
the Corporation which shall constitute the whole Board shall be not less than 5
nor more than 20. The exact number of directors within the minimum and maximum
limitations specified in the preceding sentence shall be fixed from time to time
by resolution of a majority of the whole Board.

The directors, other than those who may be elected by the holders of any series
of Preferred Stock, shall be divided into three classes, as nearly equal in
number as possible. One class of directors shall have a term expiring at the
annual meeting of stockholders to be held in 1998, another class shall have a
term expiring at the annual meeting of stockholders to be held in 1999, and
another class shall have a term expiring at the annual meeting of stockholders
to be held in 2000. Members of each class shall hold office until their
successors are elected and qualified. At each annual meeting of the stockholders
of the Corporation commencing with the 1998 annual meeting, (a) directors
elected to succeed those directors whose terms then expire shall be elected at
such meeting to hold office for a term expiring at the third succeeding annual
meeting of stockholders after their election, with each director to hold office
until his or her successor shall have been duly elected and qualified, and (b)
only if authorized by a resolution of the Board of Directors, directors may be
elected to fill any vacancy on the Board of Directors, regardless of how such
vacancy shall have been created. Directors need not be stockholders.

Subject to the rights of the holders of any series of Preferred Stock to elect
additional directors under specified circumstances, and unless the Board of
Directors otherwise determines, vacancies resulting from death, resignation,
retirement, disqualification, removal from office or other cause, and newly
created directorships resulting from any increase in the authorized number of
directors, may be filled only by the affirmative vote of a majority of the
remaining directors, though less than a quorum of the Board of Directors, or by
a sole remaining director, and directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the Board of Directors shall shorten the
term of any incumbent director.

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Subject to the rights of the holders of any series of Preferred Stock to elect
additional directors under specified circumstances, any director may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 80 percent of the voting power of the then outstanding
Voting Stock, voting together as a single class.

Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, and in addition to approval by the Board of Directors, the affirmative
vote of the holders of at least 80 percent of the voting power of the then
outstanding Voting Stock, voting together as a single class, shall be required
to amend, repeal or adopt any provision inconsistent with this Article VIII. For
purposes of the Certificate of Incorporation, "Voting Stock" shall mean the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors.

FURTHER RESOLVED, that the Restated Certificate of Incorporation of this
Corporation be amended by amending Article X by replacing the second sentence
thereof with the following:

To make, alter or repeal the By-Laws of the Corporation, subject to
the power of the stockholders of the Corporation to adopt, amend or
repeal the By-Laws; provided, however, that with respect to the powers
of the stockholders to adopt, amend and repeal the By-Laws,
notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of the
holders of any series of Preferred Stock required by law, this
Certificate of Incorporation or any Preferred Stock designation, the
affirmative vote of the holders of at least 80 percent of the voting
power of all of the then-outstanding Voting Stock, voting together as
a single class, shall be required for stockholders to adopt, amend or
repeal any provision of the By-Laws. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, and in
addition to approval by the Board of Directors, the affirmative vote
of the holders of at least 80 percent of the voting power of the then
outstanding Voting Stock, voting together as a single class, shall be
required to amend, repeal or adopt any provision inconsistent with the
preceding sentence.

FURTHER RESOLVED, that the Restated Certificate of Incorporation of this
Corporation be amended by further amending Article X by deleting the phrase "or
when authorized by the written consent of the holders of a majority of the
voting stock issued and outstanding" from the third paragraph thereof.

FURTHER RESOLVED, that the Restated Certificate of Incorporation of this
corporation be amended by renumbering Article XI thereof as Article XII and
adopting a new Article XI to read as follows:

ARTICLE XI: ACTION BY STOCKHOLDERS

Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing in lieu of a meeting of such stockholders. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, and in addition
to approval by the Board of Directors, the affirmative vote of at least 80
percent of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to amend, repeal or adopt any
provision inconsistent with this Article XI.

SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.

THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, said Monsanto Company has caused this certificate to be
signed by , its authorized officer, this day of ,
1997.

By:

Title:

A-2

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PROXY

MONSANTO
COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING
K BUILDING, MONSANTO WORLD HEADQUARTERS, 800 N. LINDBERGH BOULEVARD,
ST. LOUIS, MISSOURI
10:00 A.M., AUGUST 18, 1997

The undersigned hereby appoints Robert B. Shapiro, Nicholas L. Reding and R.
William Ide III, and each of them, with full power of substitution, proxies to
vote all shares of Common Stock of Monsanto Company which the undersigned is
entitled to vote at the Special Meeting of Stockholders, and any adjournments
thereof, as specified upon the matters indicated on the reverse side and in
their discretion upon such other matters as may properly come before the
meeting.

Election of Directors to the terms listed below (See Reverse). Nominees:
For term expiring 1999: Robert B. Shapiro, Robert M. Heyssel, Philip Leder,
Jacobus F.M. Peters
For term expiring 2000: Michael Kantor, Gwendolyn S. King, John S. Reed

PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE.
NO POSTAGE REQUIRED IF MAILED IN THE U.S.A.

(Please sign on reverse side)

--------------------------------------------------------------------------------
FOLD AND DETACH HERE

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PLEASE MARK YOUR
[X] VOTES AS IN THIS
EXAMPLE

This proxy, when properly executed, will be voted in the manner directed by
the undersigned stockholder. If no direction is given, this proxy will be voted
"FOR" items, 1, 2, 3 and 4.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS, 1, 2, 3 AND 4.
--------------------------------------------------------------------------------

[Enlarge/Download Table]

FOR AGAINST WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN

1. Approval of [ ] [ ] [ ] 2. Approval of [ ] [ ] [ ] 4. Approval of the [ ] [ ] [ ]
the Spinoff amendments to amendment of
of Chemicals Monsanto the Monsanto
SpinCo. Company's Management
Restated Certi- Incentive Plan
ficate of of 1996.
Incorporation
FOR WITHHELD
3. Election of [ ] [ ]
Directors to
terms cited on
reverse.

For, except vote withheld from the following nominee(s):

-------------------------------------------------------

Please sign your name or names exactly as printed
hereon. When shares are held by joint tenants,
both should sign. Trustees and other fiduciaries
should so indicate when signing.

-------------------------------------------------

-------------------------------------------------
SIGNATURE(S) DATE

--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *

IMPORTANT: PLEASE MARK, SIGN, AND DATE
YOUR PROXY AND RETURN IT IN THE ENVELOPE PROVIDED

IF YOU WILL BE ATTENDING THE MEETING,
PLEASE BRING THE ADMISSION TICKET
ENCLOSED IN THE PROXY STATEMENT

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MONSANTO
TO PARTICIPANTS IN: SAVINGS AND INVESTMENT PLAN (SIP) AND
PAYROLL RELATED EMPLOYEE STOCK OWNERSHIP PLAN

Participants may instruct the Trustee as to the manner in which Monsanto stock
held for their accounts and entitled to vote shall be voted at Stockholders'
meetings. The enclosed Notice of Special Meeting of Stockholders and Proxy
Statement for Monsanto Company's Special Meeting are being provided to you by
the Trustee. If you desire to instruct the Trustee in the voting of your plan
shares, you should fill in the reverse side of the voting form, date, sign and
return this form in the enclosed envelope. No postage is required if mailed in
the U.S.A. The shares will be voted at the Special Meeting to be held at K
Building, Monsanto World Headquarters, 800 N. Lindbergh Boulevard, St. Louis,
Missouri, on August 18, 1997 at 10:00 a.m. or at any adjournment thereof.

Election of directors to the terms listed below (See Reverse). Nominees:
For term expiring 1999: Robert B. Shapiro, Robert M. Heyssel, Philip
Leder, Jacobus F.M. Peters
For term expiring 2000: Michael Kantor, Gwendolyn S. King, John S. Reed

THE TRUSTEE MUST RECEIVE THIS FORM ON OR PRIOR TO AUGUST 12, 1997. THE TRUSTEE
WILL VOTE YOUR SHARES AS YOU DIRECT ONLY IF THE SIGNED FORM IS RECEIVED ON OR
PRIOR TO AUGUST 12, 1997, AND YOU HAVE SPECIFIED YOUR DIRECTIONS HEREIN.
OTHERWISE, THE TRUSTEE WILL VOTE YOUR SIP SHARES IN PROPORTION TO THE VOTES OF
THE OTHER SIP PARTICIPANTS.

(PLEASE SIGN ON REVERSE SIDE)

-----------------------------------------------------------------------------
FOLD AND DETACH HERE

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PLEASE MARK YOUR
[X] VOTES AS IN THIS
EXAMPLE

The proxy for which your instructions are requested is solicited on behalf
of the Company's Board of Directors.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2, 3 AND 4,
AND TO "GRANT AUTHORITY" FOR ITEM 5.
--------------------------------------------------------------------------------

[Enlarge/Download Table]

FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN

1. Approval of [ ] [ ] [ ] 2. Approval of [ ] [ ] [ ] 4. Approval of the [ ] [ ] [ ]
the Spinoff amendments to amendment of
of Chemicals Monsanto the Monsanto
SpinCo. Company's Management
Restated Certi- Incentive Plan
ficate of of 1996.
Incorporation.
FOR WITHHELD
3. Election of [ ] [ ]
Directors to
terms listed
on reverse.

-------------------------------------------

[Download Table]

THE BOARD OF DIRECTORS RECOMMENDS A
VOTE TO "GRANT AUTHORITY" FOR ITEM 5.

5. In this Trustee's discretion upon such
other matters as may properly come
before the meeting.

GRANT WITHHOLD
AUTHORITY AUTHORITY

[ ] [ ]

For, except vote withheld from the following nominee(s):

-------------------------------------------------------

Please sign your name exactly as printed
hereon.

-------------------------------------------------
SIGNATURE DATE

--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *

IMPORTANT: PLEASE MARK, SIGN, AND DATE
YOUR PROXY AND RETURN IT IN THE ENVELOPE PROVIDED

IF YOU WILL BE ATTENDING THE MEETING,
PLEASE BRING THE ADMISSION TICKET
ENCLOSED IN THE PROXY STATEMENT

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Monsanto Letterhead Logo

NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
AUGUST 18, 1997

To Our Stockholders:

(1) to consider and vote on a proposal to approve the spinoff of the
Company's chemicals business;

(2) to consider and vote on a proposal to amend the Company's Restated
Certificate of Incorporation as described in the attached Proxy
Statement;

The Board of Directors unanimously recommends that stockholders vote to approve
the four proposals listed above, which are described in detail in the
accompanying Proxy Statement.

Signature
R. William Ide, III
Secretary

St. Louis, Missouri
July 14, 1997

THIS PROXY MATERIAL IS SENT TO YOU FOR YOUR INFORMATION AS THE HOLDER OF A
MONSANTO STOCK OPTION OR AS A PARTICIPANT IN THE MONSANTO EMPLOYEE STOCK
PURCHASE PLAN. YOU ARE NOT ENTITLED, HOWEVER, TO VOTE ANY OPTIONED SHARES OR
SHARES UNDER CONTRACT. IF YOU WERE A RECORD HOLDER ON JUNE 27, 1997, AS THE
RESULT OF YOUR HAVING EXERCISED YOUR OPTION OR COMPLETED YOUR PAYMENT FOR
SHARES UNDER CONTRACT, YOU WILL RECEIVE A PROXY CARD FOR THOSE SHARES.

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘DEFS14A’ Filing	Date	First	Last	Other Filings

	12/31/00	92	103	10-K, 11-K, 5
	4/22/98	121
	12/31/97	36	93	10-K405
	11/13/97	121
	11/11/97	121
	10/1/97	9	28
For Period End:	9/18/97
	8/18/97	2	156
	8/12/97	154
Filed on:	7/14/97	2	156
	7/10/97	125	147
	7/8/97	87	109
	6/27/97	3	156
	6/1/97	75	81
	5/31/97	96	108
	5/1/97	125
	4/30/97	48
	4/25/97	105	108	DEF 14A
	3/31/97	14	149	10-Q
	2/12/97	97		SC 13G
	2/4/97	97		SC 13G/A
	1/27/97	89
	1/1/97	24	148
	12/31/96	14	149	10-K405
	12/6/96	109		8-K
	9/26/96	105
	6/28/96	106
	5/10/96	95	106
	4/26/96	42	100	DEF 14A, PRE 14A
	3/31/96	14	124	10-Q
	2/22/96	100
	1/24/96	89
	1/1/96	23	147
	12/31/95	17	147	10-K
	5/1/95	72	133
	12/31/94	17	63	10-K405
	12/21/94	106
	12/31/93	17	53	10-K, 11-K
	11/15/93	83
	1/22/93	98	99
	12/31/92	17	53
	1/1/92	85	86
				List all Filings

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Filing Submission 0000950123-97-005793 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Pharmacia Corp/DE – ‘DEFS14A’ for 9/18/97

As of: Monday, 7/14/97 · For: 9/18/97 · Accession #: 950123-97-5793 · File #: 1-02516

Definitive Proxy Solicitation Material — Special Meeting — Schedule 14AFiling Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Definitive Proxy Solicitation Material — Special Meeting — Schedule 14A
Filing Table of Contents