-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wb6vJDnWZXVyR24zNzjIFEZYcKOnlrfI35tsQBkHwGRfbBNCEZfG6lh1rmPDI3ud SOlpVLHd5p69mTGE9ZPc7g== 0000005187-96-000003.txt : 19960328 0000005187-96-000003.hdr.sgml : 19960328 ACCESSION NUMBER: 0000005187-96-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN HOME PRODUCTS CORP CENTRAL INDEX KEY: 0000005187 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 132526821 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-01225 FILM NUMBER: 96539190 BUSINESS ADDRESS: STREET 1: 5 GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940 BUSINESS PHONE: 201-660-5000 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number December 31, 1995 1-1225 ----------------- ------ AMERICAN HOME PRODUCTS CORPORATION - --------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-2526821 - ------------------------------ --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Five Giralda Farms, Madison, NJ 07940-0874 - ------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (201) 660-5000 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange On Title of Each Class Which Registered - ---------------------------------- ----------------------- $2 Convertible Preferred Stock, $2.50 par value New York Stock Exchange - ---------------------------------- ----------------------- Common Stock, $.33 - 1/3 par value New York Stock Exchange - ---------------------------------- ----------------------- 6 - 7/8% Notes due April 15, 1997 New York Stock Exchange - ---------------------------------- ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X -------- State the aggregate market value of the voting stock held by nonaffiliates of the registrant. (The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing). Aggregate market value at March 1, 1996 - $31,551,007,000 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date (applicable only to corporate registrants). Outstanding at March 1, 1996 ------------- Common Stock, $.33 - 1/3 par value 315,188,641 Documents incorporated by reference: list hereunder the following documents if incorporated by reference and the part of the Form 10-K into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statements; and (3) any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933 (the listed documents should be clearly described for identification purposes). (1) 1995 Annual Report to Shareholders - In Parts I, II and IV - --------------------------------------------------------------------- (2) Proxy Statement filed March 21, 1996 - In Parts III and IV - --------------------------------------------------------------------- PART I ------ ITEM 1. BUSINESS -------- General ------- American Home Products Corporation (the "Company"), a Delaware corporation organized in 1926, is engaged in the discovery, development, manufacture, distribution and sale of a diversified line of products in three business segments: health care products, agricultural products and food products. Health care products include branded and generic ethical pharmaceuticals, biologicals, nutritionals, consumer health care products, medical devices and animal biologicals and pharmaceuticals. The Company holds majority interests in Genetics Institute, Inc. and Immunex Corporation, each a biopharmaceutical company whose stock is publicly traded. Agricultural products include crop protection and pest control products such as herbicides, insecticides, fungicides and plant growth regulators. Food products include entrees, side dishes, spreadable fruit products, snacks and other food products. In late 1994, the Company acquired all of the outstanding common stock of American Cyanamid Company ("Cyanamid"). The aggregate purchase price to acquire all of Cyanamid including related fees and expenses was approximately $9.6 billion. Additional information relating to the Cyanamid acquisition and certain other acquisitions and divestitures is set forth in Note 2 of the Notes to Consolidated Financial Statements and in the Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 1995 Annual Report to Shareholders and is incorporated herein by reference. Unless stated to the contrary, or unless the context otherwise requires, references to the Company in this report include American Home Products Corporation and its subsidiaries. Industry Segments ----------------- Financial information, by industry segment, for the three years ended December 31, 1995 is set forth on page 42 of the Company's 1995 Annual Report to Shareholders and is incorporated herein by reference. The Company is not dependent on any single or major group of customers for its sales. The Company currently manufactures, distributes and sells a diversified line of products in three industry segments. The product designations appearing in differentiated type herein are trademarks. I-1 1. HEALTH CARE PRODUCTS - Pharmaceuticals - This sector includes a wide variety of --------------- ethical pharmaceuticals and biological products for human and veterinary use which are promoted and sold worldwide primarily to wholesalers, pharmacies, hospitals, managed care organizations and physicians. Some of these sales are made through large buying groups representing certain of these customers. Principal product categories for human use include women's health care, infant nutritional, cardiovascular, mental health, anti-inflammatory, anti- infective, anti-cancer, analgesic and vaccine products, as well as generics. Principal veterinary product categories include vaccines, anthelmintics and growth implants. The Company manufactures these products in the United States and Puerto Rico, and in 21 foreign countries. Sales of the women's health care products category in the aggregate accounted for more than 10% of consolidated net sales in 1995, 1994 and 1993. Except for sales of the women's health care products category, no single pharmaceutical product or other category of products accounted for more than 10% of consolidated net sales in 1995, 1994 or 1993. The operating income before taxes from the women's health care products category in the aggregate, and the PREMARIN line of products individually, accounted for more than 10% of consolidated operating income before taxes in 1995, 1994 and 1993. Consumer health care - The Company's over-the-counter health -------------------- care products include analgesics, cough/cold/allergy remedies, vitamins and mineral supplements, hemorrhoidal and asthma relief items, and in-home diagnostic test products. These products are generally sold to wholesalers, retailers and managed care organizations, and are primarily promoted to consumers through advertising. These products are manufactured in the United States and Puerto Rico and in 17 foreign countries. No single consumer health care product or category of products accounted for more than 10% of consolidated net sales or operating income before taxes in 1995, 1994 or 1993. Medical Devices - Principal products in this segment include --------------- needles and syringes, tubes and catheters, tympanic and predictive thermometers, wound closure products, ophthalmic surgical equipment and pharmaceuticals, exercise equipment, arthroscopic instruments, diagnostic instrumentation, enteral feeding systems and access devices, and other hospital products which are promoted and sold principally to physicians, hospitals, other health care institutions and wholesalers. Buying groups also represent certain of these customers. In addition to the United States and Puerto Rico, these products are manufactured in 11 foreign countries. No single medical device product or category of products I-2 accounted for more than 10% of consolidated net sales or operating income before taxes in 1995, 1994 or 1993. Further information regarding the principal products in the Health Care Products segment and the principal markets served therein is included in the text on pages 14 through 23 and pages 25 through 27 of the Company's 1995 Annual Report to Shareholders, which information is incorporated herein by reference. 2. AGRICULTURAL PRODUCTS - Principal products in this segment include herbicides, primarily the imidazolinone herbicides, insecticides and fungicides which are promoted to consumers worldwide through advertising and generally sold directly to wholesalers and retailers. In addition to the United States and Puerto Rico, these products are manufactured in nine foreign countries. No single agricultural product or category of products exceeded 10% of consolidated net sales or operating income before taxes in 1995 or 1994. Further information regarding the principal products in the Agricultural Products segment and the principal markets served therein is included on pages 23, 24 and 27 of the Company's 1995 Annual Report to Shareholders, which information is incorporated herein by reference. 3. FOOD PRODUCTS - Products in this segment include prepared pastas and other entrees, side dishes, regional specialty foods, condiments, snack products, spreadable fruit products and other food products which are promoted to consumers through advertising and generally sold directly to wholesalers and retailers. No single food product or category of products exceeded 10% of consolidated net sales or operating income before taxes in 1995, 1994 or 1993. Further information regarding the principal products in the Food Products segment and the principal markets served therein is included on pages 26 and 27 of the Company's 1995 Annual Report to Shareholders, which information is incorporated herein by reference. Sources and Availability of Raw Materials ----------------------------------------- Generally, raw materials and packaging supplies are purchased in the open market from various outside vendors. The loss of any one source of supply would not have a material adverse effect on the Company's consolidated financial position or results of operations. I-3 Patents and Trademarks ---------------------- The Company owns, has applications pending for, and is licensed under many patents relating to a wide variety of products. The Company believes that its patents and licenses are important to its business, but no one patent or license (or group of related patents or licenses) currently is of material importance in relation to its business as a whole. In the pharmaceuticals business, most of the Company's major products are no longer patent protected. The non-steroidal anti-inflammatory ("NSAID") LODINE remains under patent protection in the United States until early 1997. Other prescription products, such as the cardiovasculars INDERAL LA and INDERIDE LA remain patent protected until late 1997. The anti-depressant EFFEXOR will have patent protection into 2007. TETRAMUNE, a combination vaccine, will have patent protection until 2007. SUPRAX, a third-generation cephalosporin antibiotic, remains under patent protection until 2002. VERELAN, a calcium channel blocker, will have patent protection until 2006. PREMPRO, a combination estrogen and progestin product, will have patent protection until 2006. Sales in the consumer health care and medical devices businesses and food products segment are largely supported by the Company's trademarks and brand names. These trademarks and brand names are a significant part of the Company's business and have a perpetual life as long as they remain in use. See "Competition" below, for a discussion of generic and store brands competition. In the Agricultural Products segment, the imidazolinone herbicide products SCEPTER and PURSUIT will have patent protection until at least 2006. Seasonality ----------- Sales and results of operations of the U.S. Agricultural Products business are seasonal and tend to be heavily concentrated in the first six months of each year. Sales of consumer health care products are affected by seasonal demand for cold/flu products and, as a result, second quarter results for consumer health care products tend to be lower than results in other quarters. Competition ----------- HEALTH CARE PRODUCTS - The Company operates in the highly competitive health care industry which includes the ethical pharmaceutical, consumer health care and medical devices businesses. Within the ethical pharmaceutical business, the Company has many major multi-national competitors and numerous other smaller domestic and foreign competitors. Based on net sales, the I-4 Company believes it ranks within the top five of major competitors within this business category. The consumer health care business also has many competitors. Based on net sales, the Company believes it ranks within the top 10 of major competitors within this business category. The Company's competitive position in the Health Care Products segment is affected by several factors including resources available to develop, enhance and promote products, customer acceptance, product quality, patent protection, development of alternative therapies by competitors, scientific and technological advances, governmental reforms on pricing and generic substitutes. For prescription products, the growth of generic substitutes is further promoted by legislation, regulation and various incentives enacted and promulgated in both the public and private sectors. The continued growth of managed care organizations, such as health maintenance organizations ("HMOs") and pharmaceutical benefit management companies, has resulted in increased competitive pressures on health care products. PREMARIN, the Company's conjugated estrogens product, which has not had patent protection for many years, contributes significantly to sales and results of operations. PREMARIN is not currently subject to generic competition in the United States. A U.S. Food and Drug Administration (FDA) advisory committee meeting was held in July 1995 to discuss relative differences in safety and efficacy among estrogen products and to advise the FDA on the activity of various estrogenic components in PREMARIN relative to the FDA's review of applications for generic conjugated estrogens. The FDA advisory committee concluded that there is insufficient data to assess whether or not any individual component or combination of components of PREMARIN, other than estrone and equilin, must be present to achieve clinical efficacy and safety. The Company cannot predict the timing or outcome of the FDA's action on currently pending applications for generic conjugated estrogen products. While the introduction of generic competition ordinarily is expected to significantly impact the market for a brand name product, the extent of such impact on PREMARIN and related products cannot be predicted with certainty due to a number of factors, including the nature of the product and the introduction of the combination estrogen and progestin products PREMPRO and PREMPHASE. U.S. health care costs will continue to be debated during 1996. Similarly, in international markets, health care spending is subject to increasing governmental review, much of which is focused on pharmaceutical prices. While the Company cannot predict the impact proposed health care legislation may have on the Company's worldwide results of operations, the Company believes that the pharmaceutical industry will continue to play a very positive role in helping to contain global health care costs through the development of innovative products. I-5 The growth of generic and store brands continued to impact some of the Company's consumer health care branded product line categories in 1995 and is expected to continue during 1996. The medical devices business, particularly in the needle and syringe, and suture product lines, is also impacted by competitive market conditions which continue to place significant pressure on prices. AGRICULTURAL PRODUCTS - The Agricultural Products segment has over 40 competitors worldwide and ranks in the top 10 based on net sales. Among these companies, the top 10 competitors are multi-national, representing over 70% of the sales in the agrochemical market. Competitive factors include product efficacy, distribution channels and resource availability for development of new products and improvement of existing ones. There can also be generic competition when products are no longer patent protected. FOOD PRODUCTS - In the Food Products segment, product quality, price and relevance to changing family needs and tastes are important competitive factors. Additionally, the growth of store brands is a factor affecting competition in the food industry. GENERAL - In all business segments, advertising and promotional expenditures are significant costs to the Company and are necessary to effectively communicate information concerning the Company's products to health professionals, to the trade and to consumers. Research and Development ------------------------ Worldwide research and development activities are focused on developing and bringing to market new drugs to treat and/or prevent some of the most serious health care problems. Research and development expenditures totaled $1,354,963,000 in 1995, $817,090,000 in 1994 and $662,689,000 in 1993, with approximately 78% of these expenditures in the ethical pharmaceutical area in 1995. The Company currently has 10 New Drug Applications and nine Supplemental Drug Applications filed with the FDA for review and 79 active Investigational New Drug Applications pending. During 1995, several major collaborative research and development arrangements continued with other pharmaceutical and biotechnology companies. Research and development projects continued at Genetics Institute, Inc., Immunex Corporation and at the Company's other health care operations. It is not anticipated, however, that the products developed as a result of these activities will I-6 contribute significantly to consolidated revenues or operating profits in the near future. The extent of subsequent contributions, if any, cannot presently be predicted. Additionally, the Agricultural Products segment has three products awaiting approval by the United States Environmental Protection Agency ("EPA"). During 1995, the Company received FDA approval for the cardiovascular product CORDARONE I.V., PREMPRO and PREMPHASE single combination tablets and the OTC product ORUDIS KT (ketoprofen). Regulation ---------- The Company's various health care, agricultural and food products are subject to regulation by government agencies throughout the world. The primary emphasis of these requirements is to assure the safety and effectiveness of the Company's products. In the United States, the FDA, under the Federal Food, Drug and Cosmetic Act (the "Act"), including several recent amendments to the Act, regulates many of the Company's health care and food products, including human and animal pharmaceuticals, vaccines, consumer health care products, medical devices and food products. The FDA's powers include the imposition of criminal and civil sanctions against companies, including seizures of regulated products and criminal sanctions against individuals. To facilitate compliance, the Company from time to time may institute voluntary compliance actions such as product recalls when it believes it is appropriate to do so. In addition, many states have similar regulatory requirements. Most of the Company's pharmaceutical products, and an increasing number of its consumer health care products, are regulated under the FDA's new drug approval processes, which mandate pre-market approval of all new drugs. Such processes require extensive time, testing and documentation for approval, resulting in significant costs for new product introductions. The FDA has exercised its enforcement powers more aggressively in recent years, increasing both the number and intensity of its factory inspections. The Company's pharmaceutical business is also affected by the Controlled Substances Act, administered by the Drug Enforcement Administration, which regulates strictly all narcotic and habit-forming drug substances. The Company devotes significant resources to dealing with the extensive federal and state regulatory requirements applicable to its products. Federal law also requires drug manufacturers to pay rebates to state Medicaid programs in order for their products to be eligible for federal matching funds under the Social Security Act. Additionally, a number of states are, or may be, pursuing similar initiatives for rebates and other strategies to contain the cost of pharmaceutical products. The federal Vaccines for Children entitlement program enables states to purchase vaccines at federal vaccine prices and limits federal vaccine price increases to the increase in the I-7 consumer price index. Federal and state rebate programs are expected to continue. The manufacture and sale of pesticides are regulated by the EPA. No new pesticide and no existing pesticide for a new use may be manufactured, processed or used without prior notice to the EPA. Outside the United States, agricultural chemicals are regulated by various agencies, often by standards which differ from those in the United States. Environmental ------------- Certain of the Company's operations are affected by a variety of federal, state and local environmental protection laws and regulations and the Company has, in a number of instances, been notified of its potential responsibility relating to the generation, storage, treatment and disposal of hazardous waste. In addition, the Company has been advised that it may be a responsible party in several sites on the National Priority List created by the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), commonly known as Superfund. (See Item 3. Legal Proceedings.) In connection with the spin-off in 1993 by Cyanamid of Cytec Industries Inc. ("Cytec"), Cyanamid's former chemicals business, Cytec assumed the environmental liabilities relating to the chemicals businesses, except for the former chemical business site at Bound Brook, New Jersey. This assumption is not binding on third parties, and if Cytec were unable to satisfy these liabilities, they would, in the absence of other circumstances, be enforceable against Cyanamid. It is the Company's policy to accrue environmental cleanup costs if it is probable that a liability has been incurred and an amount is reasonably estimated. For further information on environmental matters, see Notes 3, 6 and 11 of the Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 1995 Annual Report to Shareholders, which are incorporated herein by reference. Employees --------- At the end of 1995, the Company had 64,712 employees world- wide, with 36,734 employed in the United States including Puerto Rico. Approximately 22% of worldwide employees are represented by various collective bargaining groups. Relations with most organized labor groups remain relatively stable. Financial Information about the Company's Foreign and ----------------------------------------------------- Domestic Operations ------------------- Financial information about foreign and domestic operations for the three years ended December 31, 1995, as set forth on page 43 of the Company's 1995 Annual Report to Shareholders, I-8 is incorporated herein by reference. Certain Factors Affecting Future Performance -------------------------------------------- Various factors could affect the future performance of the Company. These factors include, among others, the ability of the Company to develop and obtain regulatory approval for new products, the introduction of new products by competitors and other factors discussed or incorporated by reference in this report on Form 10-K, including factors described under the caption "Competition". The Company's future business could also be affected by developments relating to legislation, FDA and other governmental regulation, taxes, litigation, foreign currency exchange restrictions, foreign exchange rates and labor conditions. ITEM 2. PROPERTIES ---------- The Company's executive offices and the headquarters for its domestic consumer health care and food products businesses are located in Madison, New Jersey. The Company's domestic and international pharmaceutical operations and its international consumer health care business are headquartered in three executive/administrative buildings in Radnor and St. Davids, Pennsylvania. The Company's principal medical devices business maintains its headquarters in St. Louis, Missouri. The Agricultural Products segment currently maintains its headquarters in Wayne, New Jersey. The Agricultural Products segment will be relocating its headquarters to Parsippany, New Jersey in late 1996. The Company's foreign subsidiaries and affiliates, which generally own their properties, have manufacturing facilities in 24 countries outside the United States. The following are the principal manufacturing plants (M) and research laboratories (R) of the Company: INDUSTRY SEGMENT Health Care Products: Andover, Massachusetts (M,R) Askeaton, Ireland (M) Canlubang, Philippines (M) Carolina, Puerto Rico (M) Catania, Italy (M) Chazy, New York (R) Deland, Florida (M) Fort Dodge, Iowa (M,R) Georgia, Vermont (M) Gosport, United Kingdom (M,R) Guayama, Puerto Rico (M) Havant, United Kingdom (M,R) Malvern, Pennsylvania (M) Marietta, Pennsylvania (M) Mexico City, Mexico (M) Montreal, Canada (M,R) I-9 Muenster, Germany (M) Newbridge, Ireland (M) Parramatta, Australia (M) Pearl River, New York (M,R) Princeton, New Jersey (R) Radnor, Pennsylvania (R) Richmond, Virginia (M,R) Rouses Point, New York (M,R) Smithfield, Australia (M) West Chester, Pennsylvania (M) Agricultural Products: Catania, Italy (M) Genay, France (M) Gravelines, France (M) Hannibal, Missouri (M) Paulina, Brazil (M) Princeton, New Jersey (R) Resende, Brazil (M) Schwabenheim, Germany (R) Food Products: Milton, Pennsylvania (M,R) Vacaville, California (M,R) All of the above properties are owned except the land and a 757,000 sq. ft. facility in Guayama, Puerto Rico, which is under a lease expiring in 2007 with options for renewal and purchase. The Company also owns or leases a number of other smaller properties in the United States which are used for manufacturing, warehousing and office space. ITEM 3. LEGAL PROCEEDINGS ----------------- The Company and its subsidiaries are parties to numerous lawsuits and claims arising out of the conduct of its business, including product liability and other tort claims. Included among these cases are lawsuits arising out of the use of the Company's DTP and polio vaccines and its agricultural products. There are approximately 472 cases pending, predominantly in the United Kingdom, based primarily on alleged dependence on the tranquilizer ATIVAN. Substantially all of the cases in the United Kingdom have been supported by governmental legal aid funding. During 1994, the Legal Aid Board in England, where more than 1,100 cases had been pending, discontinued funding for the litigation and, as a result, only 34 cases remain pending in that jurisdiction. The Northern Ireland Legal Aid Board has also discontinued the funding of the litigation in that jurisdiction. In Scotland, where 266 cases remain, the Scottish Legal Aid Board has indicated that it will continue to fund the Scottish cases, although there has been no subsequent activity in the Scottish cases. The Company has been served with more than 600 lawsuits in I-10 federal and state courts alleging injuries as a result of use of the NORPLANT SYSTEM, the Company's implantable contraceptive containing levonorgestrel. Approximately 70 of the cases have been filed as class actions and the remainder are proceeding as individual suits. In June 1994, a class of women who have had removal difficulties, scarring and related injuries allegedly as a result of the NORPLANT SYSTEM was certified. Doe v. Wyeth-Ayerst Laboratories (Cir. Ct. Ill., -------------------------------- Cook Cty. 1993). On March 5, 1996, the Doe court denied the plaintiffs' request to expand the scope of the class to include all women allegedly injured by the NORPLANT SYSTEM, on the grounds that such claims raise predominantly individual, rather than common, issues. The Company is seeking reconsideration of the original class certification which was limited to removal difficulties. On December 6, 1994, the Judicial Panel on Multi-District Litigation ("MDL") ordered that all NORPLANT SYSTEM lawsuits filed in federal court be consolidated in the U.S. District Court (E.D.Tex.) in Beaumont. The MDL plaintiffs have also requested class certification and the court has tentatively concluded, subject to further briefing and consideration, that certain specified issues satisfy the prerequisites for class action treatment. The Company will continue to contest class certification in this matter. On June 29, 1995, an action was brought in the U.S. District Court (S.D.N.Y.) on behalf of plaintiffs and all similarly situated individuals who allegedly contracted paralytic poliomyelitis as a direct result of the administration of the Company's oral polio vaccine, ORIMUNE, or through contact with an immunized person. Plaintiffs seek compensatory and punitive damages on behalf of the putative class. Stuart, et ---------- al. v. American Cyanamid, et al. -------------------------------- On March 7, 1994, an action was brought against the Company by Johnson & Johnson ("J&J") and Ortho Pharmaceutical Corporation ("Ortho") currently seeking $217 million in damages alleged to have arisen from a preliminary injunction which was granted in a patent infringement lawsuit brought by the Company and which had prevented J&J and Ortho from marketing an oral contraceptive containing norgestimate for approximately 10 months until it was overturned by the Court of Appeals for the Federal Circuit in a two-to-one decision. Thereafter, in the underlying action in the district court, the jury found against the Company on its claim of infringement. This verdict was affirmed by the Court of Appeals for the Federal Circuit and certiorari was recently denied by the Supreme Court. On October 14, 1993, Rite Aid Corporation, Revco D.S. Inc. and other retail drug chains and retail pharmacies filed an action in U.S. District Court (M.D.Pa.) against the Company, other pharmaceutical manufacturers and a pharmacy benefit management company alleging that the Company and other defendants provided discriminatory price and promotional allowances to managed care organizations and others in I-11 violation of the Robinson-Patman Act. The complaint further alleges collusive conduct among the defendants related to the alleged discriminatory pricing in violation of the Sherman Antitrust Act as well as certain other violations of common law principles of unfair competition. Subsequently, numerous other cases, many of which are purported class actions brought on behalf of retail pharmacies and retail drug and grocery chains, were filed in various federal courts against the Company as well as other pharmaceutical manufacturers and wholesalers. These cases make one or more similar allegations of violations of federal or state antitrust or unfair competition laws. In addition, a mail order pharmacy plaintiff alleges that it was forced out of business and certain plaintiffs also allege that the defendants' patents covering brand name prescription drugs give the defendants power to enter into exclusionary arrangements with certain managed care customers and seek compulsory patent licenses. The various class actions were consolidated as a single class action (the "Consolidated Class Action") which alleges violations of Section 1 of the Sherman Act. All of the federal actions have been coordinated and consolidated for pretrial purposes under the caption In re Brand Name ---------------- Prescription Drug Antitrust Litigation (MDL 997 N.D. Ill.). -------------------------------------- These federal actions seek treble damages in unspecified amounts and injunctive and other relief. The court in the federal actions preliminarily approved a settlement among certain defendants, including the Company, and the Consolidated Class Action plaintiffs. The settlement is subject to final approval by the court, which must determine that the settlement is fair to the members of the plaintiff class of retail pharmacies. The settlement provides, among other things, for certain payments to be made by the settling defendants, over a period of three years, to the Consolidated Class Action plaintiffs. The Company's settlement payments (including payments to be made on behalf of Cyanamid) would total $42.5 million. The settlement also provides that it shall not be deemed or construed to be an admission or evidence of any violation of any statute or law or of any liability or wrongdoing by the Company or of the truth of any of the claims or allegations alleged in the Consolidated Class Action. The individual federal actions, including those brought by Rite Aid Corporation, Revco D.S. Inc. and other retail drug chains, remain pending against the Company. In addition to the federal actions, similar litigation on behalf of consumers or retail pharmacies has been brought in various state courts, including purported class actions in Alabama, Arizona, California, Colorado, District of Columbia, Maine, Michigan, Minnesota, New York, Washington and Wisconsin. These actions are all in various pre-trial stages. The actions in Colorado and Washington have been dismissed on pre-trial motions. Plaintiffs have appealed the dismissal of the Washington action. The Company has been involved in various antitrust suits and government investigations relating to its marketing and sale of infant formula. The antitrust lawsuits, which were I-12 commenced in various federal and state courts, alleged in general that the Company conspired with one or more of its competitors to fix prices of infant formula and to monopolize the market for infant formula products. As previously disclosed, the Company has settled most of the cases as well as a Federal Trade Commission ("FTC") proceeding. The Company is currently a defendant in litigation brought in federal court by the State of Louisiana. In Texas, a purported class action under the Texas Deceptive Trade Practices Act was dismissed. In Alabama, class certification was denied in a state court action on behalf of indirect purchasers. The Company is also a defendant in a purported class action brought in federal court under Massachusetts state law on behalf of indirect purchasers of infant formula in Massachusetts. The government agencies that have been conducting investigations of pricing and marketing practices in the infant formula industry include three state attorneys general. The Company has been advised that two other state attorneys general have terminated their investigations of the Company without any action. In addition, the Canadian Bureau of Competition Policy has closed inquiries into infant formula pricing and marketing practices in Canada. The FTC and state attorneys general have sought information concerning pricing practices relating to a marketing program for certain crop protection products. The FTC is also investigating allegations of concerted action in the pricing of pharmaceutical products. The FTC has closed an inquiry concerning Cyanamid's opposition to a petition by another company to the FDA to reclassify sutures and a patent infringement lawsuit against that company. In response to a subpoena from the New York State Attorney General, the Company has provided information relating to the Company's copromotion of Merck's osteoporosis drug FOSAMAX and disease management activities. Pursuant to an FTC consent order entered into by the Company in connection with the acquisition of Cyanamid, the Company divested the Wyeth-Ayerst tetanus and diphtheria vaccines businesses and has applied for FTC approval to license Cyanamid's rotavirus research. The FTC has modified the order, which also imposes certain reporting obligations, to require prior notice rather than prior FTC approval of certain acquisitions involving tetanus, diphtheria and rotavirus vaccines. As discussed in Item I, the Company is a party to, or otherwise involved in, legal proceedings under CERCLA directed at the cleanup of 70 Superfund sites, including the Cyanamid-owned Bound Brook, N.J. site. The Company's potential liability varies greatly from site to site. For some sites, the potential liability is de minimis and, for others, the final costs of cleanup have not yet been determined. As assessments and cleanups proceed, these liabilities are reviewed periodically and are adjusted as I-13 additional information becomes available. Environmental liabilities are inherently unpredictable. The liabilities can change substantially due to such factors as additional information on the nature or extent of contamination, methods of remediation required, and other actions by governmental agencies or private parties. The 70 Superfund sites exclude sites for which Cytec assumed full liability and agreed to indemnify Cyanamid but include certain sites for which there is shared responsibility between Cyanamid and Cytec. The Company has no reason to believe that it has any practical exposure to any of the liabilities against which Cytec has agreed to assume and indemnify Cyanamid. During 1992, the U.S. Environmental Protection Agency filed an action against Ekco Housewares ("Ekco"), a former subsidiary of the Company, in U.S. District Court (N.D. Ohio) alleging violation of federal and state financial assurance regulations in connection with the required closure of a lagoon at Ekco's Massillon, Ohio facility. The Company assumed the defense of the action pursuant to an indemnification agreement. In January 1994, the court entered judgment against Ekco in the amount of $4,606,000, concluding that Ekco had violated regulations governing the posting of financial assurance for closure, post-closure and liability coverage. On appeal, the U.S. Court of Appeals for the Sixth Circuit affirmed $2.8 million of the judgment and reversed and remanded the remainder. For information concerning certain litigation involving Genetics Institute, Inc., see Part I, Item 3 of the Genetics Institute, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1995, which Item is incorporated herein by reference. For information concerning certain litigation involving Immunex Corporation, see Part I, Item 3 of the Immunex Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 1995, which Item is incorporated herein by reference. In the opinion of the Company, although the outcome of any litigation cannot be predicted with certainty, the ultimate liability of the Company in connection with pending litigation and other matters described above will not have a material adverse effect on the Company's consolidated financial position but could be material to the results of operation in any one accounting period. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- None. I-14 EXECUTIVE OFFICERS OF THE REGISTRANT AS OF MARCH 27, 1996 - --------------------------------------------------------- Each officer is elected to hold office until a successor is chosen or until earlier removal or resignation. None of the executive officers is related to another: Elected to Name Age Offices and Positions Office ---- --- --------------------- ---------- John R. Stafford 58 Chairman of the Board, December 1986 President and Chief Executive Officer, Chairman of Executive, Finance, Operations and Nominating Committees Business Experience: 1991 to date, Chairman of the Board, President and Chief Executive Officer (President to May 1990 and from February 1994) Robert G. Blount 57 Senior Executive Vice President, October 1995 Director, Member of Executive, Finance and Operations Committees Business Experience: 1991 to October 1995, Executive Vice President October 1995 to date, Senior Executive Vice President Fred Hassan 50 Executive Vice President, October 1995 Director, Member of Finance and Operations Committees Business Experience: To March 1993, President, Wyeth-Ayerst Laboratories Division March 1993 to May 1993, Group Vice President, May 1993 to October 1995, Senior Vice President October 1995 to date, Executive Vice President Stanley F. Barshay 56 Senior Vice President August 1987 Member of Finance and Oper- ations Committees Business Experience: 1991 to date, Senior Vice President I-15 Elected to Name Age Offices and Positions Office ---- --- --------------------- ---------- Joseph J. Carr 53 Senior Vice President May 1993 Member of Finance and Oper- ations Committees Business Experience: To April 1991, Vice President April 1991 to May 1993, Group Vice President May 1993 to date, Senior Vice President Louis L. Hoynes, Jr. 60 Senior Vice President and November 1990 General Counsel Member of Finance and Operations Committees Business Experience: 1991 to date, Senior Vice President and General Counsel William J. Murray 50 Senior Vice President October 1995 Member of Finance and Operations Committees Business Experience: To September 1992, President, Agricultural Division, American Cyanamid Company September 1992 to January 1995, Group Vice President, American Cyanamid Company January 1995 to October 1995, Vice President October 1995 to date, Senior Vice President David M. Olivier 52 Senior Vice President January 1996 Member of Finance and Operations Committees Business Experience: To January 1996, President, Wyeth-Ayerst International, Inc. January 1996 to date, Senior Vice President John R. Considine 45 Vice President - Finance February 1992 Member of Finance and Operations Committees Business Experience: To February 1992, Vice President and Treasurer February 1992 to date, Vice President - Finance I-16 Elected to Name Age Offices and Positions Office ---- --- --------------------- ---------- Paul J. Jones 50 Vice President and Comptroller May 1995 Member of Finance Committee Business Experience: To April 1995, Senior Vice President - Finance and Administration, Wyeth-Ayerst Laboratories Division May 1995 to date, Vice Presi- dent and Comptroller Rene R. Lewin 49 Vice President - Human May 1994 Resources, Member of Finance Committee Business Experience: To May 1994, Executive Director Human Resources - Worldwide Pharmaceutical Division, Eli Lilly and Company May 1994 to date, Vice President - Human Resources David Lilley 49 Vice President January 1995 Member of Finance and Operations Committees Business Experience: To November 1991, Vice President, Cyanamid Interna- tional Lederle Division November 1991 to March 1992, President, Cyanamid Interna- tional Chemicals Division March 1992 to January 1995, Group Vice President, American Cyanamid Company January 1995 to date, Vice President Thomas M. Nee 56 Vice President - Taxes May 1986 Member of Finance Committee Business Experience: 1991 to date, Vice President - Taxes I-17 PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS ---------------------------------------------------- The New York Stock Exchange is the principal market on which the Company's common stock is traded. Tables showing the high and low sales price for the stock, as reported in the consolidated transaction reporting system, and the dividends paid per common share for each quarterly period during the past two years, as shown on page 45 of the Company's 1995 Annual Report to Shareholders, are incorporated herein by reference. There were 68,045 holders of record of the Company's common stock as of March 1, 1996. ITEM 6. SELECTED FINANCIAL DATA ----------------------- The data with respect to the last five fiscal years, appearing in the Ten-Year Selected Financial Data presented on pages 28 and 29 of the Company's 1995 Annual Report to Shareholders, are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations, appearing on pages 46 through 49 of the Company's 1995 Annual Report to Shareholders, is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The Consolidated Financial Statements and Notes on pages 30 through 43 of the Company's 1995 Annual Report to Share- holders, the Report of Independent Public Accountants and the Management Report on Financial Statements on page 44, and Quarterly Financial Data on page 45, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------------------------------- None. II-1 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- (a) Information relating to the Company's directors is incorporated herein by reference to pages 2 through 4 of a definitive proxy statement filed with the Securities and Exchange Commission on March 21, 1996 ("the 1996 Proxy Statement"). (b) Information relating to the Company's executive officers as of March 27, 1996 is furnished in Part I hereof under a separate unnumbered caption ("Executive Officers of the Registrant as of March 27, 1996"). ITEM 11. EXECUTIVE COMPENSATION ---------------------- Information relating to executive compensation is in- corporated herein by reference to pages 7 through 12 of the 1996 Proxy Statement. Information with respect to compensation of directors is incorporated herein by reference to page 5 of the 1996 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT --------------------------------------------------- Information relating to security ownership is incorporated by reference to page 6 of the 1996 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- None. III-1 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K --------------------------------------------------- (a) 1. Financial Statements -------------------- The following Consolidated Financial Statements, related Notes and Report of Independent Public Accountants, included on pages 30 through 44 of the Company's 1995 Annual Report to Shareholders, are incorporated herein by reference. Pages ----- Consolidated Balance Sheets as of December 31, 1995 and 1994 30 Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993 31 Consolidated Statements of Retained Earnings and Additional Paid-in Capital for the years ended December 31, 1995, 1994 and 1993 32 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 33 Notes to Consolidated Financial Statements 34-43 Report of Independent Public Accountants 44 (a) 2. Financial Statement Schedules ----------------------------- The following consolidated financial information is included in Part IV of this report: Pages ----- Report of Independent Public Accountants on Supplemental Schedule IV-7 Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 1995, 1994 and 1993 IV-8 Schedules other than those listed above are omitted because they are not applicable. IV-1 ITEM 14. (Continued) (a) 3. Exhibits -------- Exhibit No. Description ----------- ----------- (2.1) The Registrant's Statement on Schedule 14D-1 relating to the Registrant's tender offer for all issued and outstanding shares of American Cyanamid Company, filed on August 10, 1994 (the "Schedule 14D-1"), and all exhibits and amendments thereto are hereby incorporated herein by reference. (2.2) Agreement and Plan of Merger, dated August 17, 1994, as amended, among American Home Products Corporation, AC Acquisition Corp. and American Cyanamid Company, filed as Exhibit (I) to the Report on Schedule 13D for Immunex Corporation filed by the Registrant, dated December 1, 1994 for the event which occurred on November 21, 1994 is hereby incorporated herein by reference. (3.1) The Registrant's Restated Certificate of Incorporation as amended to date. (3.2) By-Laws, as amended to date, is incorporated herein by reference to Exhibit (3.2) of the Registrant's Form 10-K for the year ended December 31, 1992. (4.1) Indenture, dated as of April 10, 1992, between American Home Products Corporation and Chemical Bank (as successor by merger to Manufacturers Hanover Trust Company), as Trustee, is incorporated by reference to Registrant's Form 8-A dated August 25, 1992. (4.2) Supplemental Indenture, dated October 13, 1992, between American Home Products Corporation and Chemical Bank (as successor by merger to Manufacturers Hanover Trust Company) as Trustee, incorporated by reference to Registrant's Form 10-Q for the quarter ended September 30, 1992. (10.1) A Credit Agreement, dated as of September 9, 1994, among American Home Products Corporation, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and Chemical Bank, as agent for the lenders thereunder, filed as Exhibit (11(b)(2)) in Amendment No. 7 to the Schedule 14D-1 is hereby incorporated herein by reference. IV-2 ITEM 14. (Continued) (a) 3. Exhibits -------- Exhibit No. Description ----------- ----------- (10.2) B Credit Agreement, dated as of September 9, 1994, among American Home Products Corporation, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and Chemical Bank, as agent for the lenders thereunder, filed as Exhibit (11(b)(3)) in Amendment No. 7 to the Schedule 14D-1 is hereby incorporated herein by reference. (10.3) First Amendment to A Credit Agreement, dated as of August 4, 1995, among American Home Products Corporation, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and Chemical Bank, as agent for the lenders thereunder. (10.4) First Amendment to B Credit Agreement, dated as of August 4, 1995, among American Home Products Corporation, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and Chemical Bank, as agent for the lenders thereunder. (10.5) * 1978 Stock Option Plan, as amended to date, is incorporated herein by reference to Exhibit (10.2) of the Registrant's Form 10-K for the year ended December 31, 1990. (10.6) * 1980 Stock Option Plan, as amended is incorporated by reference to Exhibit (10.3) of the Registrant's Form 10-K for the year ended December 31, 1991. (10.7) * Amendment to the 1980 Stock Option Plan. (10.8) * 1985 Stock Option Plan, as amended is incorporated by reference to Exhibit (10.4) of the Registrant's Form 10-K for the year ended December 31, 1991. (10.9) * Amendment to the 1985 Stock Option Plan. *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. IV-3 ITEM 14. (Continued) (a) 3. Exhibits -------- Exhibit No. Description ----------- ----------- (10.10)* Management Incentive Plan, as amended to date, is incorporated herein by reference to Exhibit (10.5) of the Registrant's Form 10-K for the year ended December 31, 1990. (10.11)* Supplemental Executive Retirement Plan is incorporated herein by reference to Exhibit (10.6) of the Registrant's Form 10-K for the year ended December 31, 1990. (10.12)* 1990 Stock Incentive Plan is incorporated herein by reference to Exhibit (28) of the Registrant's Form S-8 Registration Statement File No. 33-41434 under the Securities and Exchange Act of 1933, filed June 28, 1991. (10.13)* Amendment to the 1990 Stock Incentive Plan. (10.14)* 1993 Stock Incentive Plan is incorporated herein by reference to Exhibit (I) of the Registrant's Proxy Statement filed March 17, 1994. (10.15)* Amendment to the 1993 Stock Incentive Plan. (10.16)* 1994 Restricted Stock Plan for Non-Employee Directors is incorporated herein by reference to Exhibit II of the Registrant's Proxy Statement filed March 17, 1994. (10.17)* Form of Deferred Compensation Agreement. (10.18)* Form of American Home Products Corporation Restricted Stock Performance Award Agreement under the 1993 Stock Incentive Plan for awards granted in 1994 is incorporated herein by reference to Exhibit (10.12) of the Registrant's Form 10-K for the year ended December 31, 1994. (10.19)* Form of Amendment to the American Home Products Corporation Restricted Stock Performance Award Agreement under the 1993 Stock Incentive Plan relating to the 1994 awards is incorporated herein by reference to Exhibit (10.13) of the Registrant's Form 10-K for the year ended December 31, 1994. *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. IV-4 ITEM 14. (Continued) (a) 3. Exhibits -------- Exhibit No. Description ----------- ----------- (10.20)* Form of American Home Products Corporation Restricted Stock Performance Award Agreement under the 1993 Stock Incentive Plan for award grants in 1995-1997. (10.21)* American Home Products Corporation Savings Plan, as amended, is incorporated herein by reference to Exhibit 99 of the Registrant's Form S-8 Registration Statement File No. 33-50149 under the Securities and Exchange Act of 1933, filed September 1, 1993. (10.22)* American Home Products Corporation Retirement Plan for Outside Directors, as amended on January 27, 1994 is herein incorporated by reference to Exhibit (10.12) of the Registrant's Form 10-K for the year ended December 31, 1993. (10.23)* Restricted Stock Trust Agreement under the 1993 Stock Incentive Plan. (10.24)* 1996 Stock Incentive Plan, as approved by the Board of Directors on January 25, 1996 subject to the approval of stockholders at the April 1996 Annual Meeting. (10.25)* Nonfunded Deferred Compensation Plan for Directors, as amended as of January 25, 1996. (10.26)* Form of American Home Products Corporation Stock Option Agreement. (10.27)* Form of American Home Products Corporation Special Stock Option Agreement (phased vesting). (10.28)* Form of American Home Products Corporation Special Stock Option Agreement (three-year vesting). (10.29) Agreement and Plan of Merger dated as of September 19, 1991 among Genetics Institute, Inc. ("G.I."), Registrant, AHP Biotech Holdings, Inc. and AHP Merger Subsidiary Corporation, is incorporated herein by reference to Exhibit (I) of Registrant's Schedule 13D dated January 24, 1992 filed with respect to the common stock of G.I. ("Schedule 13D"). *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. IV-5 ITEM 14. (Continued) (a) 3. Exhibits -------- Exhibit No. Description ----------- ----------- (10.30) Depositary Agreement dated as of January 16, 1992 among Registrant, AHP Biotech Holdings, Inc., G.I. and The First National Bank of Boston, as Depositary, is incorporated herein by reference to Exhibit (II) of the Registrant's Schedule 13D. (10.31) Governance Agreement dated as of January 16, 1992 among Registrant, AHP Biotech Holdings, Inc. and G.I., is incorporated herein by reference to Exhibit (III) of the Registrant's Schedule 13D. (11) Computation of Per Share Earnings. (12) Computation of Ratio of Earnings to Fixed Charges. (13) 1995 Annual Report to Shareholders. Such report, except for those portions thereof which are expressly incorporated by reference herein, is furnished solely for the information of the Commission and is not to be deemed "filed" as part of this filing. (21) Subsidiaries of the Registrant. (23) Consent of Independent Public Accountants relating to their report dated January 24, 1996, consenting to the incorporation thereof in Registration Statements on Form S-3 (File Nos. 33-45324 and 33-57339) and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434, 33-53733, 33- 55449, 33-45970, 33-14458, 33-50149 and 33-55456) by reference to the Form 10-K of the Registrant filed for the year ended December 31, 1995. (27) Financial Data Schedule. (99.1) The Part I, Item 3 Legal Proceedings (pages 27-28) section of Genetics Institute Inc.'s Report on Form 10-K for the fiscal year ended December 31, 1995, filed on March 1, 1996, is incorporated herein by reference. (99.2) The Part I, Item 3 Legal Proceedings (pages 16 and 17) section of Immunex Corporation's Report on Form 10-K for the fiscal year ended December 31, 1995, filed on March 18, 1996, is incorporated herein by reference. (b) Reports on Form 8-K ------------------- None IV-6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To American Home Products Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in American Home Products Corporation's Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 24, 1996. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the accompanying index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, N.Y. January 24, 1996 IV-7 SCHEDULE II American Home Products Corporation and Subsidiaries Schedule II -- Valuation and Qualifying Accounts For the Years Ended December 31, 1995, 1994 and 1993 (Dollars in thousands) Column A Column B Column C Column D Column E Balance Balance at at Beginning Additions Deductions End of Description of Period (B) (A) Period ----------- --------- --------- ---------- -------- Year ended 12/31/95: Allowance for doubtful accounts $ 77,985 $ 32,186 $ 2,007 $108,164 Allowance for cash discounts 21,483 240,871 234,909 27,445 Allowance for deferred tax assets 250,976 45,604 89,936 206,644 -------- -------- -------- -------- $350,444 $318,661 $326,852 $342,253 ======== ======== ======== ======== Year ended 12/31/94: Allowance for doubtful accounts $ 25,631 $ 58,752 $ 6,398 $ 77,985 Allowance for cash discounts 20,318 151,783 150,618 21,483 Allowance for deferred tax assets 91,363 228,542 68,929 250,976 -------- -------- -------- -------- $137,312 $439,077 $225,945 $350,444 ======== ======== ======== ======== Year ended 12/31/93: Allowance for doubtful accounts $ 23,702 $ 7,101 $ 5,172 $ 25,631 Allowance for cash discounts 15,203 148,013 142,898 20,318 Allowance for deferred tax assets 101,324 -- 9,961 91,363 -------- -------- -------- -------- $140,229 $155,114 $158,031 $137,312 ======== ======== ======== ======== (A) Represents amounts used for the purposes for which the accounts were created and reversal of amounts no longer required. (B) Balances for 1994 reflect the acquisition of Cyanamid effective December 1, 1994. IV-8 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN HOME PRODUCTS CORPORATION ---------------------------------- (Registrant) March 27, 1996 By /S/ Robert G. Blount --------------------------------- Robert G. Blount Senior Executive Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date ---------- ----- ---- Principal Executive Officer: /S/ John R. Stafford Chairman, President March 27, 1996 - ------------------------------- John R. Stafford and Chief Executive Officer Principal Financial Officer: /S/ Robert G. Blount Senior Executive Vice March 27, 1996 - -------------------------------- Robert G. Blount President and Director Principal Accounting Officer: /S/ Paul J. Jones Vice President and March 27, 1996 - ------------------------------- Paul J. Jones Comptroller Directors: /S/ Clifford L. Alexander, Jr. Director March 27, 1996 - ------------------------------- Clifford L. Alexander, Jr. /S/ Frank A. Bennack, Jr. Director March 27, 1996 - ------------------------------- Frank A. Bennack, Jr. /S/ Robin Chandler Duke Director March 27, 1996 - ------------------------------- Robin Chandler Duke SIGNATURES (continued) ---------------------- Signatures Title Date ---------- ----- ---- /S/ John D. Feerick Director March 27, 1996 - ------------------------------- John D. Feerick /S/ Fred Hassan Director March 27, 1996 - ------------------------------- Fred Hassan /S/ John P. Mascotte Director March 27, 1996 - ------------------------------- John P. Mascotte /S/ Mary Lake Polan M.D., Ph.D. Director March 27, 1996 - -------------------------------- Mary Lake Polan M.D., Ph.D. /S/ John R. Torell III Director March 27, 1996 - ------------------------------- John R. Torell III /S/ William Wrigley Director March 27, 1996 - ------------------------------- William Wrigley INDEX TO EXHIBITS Exhibit No. Description - ----------- ----------- (3.1) The Registrant's Restated Certificate of Incorporation as amended to date. (10.3) First Amendment to A Credit Agreement, dated as of August 4, 1995, among American Home Products Corporation, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and Chemical Bank, as agent for the lenders thereunder. (10.4) First Amendment to B Credit Agreement, dated as of August 4, 1995, among American Home Products Corporation, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and Chemical Bank, as agent for the lenders thereunder. (10.7) * Amendment to the 1980 Stock Option Plan. (10.9) * Amendment to the 1985 Stock Option Plan. (10.13)* Amendment to the 1990 Stock Incentive Plan. (10.15)* Amendment to the 1993 Stock Incentive Plan. (10.17)* Form of Deferred Compensation Agreement. (10.20)* Form of American Home Products Corporation Restricted Stock Performance Award Agreement under the 1993 Stock Incentive Plan for award grants in 1995-1997. (10.23)* Restricted Stock Trust Agreement under the 1993 Stock Incentive Plan. (10.24)* 1996 Stock Incentive Plan, as approved by the Board of Directors on January 25, 1996 subject to the approval of stockholders at the April 1996 Annual Meeting. (10.25)* Nonfunded Deferred Compensation Plan for Directors, as amended as of January 25, 1996. (10.26)* Form of American Home Products Corporation Stock Option Agreement. *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. Exhibit No. Description - ----------- ----------- (10.27)* Form of American Home Products Corporation Special Stock Option Agreement (phased vesting). (10.28)* Form of American Home Products Corporation Special Stock Option Agreement (three-year vesting). (11) Computation of Per Share Earnings. (12) Computation of Ratio of Earnings to Fixed Charges. (13) 1995 Annual Report to Shareholders. Such report, except for those portions thereof which are expressly incorporated by reference herein, is furnished solely for the information of the Commission and is not to be deemed "filed" as part of this filing. (21) Subsidiaries of the Registrant. (23) Consent of Independent Public Accountants relating to their report dated January 24, 1996, consenting to the incorporation thereof in Registration Statements on Form S-3 (File Nos. 33-45324 and 33-57339) and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434, 33-53733, 33-55449, 33-45970, 33-14458, 33-50149 and 33-55456) by reference to the Form 10- K of the Registrant filed for the year ended December 31, 1995. (27) Financial Data Schedule. *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. EX-3.1 2 Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF AMERICAN HOME PRODUCTS CORPORATION Amended through April 18, 1990 RESTATED CERTIFICATE OF INCORPORATION OF AMERICAN HOME PRODUCTS CORPORATION FIRST: The name of the corporation is AMERICAN HOME PRODUCTS CORPORATION. SECOND: The principal office of the corporation in the State of Delaware is located at 32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent. The name address of the agent of the corporation resident therein and in charge thereof is The Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Suite L-100, Dover, Delaware 19901. THIRD: The nature of the business or objects or purposes to be transacted, promoted or carried on by the corporation are as follows: (a) To manufacture, produce, purchase or otherwise acquire and to hold, own, use, lease, distribute or otherwise dispose of and generally to trade and deal in and with, at wholesale, retail or otherwise, any and all kinds of medicines, medicinal and pharmaceutical preparations, compounds and mixtures, food, beverage and confectionery products, toilet articles, drugs, chemicals, dyes, dye-stuffs and combinations, and mixtures and preparations thereof, and all kinds of tools, machinery, equipment, utensils, builders' hardware, housewares and household items of every type and description (including, without limitation on, cutlery, kitchen tools, flatware, cookware, household bakeware, egg beaters, can openers, cooking utensils, bathroom and closet fittings and accessories), commercial bakeware, industrial food handling equipment and aluminum foil and other containers, and materials and supplies for any of the foregoing or for use in connection with the business of the corporation. (b) To apply for, obtain, register, purchase, lease or otherwise acquire, hold, own, use, operate, introduce, develop or control, sell, assign or otherwise dispose of, take or grant licenses or other rights with respect to and in any and all ways to exploit or turn to account inventions, improvements, processes, copyrights, patents, trademarks, formulae, trade names and distinctive marks and similar rights of any and all kinds and whether granted, registered or established by or under the laws of the United States or of any state or country. (c) To acquire, buy, purchase, lease, own, hold, sell, mortgage and encumber improved and unimproved real estate wherever situated and to construct and erect thereon factories, works, plants, stores, mills, hotels, houses and building. (d) To purchase or otherwise acquire and to hold, sell, pledge or otherwise dispose of all forms of securities, including stocks, bonds, debentures, notes, certificates of indebtedness, certificates of interest, mortgages and other similar instruments and rights however issued or created, and to deal in and with the same and to issue in exchange therefor or in payment therefor its own stock, bonds or other obligations or securities and to exercise in respect thereof any and all rights, powers and privileges of individual ownership or interest therein, including the right to vote thereof and to consent or otherwise act with respect thereto; to do any and all acts and things for the preservation, protection, improvement and enhancement in value thereof, or designed to accomplish any such purpose and to aid by loan, subsidy, guaranty or in any other manner, those issuing, creating or responsible for any of such securities; to acquire or become interested in any such securities as aforesaid by original subscription, underwriting, participation in syndicates or otherwise and to make payments thereon as called for and to underwrite or subscribe for the same conditionally or otherwise and either with a view to investment or for resale or for any other lawful purpose. (e) To purchase or otherwise acquire, sell or otherwise dispose of, realize upon or otherwise turn to account, manage, liquidate or reorganize the properties, assets, business undertakings, enterprises or ventures or any part thereof of corporations, associations, firms, individuals, syndicates and others; to act as financial, commercial or general agent or representative of any corporation, association, firm, syndicate or individual and as such to develop, improve and extend the property, trade and business interests thereof and to aid any lawful enterprise in connection therewith and in connection with acting as agent or broker for any principal to give any other aid or assistance. (f) To borrow money and for moneys borrowed or in payment for property acquired or for any other objects and purposes of the corporation or otherwise in connection with the transaction of any part of its business to issue bonds, debentures, notes and other obligations secured or unsecured and to mortgage, pledge or hypothecate any or all of its properties or assets as security therefor; to make, accept, endorse, guarantee, execute and issue notes, bills of exchange and other obligations; to mortgage, pledge or hypothecate any stocks, bonds, other evidences of indebtedness or securities and any other property held by it or in which it may be interested and to loan money with or without collateral or other security; to guarantee the payment of dividends upon stocks or the principal of and/or interest upon bonds, notes or other evidences of indebtedness or obligations or the performance of the contracts or other undertakings of any corporation, copartnership, syndicate or individual; to enter into, make and perform contracts of every kind and for any lawful purpose with any person, firm, corporation or syndicate. (g) To purchase or otherwise acquire all or any part of the business, good will, rights, property and assets and to assume or otherwise provide for all or any part of the liabilities of any corporation, association, partnership or individual; to take over as a going concern and continue any business so acquire and to pay for any such business or properties, in cash, stock, bonds, debentures or obligations of this corporation or otherwise. (h) To manufacture, buy or otherwise acquire and to sell or otherwise dispose of, distribute, deal in and deal with, either as principal, agent, dealer or broker, goods, wares and merchandise of every kind and description, including all materials or substances now known or hereafter to be discovered or invented; to purchase or otherwise acquire and to sell or otherwise dispose of, distribute, deal in and deal with, either as principal, agent, dealer or broker, all kinds of personal property of every sort and description wheresoever situated and all interests therein which this corporation may deem necessary or convenient in connection with any part of its business. (i) To conduct any and all of its business in the State of Delaware and any other states, the District of Columbia, the territories, colonies and dependencies of the United States and in foreign countries and places and to have one or more offices outside of the State of Delaware, and to purchase or otherwise acquire, hold, mortgage, convey, transfer, or otherwise dispose of, outside of the State of Delaware, real and personal property. (j) To do all and everything necessary, suitable, convenient or proper for the accomplishment of any of the purposes or the attainment of any or all of the objects hereinbefore enumerated or incidental to the powers herein named, or which shall at any time appear conducive to or expedient for the protection or benefit of the corporation, either as holder of or as interested in any property or otherwise; and to have all the rights, powers and privileges named or hereafter conferred by the General Corporation Laws of the State of Delaware. The foregoing clauses shall be construed both as objects and powers and it is hereby expressly provided that the enumeration herein of specific objects and powers shall not be held to limit or restrict in any manner the general powers of this corporation and all the powers of this corporation and all the powers and purposes hereinbefore enumerated shall be exercised, carried on and enjoyed by this corporation within the State of Delaware and outside of the State of Delaware to such extent and in such manner as corporations organized under the General Corporation Laws of the State of Delaware may properly and legally exercise, carry on and enjoy. FOURTH: The total number of shares of Capital Stock which may be issued by the corporation is Six hundred five million (605,000,000) of which Six hundred million (600,000,000) shares shall be Common Stock of the par value of Thirty-three and one- third cents ($.33 1/3) per share and Five million (5,000,000) shares shall be Preferred Stock (hereinafter referred to as the "Preferred Stock") of the par value of Two Dollars fifty cents ($2.50) per share. The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions of the shares of each class of stock are as follows: PREFERRED STOCK I The Preferred Stock may be issued from time to time in one or more series, each of such series to have such voting powers full or limited, or without voting powers, such designation, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as are stated and expressed herein, or in a resolution or resolutions providing for the issue of such series adopted by the Board of Directors as hereinafter provided. II. Authority is hereby expressly granted to the Board of Directors, subject to the provisions of this Article Fourth, to authorize one or more series of Preferred Stock and, with respect to each series (except the series hereinafter designated as $2 Convertible Preferred Stock), to fix by resolution or resolutions providing for the issue of such series: (a) the number of shares to constitute such series and the distinctive designation thereof; (b) the dividend rate on the shares of such series, dividend payment dates, whether such dividends shall be cumulative, and, if cumulative, the date or dates from which dividends shall accumulate; (c) whether or not the shares of such series shall be redeemable, and, if redeemable, the redemption prices which the shares of such series shall be entitled to receive upon the redemption thereof; (d) whether or not the shares of such series shall be subject to the operation of retirement or sinking funds to be applied to the purchase or redemption of such shares for retirement and, if such retirement or sinking fund or funds be established, the annual amount thereof and the terms and provisions relative to the operation thereof; (e) whether or not the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the corporation and the conversion price or prices or ratio or ratios or the rate or rates at which such exchange may be made, with such adjustments, if any, as shall be stated and expressed or provided in such resolution or resolutions; (f) the preferences, if any, and the amounts thereof, which the shares of such series shall be entitled to receive upon the voluntary and involuntary dissolution of, or upon any distribution of the assets of, the corporation; (g) the voting power, if any, of the shares of such series; and (h) such other special rights and protective provisions as to the Board of Directors may seem advisable. Notwithstanding the fixing of the number of shares constituting a particular series (including the $2 Convertible Preferred Stock) upon the issuance thereof, the Board of Directors may at any time thereafter authorize the issuance of additional shares of the same series. III. Holders of Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available for the payment of dividends, dividends at the annual rates fixed by the Board of Directors for the respective series and no more, payable on such dates in each year as the Board of Directors shall fix for the respective series as provided in subdivision (b) of Section II of this Article Fourth (hereinafter referred to as "dividend dates"), in preference to dividends on any other class of stock of the corporation, so that unless all accrued dividends on all series of Preferred Stock entitled to cumulative dividends shall have been declared and set apart for payment through the last preceding dividend date set for all such series and dividends on all other series of Preferred Stock shall have been declared and set apart for payment at the rate to which such other series of Preferred Stock are entitled for the period commencing the second preceding dividend date and ending on the last preceding dividend date set for such series, no cash payment or distribution shall be made to holders of the Common Stock of the corporation. No dividend shall be declared and set apart for payment on any series of Preferred Stock in respect of any dividend period unless there shall likewise be or have been declared and set apart for payment on all shares of Preferred Stock of each series entitled to cumulative dividends at the time outstanding dividends ratably in accordance with the sums which would be payable on the said shares through the last preceding dividend date if all dividends were declared and paid in full. Nothing herein contained shall be deemed to limit the right of the corporation to purchase or otherwise acquire at any time any shares of its capital stock; provided that no shares of capital stock shall be repurchased at any time when accrued dividends on any series of Preferred Stock entitled to cumulative dividends remain unpaid for any period to and including the last preceding dividend date. For the purposes of this Article Fourth, and of any certificate fixing the terms of any series of Preferred Stock, the amount of dividends "accrued" on any share of Preferred Stock of any series entitled to cumulative dividends as at any dividend date shall be deemed to be the amount of any unpaid dividends accumulated thereon to and including such dividend date, whether or not earned or declared, and the amount of dividends "accrued" on any share of Preferred Stock of any series entitled to cumulative dividends as at any date other than an dividend date shall be calculated as the amount of any unpaid dividends accumulated thereon to and including the last preceding dividend date, whether or not earned or declared, plus an amount computed, on the basis of 360 days per annum, for the period after such last preceding dividend date to and including the date as of which the calculation is made at the annual dividend rate fixed for the shares of such series or class. IV. In the event that the Preferred Stock of any series shall be entitled to a preference upon the dissolution of, or upon any distribution of the assets of, the corporation, then upon any such dissolution of, or distribution of the assets of, the corporation, before any payment or distribution of the assets of the corporation (whether capital or surplus) shall be made to or set apart for any other series or class or classes of stock, the holders of such series of Preferred Stock shall be entitled to payment of the amount of the preference, if any, payable upon such dissolution of, or distribution of the assets of the corporation as may be fixed by the Board of Directors for the shares of the respective series as provided in subdivision (f) of Section II of this Article Fourth before any further payment or distribution shall be made on any other class or series of capital stock. If, upon any such dissolution, or distribution, the assets of the corporation distributable among the holders of any such series of the Preferred Stock entitled to a preference shall be insufficient to pay in full the preferential amount aforesaid, then such assets, or the proceeds thereof, shall be distributed among the holders of each such series of the Preferred Stock ratably in accordance with the sums which would be payable on such distribution if all sums payable were discharged in full. The voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the corporation, the merger or consolidation of the corporation into or with any other corporation, or the merger of any other corporation into it, shall not be deemed to be a dissolution of, or a distribution of the assets of, the corporation, for the purpose of this Section IV. V. In the event that the Preferred Stock of any series shall be redeemable, then, at the option of the Board of Directors, the corporation at any time or from time to time may redeem all, or any number less than all, of the outstanding shares of such series at the redemption price thereof fixed by the board of Directors as provided in subdivision (c) of Section II of this Article Fourth (the sum so payable upon any redemption of Preferred Stock being herein referred to as the "redemption price"); provided, that not less than 30 days previous to the date fixed for redemption a notice of the time and place thereof shall be mailed to each holder of record of the redemption a notice of the time and place thereof shall be mailed to each holder of record of the shares so to be redeemed at his address as shown by the records of the corporation; and provided further, that in case of redemption of less than all of the outstanding shares of any series of Preferred Stock the shares to be redeemed shall be chosen by lot in such equitable manner as may be prescribed in the Board of Directors. At any time after notice of redemption shall have been mailed as above provided to the holders of the stock so to be redeemed, the corporation may deposit the aggregate redemption price, in trust, with a bank or trust company in the Borough of Manhattan, The City of New York, having capital, surplus and undivided profits of at least $5,000,000, named in such notice, for payment, on or before the date fixed for redemption, of the redemption price for the shares called for redemption. Upon the making of such deposit, or if no such deposit is made then upon such redemption date (unless the corporation shall default in making payment of the redemption price), holders of the shares of Preferred Stock called for redemption shall cease to be stockholders with respect to such shares notwithstanding that any certificate for such shares shall not have been surrendered, and thereafter such shares shall no longer be transferable on the books of the corporation and such holders shall have no interest in or claim against the corporation with respect to said shares, except the right (a) to receive payment of the redemption price upon surrender of their certificates, or (b) to exercise on or before the date fixed for redemption the rights, if any, not theretofore expiring, to convert the shares so called for redemption into, or to exchange such shares for, shares of stock of any other class or classes or of any other series of the same class or any other class or classes of stock of the corporation. Any funds deposited in trust as aforesaid which shall not be required for such redemption, because of the exercise of any right of conversion or otherwise subsequent to the date of such deposit, shall be returned to the corporation forthwith. The corporation shall be entitled to receive from any such bank or trust company the interest, if any, allowed on any moneys deposited as in this Section provided, and the holders of any shares so redeemed shall have no claim to any such interest. Any funds so deposited by the corporation and unclaimed at the end of five years from the date fixed for such redemption shall be repaid to the corporation upon its request, after which repayment the holders of such shares who shall not have made claim against such moneys prior to such repayment shall be deemed to unsecured creditors of the corporation, but only for a period of two years from the date of such repayment (after which all rights to holders of such shares as unsecured creditors or otherwise shall cease), for an amount equivalent to the amount deposited as above stated for the redemption of such shares and so repaid to the corporation, but shall in no event be entitled to any interest. In order to facilitate the redemption of any shares of Preferred Stock, the Board of Directors is authorized to cause the transfer books of the corporation to be closed as to the shares to be redeemed. VI. Any shares of Preferred Stock which shall at any time have been redeemed, or which shall at any time have been surrendered for conversion or exchange or for cancellation pursuant to any retirement or sinking fund provisions with respect to any series of Preferred Stock, shall be retired and shall thereafter have the status of authorized and unissued shares of Preferred Stock undesignated as to series. VII. There is hereby authorized an initial series of the Preferred Stock having the following voting powers, designation, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions: (a) The number of shares to constituted such series shall be Two million eight hundred thirty thousand (2,830,000) and the distinctive designation thereof shall be "$2 Convertible Preferred Stock". (b) The dividend rate on the shares of such series shall be $2.00 per annum, payable in cash quarterly on January 1, April 1, July 1 and October 1 in each year. Dividends shall accumulate on any shares of such series issued upon conversion of outstanding shares of Ekco Products Company upon the Merger Date of the Agreement of Merger (herein called the "Agreement of Merger") dated July 29, 1965 of American Home Products Corporation and Ekco Products Company from and after January 1, 1966 and upon any other shares of such series from and after the dividend date next following the issuance of such shares. (c) The shares of such series shall be redeemable on and after the fifth anniversary of the Merger Date of the Agreement of Merger if at the time of mailing of the notice of redemption the average market price per share (as hereafter defined) of the Common Stock is at least $80.00 per share, or in the event that an adjustment in the number of shares issuable upon conversion of shares of such series under Section (e) of this Article Fourth shall have occurred, then a market price per share equal to the product of multiplying $60.00 per share by the reciprocal of the then current conversion rate and the redemption price which the shares of such series shall be entitled to receive upon the redemption thereof shall be the amount of $60.00 per share in cash plus a sum equal to the accrued but unpaid dividends thereon to the redemption date. (d) The shares of such series shall not be subject to the operation of any sinking fund to be applied to the purchase or redemption of such shares for retirement. (e) Subject to the provisions for adjustment hereinafter set forth, the shares of such series shall be convertible at the option of the holder thereof, at any time, upon surrender for conversion to any Transfer Agent for such shares of the certificate representing the shares so to be converted, into full paid and non-assessable shares of Common Stock of the corporation at the rate of .75 shares of Common Stock for each such share of such series so surrendered for conversion. The right, if any, to convert shares of such series called for redemption shall terminate at the time specified in the notice of redemption given pursuant to the provisions of Section VII of this Article Fourth. Upon conversion, no payment or adjustment shall be made for dividends on any class of shares. The number of shares of Common Stock and the number of shares of stock of other classes of the corporation, if any, into which each share of such series is convertible shall be subject to adjustment from time to time as follows: (i) In case the corporation shall (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend declared payable in shares of the corporation, (b) subdivide its outstanding Common Stock, (c) combine the outstanding Common Stock into a smaller number of shares, or (d) issue by reclassification of shares of Common Stock any shares of the Corporation, the holder of each share of such series shall thereafter be entitled to receive upon the conversion of such share, the number of shares of the corporation which he would have owned or have been entitled to receive after the happening of any of the events described above had such share been converted immediately prior to the happening of such event. Further such adjustment shall be made whenever any of the events listed above shall occur. (ii) In case the corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the average market price (as hereinafter defined) for the time at which such record is taken, in each such case, the number of shares of Common Stock into which each such share of such series shall thereafter be convertible shall be determined by multiplying the number of shares of Common Stock into which such share of such series was theretofore convertible by a fraction of which the numerator shall be the sum of the number of shares of Common Stock outstanding at the time of the taking of such record and the number of additional shares of Common Stock so offered for subscription or purchase, and of which the denominator shall be the sum of the number of shares of Common Stock outstanding at the time of the taking of such record and the number of shares of Common Stock which the aggregate public offering price (without deduction of expenses of the issue, including underwriting commissions) of the total number of shares so offered would purchase at the average market price per share for such time. (iii) In case the corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any distribution of evidence of its indebtedness or assets (excluding cash distributions on Common Stock after December 31, 1964 not exceeding the amount of consolidated net earnings after December 31, 1964 of the corporation and its subsidiaries, less cash distributions after December 31, 1964 on stock other than Common Stock, all determined in accordance with good accounting practice) or rights to subscribe, excluding those referred to in paragraph (ii) above, in each such case the number of shares of Common Stock into which each such share of such series shall thereafter be convertible shall be determined by multiplying the number of shares of Common Stock into which such share of such series was theretofore convertible by a fraction of which the numerator shall be the average market price per share of Common Stock for the time at which such record is taken and of which the denominator shall be the average market price per share of Common Stock for such time less the fair value (as determined by the Board of Directors of the corporation, whose determination shall be conclusive and described in a statement filed with the Transfer Agent or Agents for such shares of such series and for the Common Stock) of the portion of the assets or evidences of indebtedness so distributed or of such subscription rights applicable to one of the outstanding shares of Common Stock. (iv) For the purpose of any computation under this Article Fourth, the "average market price per share" of any shares of capital stock for any time shall be the average of the daily mean of the high and low sales prices, or bid prices, as the case may be, for five consecutive business days commencing ten business days before the time in question on which transactions have been reported by any accepted financial publication of general circulation in the Borough of Manhattan, The City of New York, on the New York Stock Exchange, if such shares are regularly traded on such Exchange, or on any other national securities exchange if such shares be not regularly traded on the New York Stock Exchange, or if such shares be not regularly traded on any national securities exchange the bid prices as reported by the National Quotation Bureau, Inc. or by any successor organization. (v) No adjustment in the number of shares of Common Stock into which any share of such series is convertible shall be required unless such adjustment would require an increase or decrease of at least 1% in the total number of shares of Common Stock into which all shares of such series are then convertible; provided, however, that any adjustments which by reason of this paragraph (v) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (vi) If the corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend, distribution or subscription rights and shall, thereafter and before delivery to shareholders of any such dividend, distribution or subscription rights, legally abandon its plan to pay or deliver such dividend, distribution or subscription rights, then no adjustment in the number of shares of Common Stock or of other shares of the corporation into which any share of such Stock is convertible, nor the giving of any notice to the holders of shares of such series, shall be required by reason of the taking of such record. (vii) Whenever any adjustment is required in the shares into which any share of such series is convertible, the corporation shall forthwith (a) file with the Transfer Agent or Transfer Agents for shares of such series and for the Common Stock a statement describing in reasonable detail the adjustment and the method of calculation used, and (b) cause a notice stating the nature and amount of such adjustment to be published at least once in a newspaper printed in the English language and customarily published on five days each calendar week and of general circulation in the Borough of Manhattan, The City of New York and in the City of Chicago, Illinois. (viii) No fractional shares shall be issued upon conversion of shares of such series, but in lieu thereof the corporation shall pay to the holder thereof an amount in cash equal to the value of such fractional interest in a share determined upon the basis of the closing price per share on the New York Stock Exchange as reported in an accepted financial publication of general circulation in the Borough of Manhattan, The City of New York if such shares are regularly traded upon such exchange or on any other national securities exchange if such shares be not regularly traded on the New York Stock Exchange, or if such shares be not regularly traded on any national securities exchange upon the basis of the closing bid price reported by the National Quotation Bureau, Inc. or by any successor organization, on the date upon which the certificate representing the shares of such series shall be surrendered for conversion. (ix) Shares of such series shall be deemed to be converted and the holder thereof shall be deemed to have become a holder of record of the shares of the corporation into which the shares of such series are convertible at the close of business on the date upon which the certificate representing shares of such series has been surrendered to any Transfer Agent for conversion, or if such date shall be a legal holiday in the jurisdiction in which such Transfer Agent is located or a date fixed by the Board of Directors for the closing of the transfer books or the taking of a record of the holders of the shares of the corporation into which the shares of such series are convertible, then on the next succeeding business day when such transfer books are open. (x) The corporation shall at all times reserve and keep available out of its authorized but unissued shares the full number of shares into which all shares of such series from time to time outstanding are convertible. (f) The shares of such series shall be entitled to receive in preference to shares of the Common Stock of the corporation upon any dissolution of, or distribution of assets of, the corporation (i) the amount of $60.00 per share in the event of any voluntary liquidation, dissolution or winding-up of the corporation and (ii) the amount of $52.50 in the event of any involuntary liquidation, dissolution or winding-up of the corporation, plus, in either case, an amount equal to all accrued but unpaid dividends to the date of such liquidation, dissolution or winding-up. (g) The shares of such series shall be entitled to Nine (9) votes per share voting with the shares of the Common Stock at any annual or special meeting of stockholders for the election of directors and upon any other matter coming before such meeting. In addition, the shares of such series shall have the following special voting powers and rights: (i) So long as any shares of such series are outstanding, the corporation shall not, without the consent (given by vote at a meeting called for that purpose) of the holders of at least two-thirds of the total number of shares of such series and any other series of the Preferred Stock then outstanding having voting rights in the premises, voting as a class: (a) create or authorize any class of stock ranking prior to or on a parity with the Preferred Stock, or create or authorize any obligation or security convertible into shares of stock of any such class; or (b) amend, alter, change or repeal any of the express terms of such series or of the Preferred Stock then outstanding in a manner prejudicial to the holders thereof; provided, however, if any such change shall effect only a single series of the Preferred Stock, then only the holders of such series shall have any special voting right hereunder. (ii) If and when dividends payable on such series shall be in default in an amount equivalent to six (6) full quarter-yearly dividends on all shares of such series at the time outstanding, the number of directors of the corporation shall thereupon, and until all dividends in default on such series shall have been paid or declared and set apart for payment, be two more than the full number constituting the Board of Directors immediately prior to such default. The holders of all shares of such series, voting separately as one class with any other series of the Preferred Stock having voting powers in the premises, shall be entitled to elect directors to fill the vacancies resulting from such increase in the number of directors of the corporation. Such holders shall, at a meeting called and held as provided in subparagraph (v) hereof elect such two directors to hold office until the next annual meeting of stockholders; provided, however, that the terms of office of such directors shall terminate upon the curing of all defaults in dividends on such series as provided in subparagraph (iii) hereof, unless dividend defaults shall still exist on other series of the Preferred Stock. (iii) If and when all dividends then in default on such series at the time outstanding shall be paid, the holders of shares of such series shall thereupon be divested of any special right with respect to the election of directors provided in subparagraph (ii) hereof and the number of directors of the corporation shall be reduced by two (except as provided in paragraph (ii) hereof); but always subject to the same provisions for vesting such special rights in such series in case of further like default or defaults in dividends thereon. (iv) In case of any vacancy in the Board of Directors occurring among the directors elected by the holders of such series, as a class, pursuant to subparagraph (ii) hereof, the holders of such series and of any other series of Preferred Stock then outstanding and entitled to vote may elect a successor to hold office for the unexpired term of the directors whose place shall be vacant. In all other cases, any vacancy occurring among the directors shall be filled by the vote of a majority of the remaining directors. (v) Whenever the holders of such series, as a class, become entitled to elect directors of the corporation pursuant to subparagraph (ii) or (iv) hereof, a meeting of the holders of such series shall be held at any time thereafter upon call by the holders of not less than 1,000 shares of such series or upon call by the Secretary of the corporation at the request in writing of any stockholder addressed to him at the principal office of the corporation. At all meetings of stockholders held for the purpose of electing directors during such times as the holders of shares of such series shall have the special right, voting separately as one class, to elect directors pursuant to subparagraph (ii) hereof, the presence in person or by proxy of the holders of a majority of the outstanding shares of the series of Preferred Stock entitled to vote separately as a class shall be required to constitute a quorum of such class for the election of directors for such class; provided, however, that the absence of a quorum of the holders of stock of such class shall not prevent the election at any such meeting or adjournment thereof of any other directors by the necessary quorum of the holders of all classes of stock having voting rights for the election of directors (other than as a separate class) if such quorum is present in person or by proxy at such meeting; and provided further that in the absence of a quorum of the holders of stock having the right to vote separately as a class, a majority of those holders of the stock of such class who are present in person or by proxy shall have power to adjourn the election of the directors to be elected by such class from time to time without notice other than announcement at the meeting until the holders of the requisite number of shares of such class shall be present in person or by proxy. (h) The shares of such series shall not have any other special rights or provisions. COMMON STOCK Each share of Common Stock shall be equal in all respects to every other share of the Common Stock of the Corporation. FIFTH: The corporation is to have perpetual existence. SIXTH: The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. SEVENTH: The Board of Directors of the corporation shall have power to issue the authorized shares of stock of the corporation from time to time for such consideration as they may fix and determine. EIGHTH: In furtherance and not in limitation of powers conferred by Statute the following provisions are inserted for the regulation of the business and to define and regulate the powers of the corporation and of its directors and stockholders: (a) The number of directors of the corporation shall be fixed and may be altered from time to time as may be provided in by-laws. Any vacancies in the Board of Directors, by reason of an increase in the number of directors or otherwise, shall be filled solely by the Board of Directors, by a majority vote of the directors then in office, though less than a quorum, but any such director so elected shall hold office only until the next succeeding annual meeting of stockholders. Advance notice of nominations for the election of directors, other than by the Board of Directors or a committee thereof, shall be given in the manner provided in the by-laws. (b) The Board of Directors may, by majority vote of the whole Board designate three or more directors to constitute an Executive Committee which, to the extent provided by the directors or in the by-laws, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation and shall have power to authorize the seal of the corporation to be affixed to all papers which may require it. (c) The Board of Directors shall have power to make, alter, amend or repeal the by-laws of the corporation, but any by-laws so made, altered or amended by the directors may be altered or repealed by the stockholders. Notwithstanding the foregoing and anything contained in this Certificate of Incorporation to the contrary, sections two and seven of the by-laws shall not be altered, amended or repealed and no provision inconsistent therewith shall be adopted without the affirmative vote of the holders of at least 80% of the voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class. (d) No holder of stock shall be entitled as of right to subscribe for, purchase or receive any part of any authorized but unissued stock or of any new or additional issue of stock, preferred or common, or of bonds, notes, debentures or other securities convertible into stock, but all such unissued, new or additional shares of stock or bonds, notes, debentures or other securities convertible into stock may be issued and disposed of by the Board of Directors to such person or persons and on such terms and for such lawful consideration as the Board of Directors in their absolute discretion may deem advisable. (e) The corporation reserves the right to amend, alter or repeal any provision herein contained in the manner now or hereafter prescribed by law and all rights conferred on stockholders hereunder are granted subject to this provision. Notwithstanding the foregoing and anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all shares of the corporation entitled to vote generally in the election of directors, voting together a single class, shall be required to alter, amend, adopt any provision inconsistent with, or repeal, this Article EIGHTH or any provision hereof. (f) A director may (except directors elected by shares of Preferred Stock voting separately as a class), by vote of a majority of the entire Board of Directors for any cause deemed by them sufficient, be removed as such director. Any director may also be removed from office, for any cause deemed by them sufficient, by the affirmative vote of the holders of 80% of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class, except that directors elected by shares of Preferred Stock voting separately may only be removed by such stockholders at any special meeting for any cause deemed sufficient by such meeting. Directors of the corporation need not be stockholders therein. (g) A director of the corporation shall not, in the absence of fraud, be disqualified by his office from dealing or contracting with the corporation either as a vendor, purchaser or otherwise, nor in the absence of fraud shall any transaction or contract of the corporation be void or voidable by reason of the fact that any director or any firm of which any director is a member, or any corporation of which any director is a shareholder or director is in any way interested in such transaction or contract, provided that such transaction or contract is or shall be authorized, ratified or approved either: (1) by vote of a majority of a quorum of the Board of Directors or of the Executive Committee without counting in such majority or quorum any director so interested or a member of a firm so interested or a shareholder or a director of a corporation so interested, or (2) by vote at a stockholders' meeting of the holders of record of a majority of all the outstanding shares of stock of the corporation, or by writing or writings signed by a majority of such holders; nor shall any director be liable to account to the corporation for any profit realized by him from or through any such transaction or contract of the corporation ratified or approved as aforesaid by reason of the fact that he or any firm of which he is a member or any corporation of which he is a shareholder or director was interested in such transaction or contract. Nothing herein contained shall create any liability in the events above described or prevent the authorization, ratification or approval of such contracts or transactions in any other manner permitted by law. (h) 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 such holders and may not be effected by any consent in writing by such holders. Except as provided in paragraph VII(g)(v) of Article FOURTH respecting rights of holders of Preferred Stock to call meetings of such holders in certain dividend default situations, special meetings of stockholders, unless otherwise provided in law, may be called only by the Chairman or Vice-Chairman of the Board of Directors or the President, or by the Secretary on the written request of a majority of all the directors, such request to state the purpose of the proposed meeting. NINTH: No director shall be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director, except (i) for breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. EX-10.3 3 Exhibit 10.3 FIRST AMENDMENT TO A CREDIT AGREEMENT First Amendment (this "Amendment"), dated as of August 4, 1995, among American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated (each, a "Subsidiary Borrower"), American Home Products Corporation (the "Company", and together with the Subsidiary Borrowers, the "Borrowers"), the lending institutions party to the A Credit Agreement referred to below (the "Banks") and Chemical Bank, as Agent (in such capacity, the "Agent"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the A Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, the Borrowers, the Banks and the Agent are parties to a Credit Agreement, dated as of September 9, 1994, (the "A Credit Agreement"); WHEREAS, the parties hereto wish to amend the A Credit Agreement as herein provided; NOW THEREFORE, it is agreed: 1. The first recital of the A Credit Agreement is hereby amended by deleting the amount "$7,000,000,000" in its entirety and inserting in lieu thereof the amount "$4,000,000,000". 2. Section 1.1 of the A Credit Agreement is hereby amended by deleting the definition of "Applicable Margin" in its entirety and inserting in lieu thereof the following new definition: "Applicable Margin": a percentage equal to, (x) for Alternate Base Rate Loans, 0%, (y) for C/D Rate Loans, .320% and (z) for Eurodollar Rate Loans, .195%. 3. Section 1.1 of the A Credit Agreement is hereby amended by deleting the definition of "Facility Fee Percentage" in its entirety and inserting in lieu thereof the following definition: ""Facility Fee Percentage": a percentage equal to .055%." 4. Section 1.1 of the A Credit Agreement is hereby amended by deleting the definition of "Significant Usage Period" in its entirety. 5. Section 1.1 of the A Credit Agreement is hereby amended by deleting clause (a) of the definition of "Termination Date" in its entirety and inserting in lieu thereof "(a) August 3, 1996 (as such date may be extended in accordance with the provisions of subsection 2.19)and ". 6. In order to induce the Agent and the Banks to enter into this Amendment, the Borrowers hereby represent and warrant that (x) no Default or Event of Default exists on the First Amendment Effective Date (as defined herein) both before and after giving effect to this Amendment and (y) all of the representations and warranties contained in the Credit Documents shall be true and correct in all material respects on the First Amendment Effective Date both before and after giving effect to this Amendment with the same effect as though such representations and warranties had been made on and as of the First Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 7. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the A Credit Agreement or any other Credit Document. 8. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Company and the Agent. 9. This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the State of New York. 10. Notwithstanding anything to the contrary contained in the Credit Agreement or this Amendment, for purposes of this Amendment "Banks" shall mean each of the lending institutions who shall have delivered (including by way of telecopier) by August 3, 1995 (or such later date as the Agent and the Company shall agree) a signed copy hereof to the Agent as provided in Section 8.2 of the Credit Agreement. 11. On or prior to August 3, 1995 (or such later date as the Agent and the Company shall agree) assuming that the Banks who have signed and delivered a copy hereof pursuant to paragraph 10 of this Amendment hold Commitments in the aggregate of at least $4,000,000,000, (x) the Company and the Agent shall reduce or reallocate the Commitments of such Banks in their sole discretion for purposes of establishing an aggregate total commitment of $4,000,000,000 and (y) the Agent shall distribute revised Schedules I and II to the Credit Agreement to reflect such reductions and reallocations; provided that, after giving effect to such reallocation, no Bank shall have a Commitment in excess of its Commitment on the date hereof unless such Bank has so agreed. 12. This Amendment shall become effective as of the date hereof (the "First Amendment Effective Date") on the date upon which (i) each of the Borrowers, the Agent and Banks (after giving effect to paragraph 10 hereto), after giving effect to the reallocation of Commitments pursuant to paragraph 11 of this Amendment, shall have signed a copy hereof (whether the same or different copies) and shall have delivered (including by way of telecopier) the same to the Agent as provided in Section 8.2 of the A Credit Agreement and (ii) the First Amendment to the B Credit Agreement, dated as of the date hereof, has become effective. 13. From and after the First Amendment Effective Date, all references in the A Credit Agreement and each of the other A Credit Documents to the A Credit Agreement shall be deemed to be references to the A Credit Agreement after giving effect to this Amendment. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. AMERICAN HOME PRODUCTS CORPORATION By:_____________________________ Title: AMERICAN HOME FOOD PRODUCTS, INC. By:_____________________________ Title: SHERWOOD MEDICAL COMPANY By:____________________________ Title: A. H. ROBINS COMPANY, INCORPORATED By:________________________________ Title: CHEMICAL BANK, as Agent and as a Lender By:_____________________________ Title: ABN AMRO BANK N.V., NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BANCA NAZIONALE DEL LAVORO S.p.A. NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BANK OF AMERICA NT & SA By:_____________________________ Title: BANK OF AMERICA ILLINOIS By:_____________________________ Title: BANK BRUSSELS LAMBERT - NEW YORK BRANCH By:_____________________________ Title: BANK OF MONTREAL By:_____________________________ Title: THE BANK OF NEW YORK By:_____________________________ Title: THE BANK OF NOVA SCOTIA By:_____________________________ Title: THE BANK OF TOKYO TRUST COMPANY By:_____________________________ Title: BANQUE NATIONALE DE PARIS - NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BANQUE NATIONALE DE PARIS - GEORGETOWN BRANCH, CAYMAN ISLANDS By:_____________________________ Title: By:_____________________________ Title: BANQUE PARIBAS By:_____________________________ Title: By:_____________________________ Title: BAYERISCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BAYERISCHE VEREINSBANK AG, NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BANCA COMMERCIALE ITALIANA NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BHF - BANK By:_____________________________ Title: THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By:_____________________________ Title: CARIPLO - CASSA DI RISPARMIO DELLE PROVINCIE LOMBARDE SPA By:_____________________________ Title: By:_____________________________ Title: THE CHASE MANHATTAN BANK, N.A. By:_____________________________ Title: CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY By:_____________________________ Title: CITIBANK, N.A. By:_____________________________ Title: COMMERZBANK AKTIENGESELLSCHAFT By:_____________________________ Title: COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK, B.A., "RABOBANK NEDERLAND" By:_____________________________ Title: CORESTATES BANK, N.A. By:_____________________________ Title: CREDIT LYONNAIS NEW YORK BRANCH By:_____________________________ Title: CREDIT LYONNAIS CAYMAN ISLAND BRANCH By:_____________________________ Title: CREDIT SUISSE By:_____________________________ Title: CRESTAR BANK By:_____________________________ Title: THE DAI-ICHI KANGYO BANK LTD. By:_____________________________ Title: THE DAIWA BANK LTD. - NEW YORK BRANCH By:_____________________________ Title: DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By:_____________________________ Title: By:_____________________________ Title: DRESDNER BANK AG, NEW YORK BRANCH By:_____________________________ Title: DRESDNER BANK AG, GRAND CAYMAN BRANCH By:_____________________________ Title: FIRST FIDELITY BANK, NATIONAL ASSOCIATION By:_____________________________ Title: FIRST INTERSTATE BANK OF CALIFORNIA By:_____________________________ Title: By:_____________________________ Title: THE FIRST NATIONAL BANK OF BOSTON By:_____________________________ Title: THE FIRST NATIONAL BANK OF CHICAGO By:_____________________________ Title: FIRST UNION NATIONAL BANK OF NC By:_____________________________ Title: THE FUJI BANK, LIMITED By:_____________________________ Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED By:_____________________________ Title: ISTITUTO BANCARIO SAN PAOLO DI TORINA SPA - NEW YORK LIMITED BRANCH By:_____________________________ Title: LLOYDS BANK PLC By:_____________________________ Title: LTCB TRUST COMPANY By:_____________________________ Title: MELLON BANK, N.A. By:_____________________________ Title: THE MITSUBISHI BANK, LIMITED - NEW YORK BRANCH By:_____________________________ Title: THE MITSUI TRUST AND BANKING COMPANY, LIMITED - NEW YORK BRANCH By:_____________________________ Title: THE MITSUBISHI TRUST AND BANKING CORPORATION By:_____________________________ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:_____________________________ Title: NATIONAL WESTMINSTER BANK PLC By:_____________________________ Title: NORDDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By:_____________________________ Title: By:_____________________________ Title: THE NORINCHUKIN BANK, NEW YORK BRANCH By:_____________________________ Title: THE NORTHERN TRUST COMPANY By:_____________________________ Title: PNC BANK, NATIONAL ASSOCIATION By:_____________________________ Title: ROYAL BANK OF CANADA By:_____________________________ Title: THE SAKURA BANK, LIMITED By:_____________________________ Title: THE SANWA BANK LTD, NEW YORK BRANCH By:_____________________________ Title: SHAWMUT BANK CONNECTICUT, N.A. By:_____________________________ Title: SOCIETE GENERALE By:_____________________________ Title: STANDARD CHARTERED BANK By:_____________________________ Title: THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH By:_____________________________ Title: THE SUMITOMO TRUST & BANKING CO. By:_____________________________ Title: SWISS BANK CORPORATION, NEW YORK BRANCH By:_____________________________ Title: THE TOKAI BANK, LIMITED NEW YORK BRANCH By:_____________________________ Title: TORONTO DOMINION (NEW YORK), INC. By:_____________________________ Title: TOYO TRUST & BANKING CO. By:_____________________________ Title: WACHOVIA BANK OF GEORGIA, N.A. By:_____________________________ Title: WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK AND CAYMAN ISLANDS BRANCHES By:_____________________________ Title: WESTPAC BANKING CORPORATION By:_____________________________ Title: YASUDA TRUST & BANKING By:_____________________________ Title: EX-10.4 4 Exhibit 10.4 FIRST AMENDMENT TO B CREDIT AGREEMENT First Amendment (this "Amendment"), dated as of August 4, 1995, among American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated (each, a "Subsidiary Borrower"), American Home Products Corporation (the "Company", and together with the Subsidiary Borrowers, the "Borrowers"), the lending institutions party to the B Credit Agreement referred to below (the "Banks") and Chemical Bank, as Agent (in such capacity, the "Agent"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the B Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, the Borrowers, the Banks and the Agent are parties to a Credit Agreement, dated as of September 9, 1994, (the "B Credit Agreement"); WHEREAS, the parties hereto wish to amend the B Credit Agreement as herein provided; NOW THEREFORE, it is agreed: 1. Section 1.1 of the B Credit Agreement is hereby amended by deleting the definition of "Applicable Margin" in its entirety and inserting in lieu thereof the following new definition: "Applicable Margin": for any day, the rate per annum set forth below opposite the Rating Period then in effect, it being understood that the Applicable Margin for (x) Alternate Base Rate Loans shall be the percentage set forth under the column "Alternate Base Rate Margin", (y) C/D Rate Loans shall be the percentage set forth under the column "C/D Rate Margin" and (z) Eurodollar Rate Loans shall be the percentage set forth under the column "Eurodollar Rate Margin":
Alternative Eurodollar Rating Base Rate C/D Rate- Rate Period Margin Margin Margin Category A Period 0% .2400% .1150% Category B Period 0% .2575% .1325% Category C Period 0% .2950% .1700% Category D Period 0% .3500% .2250% Cateogry E Period 0% .4250% .3000%
2. Section 1.1 of the B Credit Agreement is hereby amended by deleting the definition of "Facility Fee Percentage" in its entirety and inserting in lieu thereof the following definition: "Facility Fee Percentage": a percentage equal to at any time (i) during a Category A Period, 0.0600%, (ii) during a Category B Period, .0675%, (iii) during a Category C Period, .0800%, (iv) during a Category D Period, .1250% and (v) during a Category E Period, .2000%." 3. Section 1.1 of the B Credit Agreement is hereby amended by deleting the definition of "Significant Usage Period" in its entirety. 4. Section 1.1 of the B Credit Agreement is hereby amended by deleting clause (a) of the definition of "Termination Date" in its entirety and inserting in lieu thereof "(a) August 4, 2000 and ". 5. In order to induce the Agent and the Banks to enter into this Amendment, the Borrowers hereby represent and warrant that (x) no Default or Event of Default exists on the First Amendment Effective Date (as defined herein) both before and after giving effect to this Amendment and (y) all of the representations and warranties contained in the Credit Documents shall be true and correct in all material respects on the First Amendment Effective Date both before and after giving effect to this Amendment with the same effect as though such representations and warranties had been made on and as of the First Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 6. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the B Credit Agreement or any other Credit Document. 7. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instru- ment. A complete set of counterparts shall be lodged with the Company and the Agent. 8. This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the State of New York. 9. Notwithstanding anything to the contrary contained in the Credit Agreement or this Amendment, for purposes of this Amendment "Banks" shall mean each of the lending institutions who shall have delivered (including by way of telecopier) by August 3, 1995 (or such later date as the Agent and the Company shall agree) a signed copy hereof to the Agent as provided in Section 8.2 of the Credit Agreement. 10. This Amendment shall become effective as of the date hereof (the "First Amendment Effective Date") on the date upon which (i) each of the Borrowers, the Agent and the Banks (after giving effect to paragraph 9) shall have signed a copy hereof (whether the same or different copies) and shall have delivered (including by way of telecopier) the same to the Agent as provided in Section 8.2 of the B Credit Agreement and (ii) the First Amendment to the A Credit Agreement, dated as of the date hereof, has become effective. 11. From and after the First Amendment Effective Date, all references in the B Credit Agreement and each of the other Credit Documents to the B Credit Agreement shall be deemed to be references to the B Credit Agreement after giving effect to this Amendment. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. AMERICAN HOME PRODUCTS CORPORATION By:_______________________________ Title: AMERICAN HOME FOOD PRODUCTS, INC. By:_______________________________ Title: SHERWOOD MEDICAL COMPANY By:______________________________ Title: A. H. ROBINS COMPANY, INCORPORATED By:______________________________ Title: CHEMICAL BANK, as Agent and as a Lender By:_____________________________ Title: ABN AMRO BANK N.V., NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BANCA NAZIONALE DEL LAVORO S.p.A. NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BANK OF AMERICA NT & SA By:_____________________________ Title: BANK OF AMERICA ILLINOIS By:_____________________________ Title: BANK BRUSSELS LAMBERT - NEW YORK BRANCH By:_____________________________ Title: BANK OF MONTREAL By:_____________________________ Title: THE BANK OF NEW YORK By:_____________________________ Title: THE BANK OF NOVA SCOTIA By:_____________________________ Title: THE BANK OF TOKYO TRUST COMPANY By:_____________________________ Title: BANQUE NATIONALE DE PARIS - NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BANQUE NATIONALE DE PARIS - GEORGETOWN BRANCH, CAYMAN ISLANDS By:_____________________________ Title: By:_____________________________ Title: BANQUE PARIBAS By:_____________________________ Title: By:_____________________________ Title: BAYERISCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BAYERISCHE VEREINSBANK AG, NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BANCA COMMERCIALE ITALIANA NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BHF - BANK By:_____________________________ Title: THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By:_____________________________ Title: CARIPLO - CASSA DI RISPARMIO DELLE PROVINCIE LOMBARDE SPA By:_____________________________ Title: By:_____________________________ Title: THE CHASE MANHATTAN BANK, N.A. By:_____________________________ Title: CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY By:_____________________________ Title: CITIBANK, N.A. By:_____________________________ Title: COMMERZBANK AKTIENGESELLSCHAFT By:_____________________________ Title: COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK, B.A., "RABOBANK NEDERLAND" By:_____________________________ Title: CORESTATES BANK, N.A. By:_____________________________ Title: CREDIT LYONNAIS NEW YORK BRANCH By:_____________________________ Title: CREDIT LYONNAIS CAYMAN ISLAND BRANCH By:_____________________________ Title: CREDIT SUISSE By:_____________________________ Title: CRESTAR BANK By:_____________________________ Title: THE DAI-ICHI KANGYO BANK LTD. By:_____________________________ Title: THE DAIWA BANK LTD. - NEW YORK BRANCH By:_____________________________ Title: DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By:_____________________________ Title: By:_____________________________ Title: DRESDNER BANK AG, NEW YORK BRANCH By:_____________________________ Title: DRESDNER BANK AG, GRAND CAYMAN BRANCH By:_____________________________ Title: FIRST FIDELITY BANK, NATIONAL ASSOCIATION By:_____________________________ Title: FIRST INTERSTATE BANK OF CALIFORNIA By:_____________________________ Title: By:_____________________________ Title: THE FIRST NATIONAL BANK OF BOSTON By:_____________________________ Title: THE FIRST NATIONAL BANK OF CHICAGO By:_____________________________ Title: FIRST UNION NATIONAL BANK OF NC By:_____________________________ Title: THE FUJI BANK, LIMITED By:_____________________________ Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED By:_____________________________ Title: ISTITUTO BANCARIO SAN PAOLO DI TORINA SpA - NEW YORK LIMITED BRANCH By:_____________________________ Title: LLOYDS BANK PLC By:_____________________________ Title: LTCB TRUST COMPANY By:_____________________________ Title: MELLON BANK, N.A. By:_____________________________ Title: THE MITSUBISHI BANK, LIMITED - NEW YORK BRANCH By:_____________________________ Title: THE MITSUI TRUST AND BANKING COMPANY, LIMITED - NEW YORK BRANCH By:_____________________________ Title: THE MITSUBISHI TRUST AND BANKING CORPORATION By:_____________________________ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:_____________________________ Title: NATIONAL WESTMINSTER BANK PLC By:_____________________________ Title: NORDDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By:_____________________________ Title: By:_____________________________ Title: THE NORINCHUKIN BANK, NEW YORK BRANCH By:_____________________________ Title: THE NORTHERN TRUST COMPANY By:_____________________________ Title: PNC BANK, NATIONAL ASSOCIATION By:_____________________________ Title: ROYAL BANK OF CANADA By:_____________________________ Title: THE SAKURA BANK, LIMITED By:_____________________________ Title: THE SANWA BANK LTD, NEW YORK BRANCH By:_____________________________ Title: SHAWMUT BANK CONNECTICUT, N.A. By:_____________________________ Title: SOCIETE GENERALE By:_____________________________ Title: STANDARD CHARTERED BANK By:_____________________________ Title: THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH By:_____________________________ Title: THE SUMITOMO TRUST & BANKING CO. By:_____________________________ Title: SWISS BANK CORPORATION, NEW YORK BRANCH By:_____________________________ Title: THE TOKAI BANK, LIMITED NEW YORK BRANCH By:_____________________________ Title: TORONTO DOMINION (NEW YORK), INC. By:_____________________________ Title: TOYO TRUST & BANKING CO. By:_____________________________ Title: WACHOVIA BANK OF GEORGIA, N.A. By:_____________________________ Title: WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK AND CAYMAN ISLANDS BRANCHES By:_____________________________ Title: WESTPAC BANKING CORPORATION By:_____________________________ Title: YASUDA TRUST & BANKING By:_____________________________ Title: EX-10.7 5 Exhibit 10.7 AMENDMENT TO THE AMERICAN HOME PRODUCTS CORPORATION 1980 STOCK OPTION PLAN WHEREAS, Section 8 of the American Home Products Corporation (the "Company") 1980 Stock Option Plan (the "Plan") authorizes the Board of Directors of the Company (the "Board") to amend the Plan; and WHEREAS, the Board has resolved to amend the Plan to provide for a deferral mechanism with respect to the proceeds payable upon the exercise of an option or stock appreciation right and limited transferrability with respect to options; and WHEREAS, the Board has directed the officers of the Company to so amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows. 1. A new Section 11 is added as follows: "Section 11. Deferral. (a) Notwithstanding anything herein to the contrary, an optionee may elect, at the discretion of, and in accordance with rules which may be established by, the Committee, to defer delivery of the proceeds of exercise of an unexercised Option or the corresponding Stock Appreciation Right, provided such election is irrevocable and is made (i) at least six months prior to the date that such Option or the corresponding Stock Appreciation Right otherwise would expire and (ii) at least one month prior to the date such Option or the corresponding Stock Appreciation Right is exercised (or such shorter period as may be determined by the Committee). Upon such exercise, the amount deferred shall be equal in value to the difference between the Option Price per share and the fair market value per share of the Common Stock on the date of exercise (determined in accordance with Section 5(b)), multiplied by the number of shares covered by such exercise and in respect of which the optionee shall have made the deferral election, and shall be credited to an account in the name of the optionee on the books and records of the Company (a "Deferred Compensation Account") at the date of exercise. A separate Deferred Compensation Account shall be maintained with respect to each Option or corresponding Stock Appreciation Right subject to an effective deferral election. (b) Interest shall be credited on amounts in the Deferred Compensation Account from the date of exercise of the Option or the corresponding Stock Appreciation Right to the date of payment, as of the last day of each complete calendar month during the deferral period, at the rate of interest determined by the Committee and communicated to the optionees. The value of an optionee's Deferred Compensation Account shall be payable in a lump sum cash payment or in annual installments over a period not to exceed 10 years or as otherwise determined by the Committee. At the time an optionee makes such deferral election, the optionee shall elect the form of payment and date for lump sum payment or commencement of annual payments of the Deferred Compensation Account, with such date at least one year subsequent to the date of exercise of the Option or corresponding Stock Appreciation Right, but not later than the date of the optionee's termination of employment with Company. Notwithstanding any election by an optionee, in the event of Disability or death of the optionee, the optionee's Deferred Compensation Account shall be paid within 90 days in the form of a single lump sum. (c) Notwithstanding the deferred payment date elected by the optionee, the Committee may, in its discretion, allow for early payment of an optionee's Deferred Compensation Account in the event of an "unforeseeable emergency." For this purpose, an unforeseeable emergency shall be defined as an unanticipated emergency that is caused by an event beyond the control of the optionee and that would result in severe financial hardship to the optionee if early withdrawal were not permitted. Any withdrawal on account of an unforeseeable emergency must be limited to the amount necessary to meet the emergency. The above provisions regarding a withdrawal upon an unforeseeable emergency shall be interpreted in accordance with published revenue procedures, regulations, releases or interpretations. In addition, Deferred Compensation Accounts may be distributed on an accelerated basis in the discretion of the Committee. (d) Optionees have the status of general unsecured creditors of the Company with respect to their Deferred Compensation Accounts, and such accounts constitute a mere promise by the Company to make payments with respect thereto. (e) An optionee's right to benefit payments under the Plan with respect to the Deferred Compensation Accounts may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, attached or garnished by creditors of the optionee or the optionee's beneficiary and any attempt to do so shall be void." 2. The following clause is added to the end of the first sentence of Section 5(h): "; provided, however, that the Committee may, in its sole discretion, allow for transfer of Options (other than incentive stock options, unless such transferability would not adversely affect incentive stock option tax treatment) to other persons or entities, subject to such conditions or limitations as it may establish to ensure that transactions with respect to Options intended to be exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to Rule 16b-3 thereunder do not fail to maintain such exemption as a result of the Committee causing Options to be transferrable or for other purposes; provided further, however, that for any Option that is transferred, other than by the laws of descent and distribution, any related Stock Appreciation Right shall be extinguished." IN WITNESS WHEREOF, the Company has caused this Amendment to be executed and effective as of January 25, 1996. EX-10.9 6 Exhibit 10.9 AMENDMENT TO THE AMERICAN HOME PRODUCTS CORPORATION 1985 STOCK OPTION PLAN WHEREAS, Section 8 of the American Home Products Corporation (the "Company") 1985 Stock Option Plan (the "Plan") authorizes the Board of Directors of the Company (the "Board") to amend the Plan; and WHEREAS, the Board has resolved to amend the Plan to provide for a deferral mechanism with respect to the proceeds payable upon the exercise of an option or stock appreciation right and limited transferrability with respect to options; and WHEREAS, the Board has directed the officers of the Company to so amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows. 1. A new Section 11 is added as follows: "Section 11. Deferral. (a) Notwithstanding anything herein to the contrary, an optionee may elect, at the discretion of, and in accordance with rules which may be established by, the Committee, to defer delivery of the proceeds of exercise of an unexercised Option or the corresponding Stock Appreciation Right, provided such election is irrevocable and is made (i) at least six months prior to the date that such Option or the corresponding Stock Appreciation Right otherwise would expire and (ii) at least one month prior to the date such Option or the corresponding Stock Appreciation Right is exercised (or such shorter period as may be determined by the Committee). Upon such exercise, the amount deferred shall be equal in value to the difference between the Option Price per share and the fair market value per share of the Common Stock on the date of exercise (determined in accordance with Section 5(b)), multiplied by the number of shares covered by such exercise and in respect of which the optionee shall have made the deferral election, and shall be credited to an account in the name of the optionee on the books and records of the Company (a "Deferred Compensation Account") at the date of exercise. A separate Deferred Compensation Account shall be maintained with respect to each Option or corresponding Stock Appreciation Right subject to an effective deferral election. (b) Interest shall be credited on amounts in the Deferred Compensation Account from the date of exercise of the Option or the corresponding Stock Appreciation Right to the date of payment, as of the last day of each complete calendar month during the deferral period, at the rate of interest determined by the Committee and communicated to the optionees. The value of an optionee's Deferred Compensation Account shall be payable in a lump sum cash payment or in annual installments over a period not to exceed 10 years or as otherwise determined by the Committee. At the time an optionee makes such deferral election, the optionee shall elect the form of payment and date for lump sum payment or commencement of annual payments of the Deferred Compensation Account, with such date at least one year subsequent to the date of exercise of the Option or corresponding Stock Appreciation Right, but not later than the date of the optionee's termination of employment with Company. Notwithstanding any election by an optionee, in the event of Disability or death of the optionee, the optionee's Deferred Compensation Account shall be paid within 90 days in the form of a single lump sum. (c) Notwithstanding the deferred payment date elected by the optionee, the Committee may, in its discretion, allow for early payment of an optionee's Deferred Compensation Account in the event of an "unforeseeable emergency." For this purpose, an unforeseeable emergency shall be defined as an unanticipated emergency that is caused by an event beyond the control of the optionee and that would result in severe financial hardship to the optionee if early withdrawal were not permitted. Any withdrawal on account of an unforeseeable emergency must be limited to the amount necessary to meet the emergency. The above provisions regarding a withdrawal upon an unforeseeable emergency shall be interpreted in accordance with published revenue procedures, regulations, releases or interpretations. In addition, Deferred Compensation Accounts may be distributed on an accelerated basis in the discretion of the Committee. (d) Optionees have the status of general unsecured creditors of the Company with respect to their Deferred Compensation Accounts, and such accounts constitute a mere promise by the Company to make payments with respect thereto. (e) An optionee's right to benefit payments under the Plan with respect to the Deferred Compensation Accounts may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, attached or garnished by creditors of the optionee or the optionee's beneficiary and any attempt to do so shall be void." 2. The following clause is added to the end of the first sentence of Section 5(h): "; provided, however, that the Committee may, in its sole discretion, allow for transfer of Options (other than incentive stock options, unless such transferability would not adversely affect incentive stock option tax treatment) to other persons or entities, subject to such conditions or limitations as it may establish to ensure that transactions with respect to Options intended to be exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to Rule 16b-3 thereunder do not fail to maintain such exemption as a result of the Committee causing Options to be transferrable or for other purposes; provided further, however, that for any Option that is transferred, other than by the laws of descent and distribution, any related Stock Appreciation Right shall be extinguished." IN WITNESS WHEREOF, the Company has caused this Amendment to be executed and effective as of January 25, 1996. EX-10.13 7 Exhibit 10.13 AMENDMENT TO THE AMERICAN HOME PRODUCTS CORPORATION 1990 STOCK INCENTIVE PLAN WHEREAS, Section 9 of the American Home Products Corporation (the "Company") 1990 Stock Incentive Plan (the "Plan") authorizes the Board of Directors of the Company (the "Board") to amend the Plan; and WHEREAS, the Board has resolved to amend the Plan to provide for a deferral mechanism with respect to the proceeds payable upon the exercise of an option or stock appreciation right and limited transferrability with respect to options and restricted stock awarded pursuant to the Plan; and WHEREAS, the Board has directed the officers of the Company to so amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows. 1. A new Section 12 is added as follows: "Section 12. Deferral. (a) Notwithstanding anything herein to the contrary, an optionee may elect, at the discretion of, and in accordance with rules which may be established by, the Committee, to defer delivery of the proceeds of exercise of an unexercised Option or the corresponding Stock Appreciation Right, provided such election is irrevocable and is made (i) at least six months prior to the date that such Option or the corresponding Stock Appreciation Right otherwise would expire and (ii) at least one month prior to the date such Option or the corresponding Stock Appreciation Right is exercised (or such shorter period as may be determined by the Committee). Upon such exercise, the amount deferred shall be equal in value to the difference between the Option Price per share and the fair market value per share of the Common Stock on the date of exercise (determined in accordance with Section 5(b)), multiplied by the number of shares covered by such exercise and in respect of which the optionee shall have made the deferral election, and shall be credited to an account in the name of the optionee on the books and records of the Company (a "Deferred Compensation Account") at the date of exercise. A separate Deferred Compensation Account shall be maintained with respect to each Option or corresponding Stock Appreciation Right subject to an effective deferral election. (b) Interest shall be credited on amounts in the Deferred Compensation Account from the date of exercise of the Option or the corresponding Stock Appreciation Right to the date of payment, as of the last day of each complete calendar month during the deferral period, at the rate of interest determined by the Committee and communicated to the optionees. The value of an optionee's Deferred Compensation Account shall be payable in a lump sum cash payment or in annual installments over a period not to exceed 10 years or as otherwise determined by the Committee. At the time an optionee makes such deferral election, the optionee shall elect the form of payment and date for lump sum payment or commencement of annual payments of the Deferred Compensation Account, with such date at least one year subsequent to the date of exercise of the Option or corresponding Stock Appreciation Right, but not later than the date of the optionee's termination of employment with Company. Notwithstanding any election by an optionee, in the event of Disability or death of the optionee, the optionee's Deferred Compensation Account shall be paid within 90 days in the form of a single lump sum. (c) Notwithstanding the deferred payment date elected by the optionee, the Committee may, in its discretion, allow for early payment of an optionee's Deferred Compensation Account in the event of an "unforeseeable emergency." For this purpose, an unforeseeable emergency shall be defined as an unanticipated emergency that is caused by an event beyond the control of the optionee and that would result in severe financial hardship to the optionee if early withdrawal were not permitted. Any withdrawal on account of an unforeseeable emergency must be limited to the amount necessary to meet the emergency. The above provisions regarding a withdrawal upon an unforeseeable emergency shall be interpreted in accordance with published revenue procedures, regulations, releases or interpretations. In addition, Deferred Compensation Accounts may be distributed on an accelerated basis in the discretion of the Committee. (d) Optionees have the status of general unsecured creditors of the Company with respect to their Deferred Compensation Accounts, and such accounts constitute a mere promise by the Company to make payments with respect thereto. (e) An optionee's right to benefit payments under the Plan with respect to the Deferred Compensation Accounts may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, attached or garnished by creditors of the optionee or the optionee's beneficiary and any attempt to do so shall be void." 2. The following clause is added to the end of the first sentence of Section 5(h): "; provided, however, that the Committee may, in its sole discretion, allow for transfer of Options (other than incentive stock options, unless such transferability would not adversely affect incentive stock option tax treatment) to other persons or entities, subject to such conditions or limitations as it may establish to ensure that transactions with respect to Options intended to be exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to Rule 16b- 3 thereunder do not fail to maintain such exemption as a result of the Committee causing Options to be transferrable or for other purposes; provided further, however, that for any Option that is transferred, other than by the laws of descent and distribution, any related Stock Appreciation Right shall be extinguished." 3. The following clause is added to the end of the first sentence of Section 7(c): "; provided, however, that the Committee may, in its sole discretion, allow for the assignment, transfer or pledge of shares of Restricted Stock, or rights thereto, to other persons or entities, subject to such conditions or limitations as it may establish." IN WITNESS WHEREOF, the Company has caused this Amendment to be executed and effective as of January 25, 1996. EX-10.15 8 Exhibit 10.15 AMENDMENT TO THE AMERICAN HOME PRODUCTS CORPORATION 1993 STOCK INCENTIVE PLAN WHEREAS, Section 9 of the American Home Products Corporation (the "Company") 1993 Stock Incentive Plan (the "Plan") authorizes the Board of Directors of the Company (the "Board") to amend the Plan; and WHEREAS, the Board has resolved to amend the Plan to provide for a deferral mechanism with respect to the proceeds payable upon the exercise of an option or stock appreciation right and limited transferrability with respect to options and restricted stock awarded pursuant to the Plan; and WHEREAS, the Board has directed the officers of the Company to so amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows. 1. A new Section 12 is added as follows: "Section 12. Deferral. (a) Notwithstanding anything herein to the contrary, an optionee may elect, at the discretion of, and in accordance with rules which may be established by, the Committee, to defer delivery of the proceeds of exercise of an unexercised Option or the corresponding Stock Appreciation Right, provided such election is irrevocable and is made (i) at least six months prior to the date that such Option or the corresponding Stock Appreciation Right otherwise would expire and (ii) at least one month prior to the date such Option or the corresponding Stock Appreciation Right is exercised (or such shorter period as may be determined by the Committee). Upon such exercise, the amount deferred shall be equal in value to the difference between the Option Price per share and the fair market value per share of the Common Stock on the date of exercise (determined in accordance with Section 5(b)), multiplied by the number of shares covered by such exercise and in respect of which the optionee shall have made the deferral election, and shall be credited to an account in the name of the optionee on the books and records of the Company (a "Deferred Compensation Account") at the date of exercise. A separate Deferred Compensation Account shall be maintained with respect to each Option or corresponding Stock Appreciation Right subject to an effective deferral election. (b) Interest shall be credited on amounts in the Deferred Compensation Account from the date of exercise of the Option or the corresponding Stock Appreciation Right to the date of payment, as of the last day of each complete calendar month during the deferral period, at the rate of interest determined by the Committee and communicated to the optionees. The value of an optionee's Deferred Compensation Account shall be payable in a lump sum cash payment or in annual installments over a period not to exceed 10 years or as otherwise determined by the Committee. At the time an optionee makes such deferral election, the optionee shall elect the form of payment and date for lump sum payment or commencement of annual payments of the Deferred Compensation Account, with such date at least one year subsequent to the date of exercise of the Option or corresponding Stock Appreciation Right, but not later than the date of the optionee's termination of employment with Company. Notwithstanding any election by an optionee, in the event of Disability or death of the optionee, the optionee's Deferred Compensation Account shall be paid within 90 days in the form of a single lump sum. (c) Notwithstanding the deferred payment date elected by the optionee, the Committee may, in its discretion, allow for early payment of an optionee's Deferred Compensation Account in the event of an "unforeseeable emergency." For this purpose, an unforeseeable emergency shall be defined as an unanticipated emergency that is caused by an event beyond the control of the optionee and that would result in severe financial hardship to the optionee if early withdrawal were not permitted. Any withdrawal on account of an unforeseeable emergency must be limited to the amount necessary to meet the emergency. The above provisions regarding a withdrawal upon an unforeseeable emergency shall be interpreted in accordance with published revenue procedures, regulations, releases or interpretations. In addition, Deferred Compensation Accounts may be distributed on an accelerated basis in the discretion of the Committee. (d) Optionees have the status of general unsecured creditors of the Company with respect to their Deferred Compensation Accounts, and such accounts constitute a mere promise by the Company to make payments with respect thereto. (e) An optionee's right to benefit payments under the Plan with respect to the Deferred Compensation Accounts may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, attached or garnished by creditors of the optionee or the optionee's beneficiary and any attempt to do so shall be void." 2. The following clause is added to the end of the first sentence of Section 5(h): "; provided, however, that the Committee may, in its sole discretion, allow for transfer of Options (other than incentive stock options, unless such transferability would not adversely affect incentive stock option tax treatment) to other persons or entities, subject to such conditions or limitations as it may establish to ensure that transactions with respect to Options intended to be exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to Rule 16b-3 thereunder do not fail to maintain such exemption as a result of the Committee causing Options to be transferrable or for other purposes; provided further, however, that for any Option that is transferred, other than by the laws of descent and distribution, any related Stock Appreciation Right shall be extinguished." 3. The following clause is added to the end of the first sentence of Section 7(c): "; provided, however, that the Committee may, in its sole discretion, allow for the assignment, transfer or pledge of shares of Restricted Stock, or rights thereto, to other persons or entities, subject to such conditions or limitations as it may establish." IN WITNESS WHEREOF, the Company has caused this Amendment to be executed and effective as of January 25, 1996. EX-10.17 9 Exhibit 10.17 DEFERRED COMPENSATION AGREEMENT between American Home Products Corporation and AGREEMENT made this _____ day of _____by and between American Home Products Corporation and its subsidiaries ________ (hereinafter referred to as "EMPLOYER") and _________ hereinafter referred to as "EMPLOYEE"). W I T N E S S E T H: WHEREAS, EMPLOYEE has been _____________ of EMPLOYER since (Title) ____________ [and theretofore was employed by EMPLOYER or its subsidiaries in other executive or managerial capacities]; and WHEREAS, it is the wish of EMPLOYER that EMPLOYEE continue in its employ (and in furtherance of such wish the Board of Directors of the EMPLOYER has authorized the EMPLOYER to enter into this Agreement with EMPLOYEE); NOW, THEREFORE, in consideration of the above and in order to induce EMPLOYEE to continue in the employ of EMPLOYER, it is agreed between the parties as follows: PART A - DEFERRAL OF CASH AWARD UNDER THE MANAGEMENT INCENTIVE PLAN ("MIP") 1. The percentage designated on the Attachment Schedule is a percentage of the cash portion of EMPLOYEE'S MIP compensation from EMPLOYER for [Year] and payable in [Year], if any, which shall be deferred and distributed as hereinafter provided (the "Deferred MIP Compensation"). 2. The Deferred MIP Compensation will accrue deemed interest from the date of the award at a deemed rate of interest based on the average of the quarter end yields for a ten year period (ending September 30 of the prior year) of 10 Year U.S. Treasury notes plus 2 percent. Deemed interest payable hereunder will be calculated, accrued and compounded quarterly. Such deemed interest shall accrue up to date of distribution. 3. EMPLOYER shall distribute to EMPLOYEE the total Deferred MIP Compensation, together with deemed interest accrued thereon in accordance with the deferral period and distribution period designated on the Attachment Schedule. PART B - DEFERRAL OF SALARY 1. The percentage designated on the Attachment Schedule is a percentage of the EMPLOYEE'S total [Year] authorized base salary which shall be deferred and distributed as hereinafter provided ("Deferred Salary Compensation"). It is understood that six percent (6%) of such Deferred Salary Compensation will be deferred and be subject to the terms of the American Home Products Corporation Supplemental Employee Savings Plan ("SESP"). 2. The Deferred Salary Compensation not deferred under the SESP will accrue deemed interest from the date such Deferred Salary Compensation would have otherwise been paid at a deemed interest rate based on the average of the quarter end yields for a ten year period (ending September 30 of the prior year) of 10 Year U.S. Treasury notes plus 2 percent. Deemed interest payable hereunder will be calculated, accrued and compounded quarterly. Such deemed interest shall accrue up to date of distribution. The deferral under the provisions of the SESP shall accrue interest/earnings pursuant to the provisions of the SESP. 3. Except for the portion deferred under the SESP, the EMPLOYER shall distribute to the EMPLOYEE the total Deferred Salary Compensation together with deemed interest accrued thereon in accordance with the deferral period and distribution period designated on the Attachment Schedule. The portion deferred under the SESP will be distributed in accordance with the provisions of the SESP. 4. Upon thirty (30) days' written notice to the Vice President - Finance of American Home Products Corporation, EMPLOYEE may prospectively terminate this Agreement as to all future deferrals of authorized base salary pursuant to Section 1 above, it being understood that such termination shall not affect the treatment hereunder of amounts deferred prior to the giving of such written notice. GENERAL PROVISIONS APPLICABLE TO PART A AND PART B 1. In the event EMPLOYEE shall separate from service with the EMPLOYER for reasons other than death, prior to receipt of any or all of the Deferred MIP Compensation and/or Deferred Salary Compensation, such amount shall be distributed to EMPLOYEE together with deemed interest accrued hereunder on such amount through the date of such distribution as designated on the Attachment Schedule. In the event EMPLOYEE shall die prior to the receipt of any or all of the Deferred MIP Compensation and/or Deferred Salary Compensation, such amount shall be distributed to his estate or beneficiary(ies) as designated on the Attachment Schedule within ninety (90) days of death together with deemed interest accrued hereunder on such amount through the date of such distribution. 2. EMPLOYER has no obligation to set aside, earmark or entrust any funds with which to pay its obligation under this Agreement. EMPLOYER'S obligation shall not be secured in any way and EMPLOYEE'S rights are in no way preferred over the general creditors of the EMPLOYER. 3. In the event another company or group of related companies obtains a 50% or more interest in EMPLOYER'S common stock or otherwise obtains effective control of EMPLOYER, all Deferred MIP Compensation and/or Deferred Salary Compensation shall be paid to EMPLOYEE within thirty (30) days together with deemed interest accrued through the date of such payment. 4. Except as concerns matters of compensation expressly dealt with herein, this Agreement will have no effect on the employee-employer relationship between EMPLOYEE and EMPLOYER or EMPLOYEE'S duties to EMPLOYER or any other compensation arrangements between EMPLOYEE and EMPLOYER. The EMPLOYEE'S employment with the EMPLOYER shall remain at will, and the EMPLOYEE is free to resign at any time, and the EMPLOYER may terminate the EMPLOYEE'S employment at any time. 5. At the election of the EMPLOYER, to be ratified by a majority of all non-officer members of the Board of Directors of EMPLOYER, this Agreement may be terminated upon thirty (30) days' notice to EMPLOYEE. If so terminated, such majority will also, as soon as practicable, decide whether the EMPLOYER will distribute all the Deferred MIP Compensation and/or Deferred Salary Compensation and deemed interest accrued through the deferred payment arrangements provided for hereinabove. 6. This Agreement shall be governed by and construed under the law of the State of New Jersey. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. (Employee) American Home Products Corporation By:____________________________ Title: Vice President - Finance ATTACHMENT SCHEDULE (REGARDING PART A) _______________________________ , hereby elects to defer (Print Name) ________ percent of the portion of any Management Incentive Plan Award eligible to be taken in cash which may be awarded in January [Year] for [Year] performance. This election under Part A of the Deferred Compensation Agreement shall be irrevocable upon execution of the Agreement. I. (a) Check a period of deferral: ______ 10 years or ______ Until retirement (b) Check a period of distribution: ______ Lump sum (payable within 90 days of termination of the period designated in I(a) above or ______ 5 annual installments (first installment payable within 90 days of termination of the period designated in I(a) above and remaining installments payable within 90 days of the anniversaries of that termination date) II. I designate the following beneficiary(ies) to receive any undistributed amount deferred under this Agreement together with any deemed interest accrued in the event of my death: ________________________________________________________________ Beneficiary(ies) ________________________________________________________________ Contingent Beneficiary(ies) ATTACHMENT SCHEDULE (REGARDING PART B) _________________ , hereby elects to defer ________ percent of my (Print Name) eligible [Year] base salary with the understanding that 6 percent of such deferred base salary will be deferred under the Supplemental Employee Savings Plan for the year [Year]. This election under Part B of the Deferred Compensation Agreement shall be irrevocable upon execution of the Agreement. III. (a) Check a period of deferral: ______ 10 years or ______ Until retirement (b) Check a period of distribution: ______ Lump sum (payable within 90 days of termination of the period designated in III(a) above) or ______ 5 annual installments (first installment payable within 90 days of termination of the period designated in III(a) and remaining installments payable within 90 days of the anniversaries of that termination date) IV. I designate the following beneficiary(ies) to receive any undistributed amount deferred under this Agreement together with any deemed interest accrued in the event of my death: _________________________________________________________________ Beneficiary(ies) _________________________________________________________________ Contingent Beneficiary(ies) Signature ______________________________ Date ______________________________ EX-10.20 10 Exhibit 10.20 AMERICAN HOME PRODUCTS CORPORATION RESTRICTED STOCK PERFORMANCE AWARD AGREEMENT UNDER THE 1993 STOCK INCENTIVE PLAN DATE: [ ] NUMBER OF SHARES SUBJECT TO TARGET AWARD: [ ] ______________________________ [Address] Under the terms and conditions of this Agreement and of the Company's 1993 Stock Incentive Plan (the "Plan"), a copy of which has been delivered to you and is made a part hereof, the Company hereby awards to you units (the "Units") representing shares of the Company's Common Stock (the "Common Stock") subject to the restrictions set forth in this Agreement in the amount set forth above (the "Target Award"). Upon the satisfaction by the Company of certain performance criteria as described in Paragraph 3 of this Agreement, the Units will be converted into shares of the Company's Common Stock entitling the holder to all of the rights of a stockholder as described herein but subject to the restrictions set forth in this Agreement (the "Restricted Stock"). Except as provided herein, the terms used in this Agreement shall have the same meanings as in the Plan. 1. Rights as Stockholders. During the period from the date of this Agreement through the Conversion Date (as defined herein), no shares of the Company's Common Stock represented by the Units will be earmarked for you or your account nor shall you have any of the rights of a stockholder with respect to such shares. Upon issuance of the Restricted Stock as of the Conversion Date, you will be the owner of record of the shares of Common Stock represented by the Restricted Stock and shall be entitled to all of the rights of a stockholder of the Company, including the right to vote and the right to receive dividends, subject to the restrictions stated in this Agreement and referred to in the legend described in Paragraph 7 below. If you receive any additional shares by reason of being the holder of Restricted Stock under this Agreement, all the additional shares shall be subject to the provisions of this Agreement and all certificates evidencing ownership of the additional shares shall bear the legend. 2. Restricted Period. During the period from the date of this Agreement through the date which is three years after such date (the "Restricted Period"), you may not sell, transfer, assign, pledge, or otherwise encumber or dispose of any Units or Restricted Stock granted hereunder. 3. Conversion to Restricted Stock. (a) At meetings of the Committee to be held within 60 days after the end of each of the current year and the two immediately succeeding years or at such other time or times as the Committee in its discretion deems appropriate, the Committee shall compare the EPS (as defined below) for such year with the EPS Target (as defined below) for such year (the date on which each such determination is made being referred to herein as a "Conversion Date"). If, on the date of such meeting, the Committee determines that, with respect to the preceding year: (i) EPS is less than 90% of the EPS Target, then all rights with respect to one-third of the Target Award (the "Annual Target Amount") shall thereupon be forfeited; (ii) EPS is greater than or equal to 90% of the EPS Target and less than or equal to 95% of the EPS Target, then Units representing 75% of the Annual Target Amount shall be converted into Restricted Stock and all rights with respect to the remaining portion of such Annual Target Amount shall thereupon be forfeited; (iii) EPS is greater than 95% of the EPS Target and less than or equal to 105% of the EPS Target, then Units representing the entire Annual Target Amount shall be converted into Restricted Stock; and (iv) EPS is greater than 105% of the EPS Target, then Units representing the entire Annual Target Amount shall be converted into Restricted Stock and you shall be entitled to receive an additional grant of Restricted Stock representing 25% of the Annual Target Amount (a "Bonus Award"); such additional grant to be made by the Committee at such meeting. (b) Notwithstanding anything to the contrary contained in this Agreement, Units shall be converted into Restricted Stock in whole numbers of shares only and, if necessary, (i) the Annual Target Amount shall be rounded up or down (A) to the nearest whole number for the first two years and (B) for the third year to equal, together with the Annual Target Amounts for the first two years, the Target Award; and (ii) the calculations based upon such amounts in subparagraphs 3(a)(ii) and 3(a)(iv) above shall be rounded up or down to the nearest whole number. (c) As used in this Agreement, the term: (i) "EPS" for any year means the earnings or net income per share of common stock of the Company for such year, adjusted to exclude the effect of extraordinary or unusual items of income or expense, all as determined in good faith by the Committee acting in its sole discretion. (ii) "EPS Target" shall be $4.62 for 1995 and, for 1996 and 1997, shall be the amount established by the Committee at a meeting to be held no later than March 1 of each such year; provided, however, that if for any reason the Committee shall determine that the EPS Target is no longer a practicable or appropriate measure of financial performance, the Committee may take action to substitute another financial measure as it deems appropriate under the circumstances. 4. Restricted Stock Trust. (a) Subject to Paragraph 4(b) below, you are eligible to make a one-time irrevocable election to cause the Company to deposit as of each Conversion Date the shares of Restricted Stock into which Units shall be converted on such date, together with a stock power to be executed by you, to an account in your name in the Restricted Stock Trust (as defined below) by completing the form set forth on Schedule A attached hereto. Subject to Paragraph 4(b), below, if you do not make such election, such shares shall be delivered to you as provided in Paragraph 5(a)(i) of this Agreement. (b) Notwithstanding anything to the contrary contained in this Agreement, if you are or, in the judgment of the Committee, are expected to be a Named Executive Officer with respect to any year in which a Conversion Date occurs, then you will be deemed to have made the election under Paragraph 4(a) above to have the Restricted Stock into which Units shall be converted on such date and thereafter deposited into the Restricted Stock Trust. (c) For purposes of this Agreement: (i) "Named Executive Officer" shall mean the Chief Executive Officer of the Company or any of the four highest compensated officers (other than the Chief Executive Officer of the Company) whose total compensation payable is required to be reported to shareholders under the Securities Exchange Act of 1934, as amended; and (ii) "Restricted Stock Trust" means the trust fund established or to be established by a trust agreement (the "Trust Agreement") to accommodate the deferral of delivery of shares of Common Stock represented by Units and/or Restricted Stock (and dividends paid thereon) until your termination of employment for any reason or as otherwise provided in the Trust Agreement, such trust fund to be subject to the claims of the Company's general creditors under federal and state law in the event of insolvency of the Company as described in the Trust Agreement. 5. Delivery of Shares of Common Stock. (a) Subject to Paragraphs 4 and 9 of this Agreement, as soon as practicable after the Restricted Period (or six months after the last Conversion Date with respect to a Bonus Award made on the final Conversion Date), all shares of Restricted Stock granted hereunder shall be cancelled and replaced with certificates representing Common Stock free of any restrictive legend other than as may be required by applicable state or federal securities law, such certificates to be either (i) delivered to you promptly or (ii) if you have made or are deemed to have made the election under Paragraph 4 above, deposited on your behalf in the Restricted Stock Trust, in which case delivery of such shares shall be deferred as provided in the Trust Agreement until the first business day of the calendar year following your termination of employment or as otherwise provided in the Trust Agreement. (b) Notwithstanding any other provisions hereof, the number of shares of Common Stock which shall be delivered to you pursuant to Paragraph 5(a) either directly or from the Restricted Stock Trust shall be (i) the number of such shares which would have been delivered in the absence of this Paragraph 5(b) minus (ii) the number of whole shares of Common Stock necessary to satisfy the minimum federal, state and/or local income tax withholding obligations which are imposed on the Company by applicable law in respect of the delivery of such award (and which may be satisfied by the reduction effected hereby in the number of deliverable shares), it being understood that the value of the shares referred to in clause (ii) above shall be determined, for the purposes of satisfying such withholding obligations, on the basis of the average of the high and low per share prices for the Common Stock as reported on the Consolidated Transaction Reporting System on the designated date of delivery, or on such other reasonable basis for determining fair market value as the Committee may from time to time adopt. Any other withholding obligations (e.g. Social Security and Medicare) with respect to such award will be satisfied by separate arrangements between the Company and you but will not in any event involve a reduction in the number of shares that you are to receive. 6. Termination of Employment. (a) Subject to Section 7(f) of the Plan, in the event of your termination of employment during the Restricted Period for any reason other than death, disability or retirement, you shall forfeit all rights to all Units and Restricted Stock granted hereunder and you agree (i) to assign, transfer, and deliver the Restricted Stock to the Company and (ii) that you shall cease to be a shareholder of the Company with respect to such shares, provided, the Committee may provide for a partial or complete exception to this requirement as it deems equitable in its sole discretion. (b) In the event that your employment is terminated due to death, disability or retirement, vesting of all shares of Restricted Stock covered by the Target Award and any related Bonus Award and delivery of the shares of Common Stock of the Company represented thereby will be made to you or your designated beneficiary or your legal representative, legatee or such other person designated by an appropriate court as entitled to receive the same, as the case may be, on the terms and, subject to the conditions of this Agreement, including Paragraph 3 above. 7. Legend on Certificates. Each certificate evidencing ownership of Restricted Stock issued during the Restricted Period shall bear the following legend: "These shares have been issued or transferred subject to a Restricted Stock Performance Award and are subject to substantial restrictions, including a prohibition against transfer and a provision requiring transfer of these shares to the Company without payment in the event of termination of the employment of the registered owner under certain circumstances all as more particularly set forth in a Restricted Stock Performance Award Agreement dated May 25, 1995, a copy of which is on file with the Company." 8. Miscellaneous. This Agreement may not be amended except in writing and neither the existence of the Plan and this Agreement nor the Target Award granted hereby shall create any right to continue to be employed by the Corporation or its subsidiaries and your employment will continue to be at will and terminable at will by the Corporation. In the event of a conflict between this Agreement and the Plan, the Plan shall govern. 9. Compliance With Laws. (a) This Agreement shall be governed by the laws of the state of Delaware and any applicable laws of the United States. Notwithstanding anything herein to the contrary, the Corporation shall not be obligated to cause to be delivered any Restricted Stock or shares of Common Stock of the Company represented thereby pursuant to this Agreement unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws and regulations of governmental authority. The Corporation shall in no event be obliged to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other action in order to cause the issuance and delivery of such certificates to comply with any such law or regulation. (b) If you are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), transactions under the Plan and this Agreement are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Plan, this Agreement or action by the Committee involving you is deemed not to comply with an applicable condition of Rule 16b-3, such provision or action shall be deemed null and void as to you, to the extent permitted by law and deemed advisable by the Committee. Moreover, in the event the Plan and/or this Agreement does not include a provision required by Rule 16b-3 to be stated therein, such provision (other than one relating to eligibility requirements or the price and amount of awards as applicable) shall be deemed automatically to be incorporated by reference into the Plan and/or this Agreement insofar as you are concerned, with such incorporation to be deemed effective as of the effective date of such Rule 16b-3 provision. In addition, the Committee in its discretion may cause the Company to retain custody of the certificates representing the Common Stock to be delivered under Paragraph 5 above so long as necessary or appropriate to ensure that any minimum holding period under Rule 16b-3 is satisfied. AMERICAN HOME PRODUCTS CORPORATION By: ______________________________ Corporate Treasurer Accepted and agreed to: ____________________________________ _______________________ Name (Please Print) Social Security Number ____________________________________ _______________________ Signature Date of Birth SCHEDULE A ELECTION FORM (To Be Completed in Conjunction with Your Restricted Stock Performance Award Agreement) I, ______________________________, hereby make an election to defer (PRINT NAME) distribution of all shares of Restricted Stock and to cause the Company to deposit such shares to an account in my name in the Restricted Stock Trust (with any dividends thereon to be reinvested under the AHPC Master Investment Plan) together with a stock power to be executed by me. See Note Below This election shall be irrevocable upon execution of the Agreement. _________________________________ Signature of Executive Dated: ______________________________________________________ Witnessed: __________________________________________________ NOTE: 1. If you are or are expected to be a Named Executive Officer with respect to any year in which a Conversion Date occurs, you will be deemed to have elected deferred distribution hereunder. Beneficiary Designation In the event of my death, I designate the following beneficiary(ies) to receive any shares of the Company's Common Stock to be distributed to me or which have been deferred on my behalf to the Restricted Stock Trust under this Agreement together with any dividends thereon. ______________________________________________ Beneficiary (ies) _______________________________________________ Contingent Beneficiary (ies) _____________________________ Signature of Executive Dated: _______________________________ Witnessed: ____________________________ EX-10.23 11 Exhibit 10.23 RESTRICTED STOCK TRUST AGREEMENT UNDER THE 1993 STOCK INCENTIVE PLAN This Declaration of Trust is made effective as of April 20, 1994 and entered into by and between American Home Products Corporation (the "Company") which adopts this Trust Agreement and Jack M. O'Connor, (hereinafter referred to as the "Trustee") as Trustee. This Trust is established to implement the Restricted Stock Performance Award Agreements entered into between the Company and certain key employees under the 1993 Stock Incentive Plan (the "Plan"). ARTICLE I TITLE AND DEFINITIONS 1.1 Title This Trust Agreement shall be known as the Restricted Stock Trust. 1.2 Definitions All of the definitions set forth in Section 2 of the Plan are hereby incorporated by reference. Notwithstanding any inference to the contrary contained in said Plan, the Trustee's rights, powers, titles, duties, responsibilities, discretions and immunities shall be governed solely by this Trust Agreement without reference to the provisions of the Plan. ARTICLE II ADMINISTRATOR 2.1 Committee The Company shall notify the Trustee, in writing, of the names of the members of the committee appointed pursuant to the terms of the Plan ("Committee"), including the persons acting as Secretary and Assistant Secretary, respectively, and of any change in the identity of the members of the Committee. Until so notified of a change, the Trustee shall act upon the direction of the members of the Committee last designated by the Company in writing. 2.2 Committee Directions to Trustee All directions by the Committee to the Trustee shall be in writing and signed by the member or members of the Committee specifically authorized to give the Trustee written directions, or by the agents of the Committee as may be designated under Section 2.5 hereof, which authorizations shall likewise be contained in a written notice to the Trustee. The Company shall furnish to the Trustee specimen signatures of the members of the Committee at the time they are appointed and specimen signatures of any successor members of the Committee at the time the Trustee is notified in writing of any change in membership of the Committee and specimen signatures of any duly authorized agents of the Committee who are authorized to give the Trustee written directions pursuant to Section 2.5 hereof. The Trustee shall not be liable for losses or unfavorable results arising from compliance with the directions of the Committee made in accordance with the Trust Agreement. 2.3 Committee Sole Responsibility The Committee shall have sole responsibility for the exercise of its rights and duties as set forth in Section 3 and elsewhere in the Plan, specifically including the determination of the existence, non-existence, nature and amount of rights and interests of all persons in the Trust. 2.4 Maintenance of Accounts (a) The Trustee will create and maintain a separate account ("Participant's Account") for each participant ("Participant"). The Trustee shall credit a Participant's Account with (i) the number of shares of Company Stock awarded to the Participant, (ii) the number of shares of Company Stock purchased with any cash dividend paid on the Company Stock held in the Participant's Account and any cash remaining after such purchase, (iii) the number of shares of Company Stock received as stock splits with respect to the shares of Company Stock in such Participant's Account and (iv) warrants or any other property received with respect to the Company Stock in such Participant's Account. The Trustee shall debit a Participant's Account to reflect any distributions or forfeitures with respect to the Participant. Company Stock that is contributed to the Plan for any year and Company Stock that is purchased by the Trustee with the contributions of the Company for such year shall each be separately allocated to the Participant's Accounts on a pro-rata basis based on the Participants respective awards ("Awards") for such year. Any Trust assets distributed by the Trustee to the judgment creditors of the Company shall be debited to the Participant's Accounts on a pro-rata basis based on the value of the respective Participant's Accounts that is attributable to contributions made by the Company at the time of such distribution. (b) The Trustee shall maintain records for each Participant's Account showing (i) the aggregate number of shares of Company Stock so credited and debited, (ii) the number of shares of Company Stock which are awarded or purchased for each calendar year during which the Plan is in effect and (iii) such other matters as the Trustee and/or the Company may deem necessary or advisable. (c) No fractional share shall be purchased for or credited to the Participant's Accounts. (d) Unless otherwise provided by the Company, the Trustee shall have custody of the certificate or certificates representing all the shares of Company Stock held in the Trust under the Plan. The Trustee shall register such certificate or certificates in its own name or in the name of a nominee of the Trustee. 2.5 Designation of Agents The Committee shall in its sole discretion have the right to appoint such agents as it may deem necessary to carry out its duties pursuant to the provisions of the Plan and this Trust. ARTICLE III CONTRIBUTIONS 3.1 Contributions The Trustee shall receive all contributions paid by the Company in Company Stock and all contributions so received, together with the income therefrom and any increment thereon, shall be held, managed and administered by the Trustee as a single Trust pursuant to the terms of this Agreement for the Company without distinction between principal and income. The Trustee shall have no duty to require any contributions to be made to it by the Company and shall have no duty or authority to compute any amount to be paid to it by the Company nor to determine whether the amounts received by it from the Company comply with the Plan or to determine that the assets of the Trust are adequate to provide any benefits payable pursuant to the Plan. ARTICLE IV PAYMENT FROM TRUST FUND 4.1 Payments by Trustee All payments from the Trust shall be made by the Trustee to such persons, in such manner, at such times and in such amounts as the Committee shall direct and the Trustee shall be under no duty to make inquiry as to whether any distribution direction by the Committee is made pursuant to the provisions of the Plan. 4.2 Trustee, Compensation and Expenses The Trustee shall be paid such reasonable compensation for its services as shall be agreed upon from time to time by the Company and the Trustee, and the Trustee shall be reimbursed for its expenses that are reasonably necessary and incident to its administration of the Trust. Such expenses shall include outside counsel fees, if any, incurred by the Trustee for the purpose of determining its responsibilities under the Trust. All such compensation, expenses and fees may be paid to the Trustee from the Trust assets or directly by the Company, in the discretion of the Committee; provided, however, if the Committee fails to direct payment of what is agreed between the Trustee and the Company to be a proper amount of compensation or reimbursement, the Trustee may withdraw such proper amount from the Trust. 4.3 Taxes The Trustee shall not be personally liable for any real and personal property taxes, income taxes and other taxes of any kind levied or assessed under the existing or future laws against the Trust assets. Such taxes may be paid directly from the Trust assets or by the Company in the discretion of the Committee. 4.4 Alienation The rights, benefits, and payments of any Participant or beneficiary payable from the Trust assets shall not be subject in any manner to anticipation, sale, assignment, pledge, encumbrance, or charge, voluntary or involuntary, by any Participant or beneficiary. Any attempt by a Participant or Beneficiary to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void. The Trust assets shall not in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any Participant or beneficiary entitled to benefits hereunder and such benefits shall not be considered an asset of a Participant or a beneficiary in the event of his insolvency or bankruptcy. 4.5 Committee Expenses Expenses and fees of the Committee or Company for the administration of the Plan and services in relation thereto for legal and accounting and other similar expenses, including any costs with respect to the creation of the Plan and Trust, may be paid either from the Trust assets or by the Company at the discretion of the Committee. ARTICLE V INVESTMENT OF TRUST ASSETS 5.1 Trustee Has Fiduciary Responsibility (a) The Trustee shall have full discretion in and sole responsibility for investment in Company Stock, management and control of Trust assets including, without limitation, discretion in the responsibility for determining the method to be used to purchase Company Stock, either through open market or private purchase from the Company or others, the time when and the price at which Company Stock shall be purchased, the amount of Company Stock to be purchased, or the broker or dealer, if any, to be used to effect purchases of Company Stock for Section 5 of the Plan and Section 5.4 of the Trust. (b) As soon as practicable after the Trustee receives (i) any cash awarded to a Participant or (ii) any cash dividend paid on Company Stock held in a Participant's Account, the Trustee shall use such cash (any other cash then in the Participant's Account) to buy in one or more transactions the largest practicable whole number of shares of Company Stock for such Participant's Account (which may include purchases of Company Stock executed on a national securities exchange) after deductions for the payment of brokers' fees and stock transfer and similar taxes, if any, applicable to such purchases. The Trustee shall limit the daily volume and prices of such purchases as required by regulations of the Securities and Exchange Commission, if applicable, and otherwise to the extent it deems necessary or advisable. 5.2 Relationship of Fiduciaries It is the intent of all fiduciaries under the Plan and Trust that each fiduciary shall be solely responsible for its own acts or omissions. No fiduciary shall have the duty to question whether any other fiduciary is fulfilling all of the responsibilities imposed upon such other fiduciary. No fiduciary shall have any liability for a breach of fiduciary responsibility of another fiduciary with respect to the Plan and Trust unless (1) he participates knowingly in such breach or knowingly undertakes to conceal such breach, knowing such act or omission to be a breach, (2) has actual knowledge of such breach and fails to take responsible remedial action to remedy said breach, or (3) through this negligence in performing his own specific fiduciary responsibilities which give rise to his status as a fiduciary, has enabled such other fiduciary to commit a breach of the latter's fiduciary responsibilities. 5.3 Duty of Care Subject to the investment directions in Section 5 of the Plan and Section 5.4 of the Trust, the Trustee shall discharge its responsibilities for the investment, management and control of the Trust assets solely in the interest of the Participants and beneficiaries of the Plan for the exclusive purpose of providing benefits to Participants and their beneficiaries and defraying reasonable expenses of administering the Plan with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. All actions by the Trustee shall be in accordance with the documents and instruments governing the Plan and this Trust. 5.4 Plan and Trust Constitute a Key Employees Restricted Stock Performance Award Plan This Plan and Trust constitute a key employees restricted stock performance award plan, not designed to be a qualified plan under Section 401(a) of the Internal Revenue Code. Because a significant purpose of the Plan is to foster an increased ownership interest by key employees of the Company in the Company, all investments of Trust assets shall be made in Company Stock; provided that, from time to time the Trustee may maintain such portion of the Trust assets in cash or forms of short-term liquid investments, including short-term collective investment funds maintained by the Trustee, as it deems in the best interests of the Trust provided that the Trust remains primarily invested in Company Stock. ARTICLE VI POWERS OF TRUSTEE 6.1 Investment Powers The Trustee is authorized and empowered. (a) To purchase, hold, sell, invest and reinvest Trust Assets ("Trust Assets"), together with the income therefrom, in Company Stock; (b) To transfer part or all of the money constituting Trust Assets to and as an investment in any type of interest bearing account, including but not limited to savings accounts and time certificates of deposit; (c) To hold, manage and control all property at any time forming part of the Trust Assets; to sell, convey, transfer, exchange, and otherwise dispose of the same from time to time in such manner, for such consideration and upon such terms and conditions as it shall determine; (d) Except to the extent its powers are modified by Section 6.3 of the Trust, to exercise any option, conversion privilege or subscription right given to the Trustee as the owner of any security forming part of the Trust assets; except to the extent its powers are modified by Section 6.3 of the Trust, to consent to or oppose any reorganization, consolidation, merger, readjustment of the financial structure, sale, lease, or other disposition of the assets of any corporation or other organization, the securities of which may be an asset of the Trust and to take any action in connection therewith and receive and retain any securities resulting therefrom; (e) To make distributions from the Trust at such times and in such number of shares of Company Stock and amounts of cash to or for the benefit of the person entitled thereto under the Plan, as the Committee directs in writing. Where distribution is directed in Company Stock, the Committee shall cause the Trustee to obtain an appropriate stock certificate for the person entitled thereto, to be delivered to such person by the Trustee. Any portion of a Participant's Account to be distributed in cash shall be paid by the Trustee furnishing its check to the Participant or to the Committee for delivery to the Participant (or beneficiary). Shares of Company Stock distributed by the Trustee may include such restrictions on transferability as the Committee may require; (f) To exercise all the further rights, powers, options and privileges granted, provided for, or vested in Trustees generally under applicable federal or state law, as amended from time to time, it being intended that, except as herein otherwise provided, the powers conferred upon the Trustee herein shall not be construed as being in limitation of any authority conferred by law, but shall be construed as in addition thereto. 6.2 General Powers The Trustee in any and all events is authorized and empowered: (a) To cause any property of the Trust to be issued, held or registered in the individual name of the Trustee, or in the name of its nominee, or in such form that title will pass by delivery, provided the records of the Trustee shall indicate the true ownership of such property; (b) To employ such agents and counsel as may be reasonably necessary in managing and protecting the Trust assets and to pay them reasonable compensation; and to settle, compromise or abandon all claims and demands in favor of or against the Trust assets; (c) In addition to the enumerated powers herein, to do all other acts necessary or desirable for the proper administration of the Trust assets, as though the absolute owner thereof. 6.3 Voting Rights; Offer to Purchase Stock Each Participant shall have the right and shall be afforded the opportunity to instruct the Trustee how to vote the shares of Company Stock held in Participant's Account. The Trustee shall vote any shares of Company Stock for which it does not receive instructions in the same proportions on each matter to be voted upon as the shares for which the Trustee does receive instructions. In the event any offer is made to shareholders of the Company generally by any person, corporation or other entity (the "Offeror") to purchase any or all of the outstanding Company Stock, including the Company Stock then held in Participant's Accounts, then and in that event the Trustee shall promptly forward to each Participant all materials and written information furnished to the Trustee by the Offeror and/or by the Company in connection therewith, and shall notify each Participant in writing of the number of shares of Company Stock which is then credited to such Participant's Account. Such notice shall also set forth the rights afforded each Participant by the following sentence and shall state that, absent timely instructions from such Participant to the Trustee, no tender to the Offeror shall be made of any of the shares specified in such written notice. Each Participant shall be entitled to instruct the Trustee as to whether all (but not less than all) of the shares of Stock standing to his credit should be tendered by the Trustee pursuant to such offer. The Trustee shall tender only those shares of stock held in a Participant's Account for which it receives instructions to so tender from such Participant, and shall not tender any shares as to which such instructions are not so received. In the event that Company Stock held in a Participant's Account is tendered pursuant to this paragraph, the proceeds received upon the acceptance of such tender by the Offeror shall be credited to such Participant's Account (and shall be subject to the same terms and conditions as were applicable to the Company Stock so tendered). Pending the distribution of such proceeds pursuant to Section 7 of the Plan, the Trustee shall invest any cash portion of such proceeds in such short-term or intermediate-term obligations issued or guaranteed by the Government of the United States or any agency or instrumentality thereof, and in such commercial paper (other than obligation of the Company), certificates of deposit and other investments of a short-term or intermediate-term nature, as the Trustee, in its discretion, deems suitable for the investment of trust funds. ARTICLE VII ACCOUNTS OF THE TRUSTEE 7.1 Records The Trustee shall maintain accurate records and accounts of all transactions hereunder, which shall be available at all reasonable times for inspection or audit by any person or persons designated by the Committee. 7.2 Reports If the Committee so directs, the Trustee shall submit to the committee such interim valuations, reports, or other information as the Committee may reasonably require. Within 90 days following (a) the close of each calendar year of the Trust or (b) the effective date of the removal or resignation of the Trustee, the Trustee shall file with the Committee a written account setting forth all transactions effected by it subsequent to the end of the period covered by its last previous annual account, and listing the assets of the Trust, showing carry and market values of such assets, at the close of the period covered by such account. 7.3 Value of Trust Assets For the purposes of this Article 7.3, the fair market value of assets in the Trust shall be determined by the Trustee based upon such sources of information as it may deem reliable including, but not limited to, information reported in (1) newspapers of general circulation, (2) standard financial periodicals or publications, (3) statistical and valuation services, (4) the records of securities exchanges or brokerage firms deemed by the Trustee to be reliable, or any combination thereof. ARTICLE VIII RESIGNATION AND REMOVAL OF TRUSTEE 8.1 Method and Procedure The Trustee may resign at any time by delivering to the Company a written notice of resignation, to take effect at a date specified therein, which shall not be less than 60 days after the delivery thereof, unless such notice shall be waived. The Company shall have the right to remove the Trustee by delivery of a written notice of removal to take effect at a date specified therein, which shall not take effect less than 60 days after the delivery thereof, unless such notice shall be waived. In the event the Trustee notifies the Company of its intention to resign, or the Company removes the Trustee, in accordance with the foregoing provisions of the Article VIII, the Company, by resolution of its Board of Directors, shall appoint a successor-trustee and in default thereof, such successor-trustee may be appointed by a court of competent jurisdiction. The Trustee hereunder shall thereupon deliver to the successor-trustee all property of this Trust Fund, together with such records as may be reasonably required to enable the successor-trustee to property administer the Trust. In the cases of its resignation or removal, the Trustee shall have the right to a settlement of its account, which may be made, at the option of the Trustee, either (1) by agreement of settlement between the Trustee and the Company, including payments by the Company to the Trustee pursuant to the provisions of section 4.2 hereof, or (2) at the expense of the Trust (other than legal fees incurred by the Trustee) by a judicial statement in an action instituted by the Trustee in a court of competent jurisdiction. Upon such settlement, all right, title and interest of such Trustee in the assets of the Trust and all rights and privileges under this Agreement theretofore vested in such Trustee shall vest in the successor trustee where applicable, and thereupon all future liability of such Trustee shall terminate; provided, however, that the Trustee shall execute, acknowledge and deliver all documents and written instruments which are necessary to transfer and convey the right, title and interest in the Trust assets, and all rights and privileges, to the successor trustee. ARTICLE IX AMENDMENT AND TERMINATION Subject to the limitations of Section 11 of the Plan, the Company shall have the right to amend the Plan and Trust from time to time and to amend further or cancel any such amendment. Any amendment shall be stated in an instrument in writing executed by the Company and this Trust Agreement shall be amended in the manner and at the time therein set forth, and the Company and the Trustee shall be bound thereby; provided, however that: (a) No amendment shall deprive any Participant of any benefit already vested. (b) No amendment shall increase the duties or liabilities of the Trustee without its written consent. ARTICLE X MISCELLANEOUS 10.1 Irrevocable Trust with Assets Subject to Claims of Creditors of Company and Participating Subsidiaries This Trust shall be irrevocable, provided, however, that it will be a grantor trust, with the Trust Assets being treated as assets of the Company, as the case may be. Any stock, cash or other property held in the Trust that was contributed by the Company shall at all times be subject to the claims of judgement creditors of the Company. 10.2 Limitation on Participants' Rights Participation in this Trust shall not give any Participant the right to be retained as an employee of the Company or any right or interest in this Trust. All rights created under the Plan and this Trust shall be mere unsecured contractual rights of Participants against the Company, as the case may be. The Company reserves the right to dismiss any Participant without any liability for any claim either against this Trust, except to the extend provided herein, or against the Company. 10.3 Receipt or Release Any payment to any Participant or his beneficiary in accordance with the provisions of this Trust shall, to the extent thereof, be in full satisfaction of all claims against the Trustee, the Committee and the Company, as the case may be, and the Trustee may require such Participant or beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. 10.4 New Jersey Law Governs This Agreement and the Trust hereby created shall be construed, administered and governed in all respects under applicable New Jersey law. 10.5 Headings, etc., No Part of Agreement Headings and subheadings in this Agreement are inserted for convenience of reference only and are not to be considered in the construction of the previous hereof. 10.6 Instrument in Counterparts This Agreement has been executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument, which may be sufficiently evidenced by any one counterpart. 10.7 Successors and Assigns This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their successors and assigns. 10.8 Masculine Gender Includes Feminine and Neuter As used in this Plan, the masculine gender shall include the feminine and neuter genders. IN WITNESS WHEREOF, the Company has caused these presents to be executed by its duly authorized officer and the corporate seal to be hereunto affixed, and the Trustee has executed these presents. ______________________________ Jack M. O'Connor as Trustee ______________________________ John R. Considine Vice President - Finance for American Home Products Corporation Attested: ______________________________ Carol G. Emerling Secretary EX-10.24 12 Exhibit 10.24 American Home Products Corporation 1996 STOCK INCENTIVE PLAN (As approved by the Board of Directors on January 25, 1996, subject to the approval of stockholders at the April 1996 Annual Meeting) Section 1. Purpose. The purpose of the 1996 Stock Incentive Plan (the "Plan") is to provide favorable opportunities for officers and other key employees of American Home Products Corporation (the "Company") and its subsidiaries to acquire shares of Common Stock of the Company or to benefit from the appreciation thereof. Such opportunities should provide an increased incentive for these employees to contribute to the future success and prosperity of the Company, thus enhancing the value of the stock for the benefit of the stockholders, and increase the ability of the Company to attract and retain individuals of exceptional skill upon whom, in large measure, its sustained progress, growth and profitability depend. Pursuant to the Plan, options to purchase the Company's Common Stock ("Options") and Stock Appreciation Rights may be granted and Restricted Stock may be awarded by the Company. Options granted under the Plan may be either incentive stock options, as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"), or options which do not meet the requirements of said Section 422(b) of the Code, herein referred to as non-qualified stock options. It is intended, except as otherwise provided herein, that incentive stock options may be granted under the Plan and that such incentive stock options shall conform to the requirements of Section 422 and 424 of the Code and to the provisions of this Plan and shall otherwise be as determined by the Committee and, to the extent provided in the last sentence of Section 2 hereof, approved by the Board of Directors. The terms "subsidiaries" and "subsidiary corporation" shall have the meanings given to them by Section 424 of the Code. All section references to the Code in this Plan are intended to include any amendments or substitutions therefor subsequent to the adoption of the Plan. Section 2. Administration. The Plan shall be administered by the Compensation and Benefits Committee (the "Committee") consisting of two or more members of the Board of Directors of the Company, each of whom shall be (i) a "disinterested person" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (ii) an "outside director" within the meaning of Section 162(m) of the Code. The Committee shall have full authority to grant Options and Stock Appreciation Rights, and make Restricted Stock awards, to interpret the Plan and to make such rules and regulations and establish such procedures as it deems appropriate for the administration of the Plan, taking into consideration the recommendations of management. The decisions of the Committee shall be binding and conclusive for all purposes and upon all persons unless and except to the extent that the Board of Directors of the Company shall have previously directed that all or specified types of decisions of the Committee shall be subject to approval by the Board of Directors. Section 3. Number of Shares. The total number of shares which may be sold or awarded under the Plan and with respect to which Stock Appreciation Rights may be exercised shall not exceed 15,000,000 shares of the Company's Common Stock. Such number shall be, without further action, adjusted to 30,000,000 in accordance with Section 8 hereof upon the consummation of a two- for-one stock split (in the form of a dividend) anticipated to occur in 1996. The total number of shares which may be sold or awarded under the Plan to any optionee (hereinafter defined), including shares for which Stock Appreciation Rights may be exercised, shall not exceed 10% of such number, as and if adjusted, over the life of the Plan. The shares may be authorized and unissued or issued and reacquired shares, as the Board of Directors from time to time may determine. Shares with respect to which Options or Stock Appreciation Rights are not exercised prior to termination of the Option and shares that are part of a Restricted Stock award which are forfeited before the restrictions lapse shall be available for Options and Stock Appreciation Rights thereafter granted and for Restricted Stock thereafter awarded under the Plan, to the fullest extent permitted by Rule 16b-3 under the Exchange Act (if applicable at the time). Section 4. Participation. The Committee may, from time to time, select and grant Options and Stock Appreciation Rights to officers (whether or not directors) and other key employees of the Company and its subsidiaries ("optionees") and award Restricted Stock to officers (whether or not directors) and other key employees of the Company and its subsidiaries and shall determine the number of shares subject to each Option or award. Section 5. Terms and Conditions of Options. The terms and conditions of each Option and each Stock Appreciation Right shall be set forth in an agreement or agreements between the Company and the optionee. Such terms and conditions shall include the following as well as such other provisions, not inconsistent with the Plan, as may be deemed advisable by the Committee: (a) Number of Shares. The number of shares subject to the Option. (b) Option Price. The option price per share (the "Option Price"), which shall not be less than 100% of the fair market value of the Company's Common Stock on the date the Option is granted. Fair market value shall be deemed to be the mean between the highest and lowest sale prices of the Common Stock on the Consolidated Transaction Reporting System on the date the Option is granted. (c) Date of Grant. Subject to previous directions of the Board of Directors pursuant to the last sentence of Section 2, the date of grant of an Option shall be the date when the Committee meets and awards such Option. (d) Payment. The Option Price multiplied by the number of shares to be purchased by exercise of the Option shall be paid upon the exercise thereof. Unless the terms of an Option provide to the contrary, upon exercise, the aggregate Option Price shall be payable by delivering to the Company (i) cash equal to such aggregate Option Price, (ii) shares of the Company's Common Stock owned by the grantee having a fair market value (determined in accordance with Section 5(b)) at least equal to such aggregate Option Price, (iii) a combination of any of the above methods which total to such aggregate Option Price, or (iv) any other form of consideration which has been approved by the Committee, including under any approved cashless exercise mechanism; and payment of such aggregate Option Price by any such means shall be made and received by the Company prior to the delivery of the shares as to which the Option was exercised. The right to deliver in full or partial payment of such Option Price any consideration other than cash shall be limited to such frequency as the Committee shall determine in its absolute discretion. A holder of an Option shall have none of the rights of a stockholder until the shares are issued to him or her; provided that if an optionee exercises an Option and the appropriate purchase price is received by the Company in accordance with this Section 5(d) prior to any dividend record date, such optionee shall be entitled to receive the dividends which would be paid on the shares subject to such exercise if such shares were outstanding on such record date. (e) Term of Options. Each Option granted pursuant to the Plan shall be for the term specified in the applicable option agreement (the "Option Agreement") subject to earlier termination in all cases as provided in paragraph (g) of this Section. (f) Exercise of Option. Options granted under the Plan may be exercised during the period and in accordance with the conditions set forth in the Plan and the applicable Option Agreement; provided, however, that (i) no option granted under the Plan may be exercisable earlier than the later of (A) one year from the date of grant or (B) the date on which the optionee completes two years of continuous employment with the Company or one or more of its subsidiaries and (ii) in the event of an optionee's death, Retirement (as defined below) or Disability (as defined below), any options held by such optionee shall become exercisable on his or her Retirement date, the date his or her employment terminates on account of Disability or the date of his or her death provided he or she has been in the continuous employment of the Company or one or more of its subsidiaries for at least two years at such time. No Option may be exercised after it is terminated as provided in paragraph (g) of this Section, and no Option may be exercised unless the optionee, except as provided in paragraph (g) of this Section, is then employed by the Company or any of its subsidiaries and shall have been continuously employed by the Company or one or more of such subsidiaries since the date of the grant of his or her Option. Non-qualified stock options and incentive stock options may be exercised regardless of whether or not other Options granted to the optionee pursuant to the Plan are outstanding or whether or not other stock options granted to the optionee pursuant to any other plan are outstanding. (g) Termination of Options. An Option, to the extent not validly exercised, shall terminate upon the occurrence of the first of the following events: (i) On the date specified in the Option Agreement; (ii) Three years after the date of termination of the optionee's employment by the Company or its subsidiaries due to "Retirement" (defined as termination of full time employment on or after the earliest retirement age under any qualified retirement plan of the Company or its subsidiaries which covers the optionee, or age 55 with 5 continuous years of such employment if there is no such plan) or "Disability" (defined as disability for purposes of at least one qualified retirement plan or long term disability plan maintained by the Company or its subsidiaries in which the optionee participates), during which three year period the optionee may exercise the Option to the extent he or she was entitled to exercise it at the time of such termination or such shorter period as may be provided in the Option Agreement; (iii) Three years after the date of the optionee's death during which three year period the Option may be exercised by the optionee's legal representative or legatee or such other person designated by an appropriate court as the person entitled to exercise such Option to the extent the optionee was entitled to exercise it at the time of his or her death; (iv) Three months after termination by the Company or one of its subsidiaries of the optionee's employment for any reason other than death, Retirement, Disability or deliberate gross misconduct, determined in the sole discretion of the Committee, during which three month period the Option may be exercised by the optionee to the extent the optionee was entitled to exercise it at the time of such termination; (v) Concurrently with the time of termination by the Company or one of its subsidiaries of the optionee's employment for deliberate gross misconduct, determined in the sole discretion of the Committee (for purposes only of this subparagraph (v) an Option shall be deemed to be exercised when the optionee has received the stock certificate representing the shares for which the Option was exercised); or (vi) Concurrently with the time of termination by the employee of his or her employment with the Company or one of its subsidiaries for reasons other than Retirement, Disability or death. Notwithstanding the above, no Option shall be exercisable after termination of employment unless the optionee shall have, during the entire time period in which his or her Options are exercisable, (a) refrained from becoming or serving as an officer, director, partner or employee of any individual proprietorship, partnership or corporation, or the owner of a business, or a member of a partnership which conducts a business in competition with the Company or renders a service (including without limitation, advertising agencies and business consultants) to competitors with any portion of the business of the Company, (b) made himself or herself available, if so requested by the Company, at reasonable times and upon a reasonable basis to consult with, supply information to, and otherwise cooperate with, the Company and (c) refrained from engaging in deliberate action which, as determined by the Committee, causes substantial harm to the interests of the Company. If these conditions are not fulfilled, the optionee shall forfeit all rights to any unexercised Option as of the date of the breach of the condition. Notwithstanding the provisions of subparagraphs (ii) and (iii) of this Section 5(g), an Option granted under the Plan to an optionee who dies or terminates employment due to Retirement or Disability before this Plan is approved by the stockholders of the Company, to the extent not validly exercised, shall terminate three years after the date the Plan is approved by the stockholders of the Company. (h) Non-transferability of Options and Stock Appreciation Rights. Options and Stock Appreciation Rights shall not be transferable by the optionee other than by will or the laws of descent and distribution, and Options and Stock Appreciation Rights shall during his or her lifetime be exercisable only by the optionee; provided, however, that the Committee may, in its sole discretion, allow for transfer of Options (other than incentive stock options, unless such transferability would not adversely affect incentive stock option tax treatment) to other persons or entities, subject to such conditions or limitations as it may establish to ensure that transactions with respect to Options intended to be exempt from Section 16(b) of the Exchange Act pursuant to Rule 16b-3 under the Exchange Act do not fail to maintain such exemption as a result of the Committee causing Options to be transferrable, or for other purposes; provided further, however, that for any Option that is transferred, other than by the laws of descent and distribution, any related Stock Appreciation Right shall be extinguished. (i) Applicable Laws or Regulations. The Company's obligation to sell and deliver stock under the Option is subject to such compliance as the Company deems necessary or advisable with federal and state laws, rules and regulations. (j) Limitations on Incentive Stock Options. To the extent that the aggregate fair market value of the Company's Common Stock, determined at the time of grant in accordance with the provisions of Section 5(b), with respect to which incentive stock options granted under this or any other Plan of the Company are exercisable for the first time by an optionee during any calendar year exceeds $100,000, or such other amount as may be permitted under the Code, such excess shall be considered non-qualified stock options. Notwithstanding anything in the Plan to the contrary, any incentive stock option granted to any individual who, at the time of grant, is the owner, directly or indirectly, of stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any subsidiary thereof, shall (i) have a term not exceeding five years from the date of grant and (ii) shall have an option price per share of not less than 110% of the fair market value of the Company's Common Stock on the date the incentive stock option is granted (determined in accordance with the last sentence of Section 5(b)). Section 6. Stock Appreciation Rights. (a) The Committee may, in its sole discretion, from time to time grant Stock Appreciation Rights to certain optionees in connection with any Option granted under this Plan and in connection with Options granted under the 1990 and 1993 Stock Incentive Plans and under the 1985 Stock Option Plan. Stock Appreciation Rights may be granted either at the time of the grant of an Option under the Plan or at any time thereafter during the term of the Option, provided such Stock Appreciation Rights may also be granted with respect to outstanding Options under the 1990 and 1993 Stock Incentive Plans and the 1985 Stock Option Plan. Stock Appreciation Rights may be granted with respect to all or part of the stock under a particular Option. (b) Stock Appreciation Rights shall entitle the holder of the related Option, upon exercise, in whole or in part, of the Stock Appreciation Rights, to receive payment in the amount and form determined pursuant to subparagraph (iii) of paragraph (c) of this Section 6. Stock Appreciation Rights may be exercised only to the extent that the related Option has not been exercised. The exercise of Stock Appreciation Rights shall result in a pro rata surrender of the related Option to the extent that the Stock Appreciation Rights have been exercised. (c) Stock Appreciation Rights shall be subject to such terms and conditions which are not inconsistent with the Plan as shall from time to time be approved by the Committee and reflected in the applicable Option Agreement (or in a separate document, which shall be considered for purposes of the Plan to be incorporated into and part of the applicable Option Agreement), and to the following terms and conditions. (i) Stock Appreciation Rights shall be exercisable at such time or times and to the extent, but only to the extent, that the Option to which they relate shall be exercisable. (ii) Subject to Section 9, Stock Appreciation Rights and any Options to which they relate shall in no event be exercisable during the first six months after the date of grant; provided that this limitation shall apply only to persons who are subject to Section 16(b) of the Exchange Act. (iii) Upon exercise of Stock Appreciation Rights, the holder thereof shall be entitled to elect to receive therefor payment in the form of shares of the Company's Common Stock (rounded down to the next whole number so no fractional shares are issued), cash or any combination thereof in an amount equal in value to the difference between the Option Price per share and the fair market value per share of Common Stock on the date of exercise multiplied by the number of shares in respect of which the Stock Appreciation Rights shall have been exercised, subject to any limitation on such amount which the Committee may in its discretion impose at the time of grant of the Stock Appreciation Rights. Such election as to the form of payment shall be subject to the consent of the Committee which consent or disapproval may be given at any time after the election to which it relates. The fair market value of Common Stock shall be deemed to be the mean between the highest and lowest sale prices of the Common Stock on the Consolidated Transaction Reporting System on the date the Stock Appreciation Right is exercised or if no transaction on the Consolidated Transaction Reporting System occurred on such date, then on the last preceding day on which a transaction did take place. (iv) Any exercise of Stock Appreciation Rights by an officer or director subject to Section 16(b) of the Exchange Act, as well as any election by such officer or director as to the form of payment of Stock Appreciation Rights (Common Stock, cash or any combination thereof), which election is subject to the consent of the Committee in its sole discretion as provided in subparagraph (iii) hereof, shall be made during the ten-day period beginning on the third business day following the release for publication of any quarterly or annual statement of sales and earnings by the Company and ending on the twelfth business day following the date of such release. In the event that such a director or officer exercises a Stock Appreciation Right for cash or stock pursuant to this Section 6 during a "window period" as provided in Rule 16b-3 under the Exchange Act, the day on which such right is effectively exercised shall be that day, if any, during such "window period" which is designated by the Committee in its discretion for all such exercises by such individuals during such period. If no such day is designated, the day of effective exercise shall be determined in accordance with normal administrative practices of the Plan. This clause (iv) shall cease to apply at the discretion of the Committee if any amendment or Securities and Exchange Commission interpretation of such Rule 16b-3 makes the application of this clause (iv) unnecessary to exempt the grant and/or exercise of Stock Appreciation Rights from the application of Section 16(b) of the Exchange Act. (d) To the extent that Stock Appreciation Rights shall be exercised, the Option in connection with which such Stock Appreciation Rights shall have been granted shall be deemed to have been exercised for the purpose of the maximum limitations set forth in the Plan under which such Options shall have been granted. Any shares of Common Stock which are not purchased due to the surrender in whole or in part of an Option pursuant to this Section 6 shall not be available for granting further Options under the Plan. Section 6A. Deferral. (a) Notwithstanding anything herein to the contrary, an optionee may elect, at the discretion of, and in accordance with rules which may be established by, the Committee, to defer delivery of the proceeds of exercise of an unexercised Option or the corresponding Stock Appreciation Right, provided such election is irrevocable and is made (i) at least six months prior to the date that such Option or the corresponding Stock Appreciation Right otherwise would expire and (ii) at least one month prior to the date such Option or the corresponding Stock Appreciation Right is exercised (or such shorter period as may be determined by the Committee). Upon such exercise, the amount deferred shall be equal in value to the difference between the Option Price per share and the fair market value per share of the Common Stock on the date of exercise (determined in accordance with Section 5(b)), multiplied by the number of shares covered by such exercise and in respect of which the optionee shall have made the deferral election, and shall be credited to an account in the name of the optionee on the books and records of the Company (a "Deferred Compensation Account") at the date of exercise. A separate Deferred Compensation Account shall be maintained with respect to each Option or corresponding Stock Appreciation Right subject to an effective deferral election. (b) Interest shall be credited on amounts in the Deferred Compensation Account from the date of exercise of the Option or the corresponding Stock Appreciation Right to the date of payment, at the rate of interest determined by the Committee and communicated to the optionees. The value of an optionee's Deferred Compensation Account shall be payable in a lump sum cash payment or in annual installments over a period not to exceed 10 years or as otherwise determined by the Committee. At the time an optionee makes such deferral election, the optionee shall elect the form of payment and date for lump sum payment or commencement of annual payments of the Deferred Compensation Account, with such date at least one year subsequent to the date of exercise of the Option or corresponding Stock Appreciation Right, but not later than the date of the optionee's termination of employment with Company. Notwithstanding any election by an optionee, in the event of Disability or death of the optionee, the optionee's Deferred Compensation Account shall be paid within 90 days in the form of a single lump sum. (c) Notwithstanding the deferred payment date elected by the optionee, the Committee may, in its discretion, allow for early payment of an optionee's Deferred Compensation Account in the event of an "unforeseeable emergency." For this purpose, an unforeseeable emergency shall be defined as an unanticipated emergency that is caused by an event beyond the control of the optionee and that would result in severe financial hardship to the optionee if early withdrawal were not permitted. Any withdrawal on account of an unforeseeable emergency must be limited to the amount necessary to meet the emergency. The above provisions regarding a withdrawal upon an unforeseeable emergency shall be interpreted in accordance with published revenue procedures, regulations, releases or interpretations. In addition, Deferred Compensation Accounts may be distributed on an accelerated basis in the discretion of the Committee. (d) Optionees have the status of general unsecured creditors of the Company with respect to their Deferred Compensation Accounts, and such accounts constitute a mere promise by the Company to make payments with respect thereto. (e) An optionee's right to benefit payments under the Plan with respect to the Deferred Compensation Accounts may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, attached or garnished by creditors of the optionee or the optionee's beneficiary and any attempt to do so shall be void. Section 7. Restricted Stock Performance Awards. The Committee may, in its sole discretion, from time to time, make awards of shares of the Company's Common Stock or awards of units representing shares of the Company's Common Stock, up to 2,000,000 shares in the aggregate (such number to be adjusted without further action to 4,000,000 in accordance with Section 8 hereof upon the consummation of the stock split referred to in Section 3), to such officers and other key employees of the Company and its subsidiaries in such quantity, and on such terms, conditions and restrictions (whether based on performance standards, periods of service or otherwise) as the Committee shall establish ("Restricted Stock"). The terms, conditions and restrictions of any Restricted Stock award made under this Plan shall be set forth in an agreement or agreements between the Company and the recipient of the award. (a) Issuance of Restricted Stock. The Committee shall determine the manner in which Restricted Stock shall be held during the period it is subject to restrictions. (b) Stockholder Rights. Beginning on the date of grant of the Restricted Stock award and subject to the execution of the award agreement by the recipient of the award and subject to the terms, conditions and restrictions of the award agreement, the Committee shall determine to what extent the recipient of the award has the rights of a stockholder of the Company including, but not limited to, whether or not the employee receiving the award has the right to vote the shares or to receive dividends or dividend equivalents. (c) Restriction on Transferability. None of the shares or units of a Restricted Stock award may be assigned or transferred, pledged or sold prior to their delivery to a recipient or, in the case of a recipient's death, to the recipient's legal representative or legatee or such other person designated by an appropriate court; provided, however, that the Committee may, in its sole discretion, allow for transfer of shares or units of a Restricted Stock Award to other persons or entities. (d) Delivery of Shares. Upon the satisfaction of the terms, conditions and restrictions contained in the Restricted Stock award agreement or the release from the terms, conditions and restrictions of a Restricted Stock award agreement, as determined by the Committee, the Company shall deliver, as soon as practicable, to the recipient of the award (or permitted transferee), or in the case of his or her death to his or her legal representative or legatee or such other person designated by an appropriate court, a stock certificate for the appropriate number of shares of the Company's Common Stock, free of all such restrictions, except for any restrictions that may be imposed by law. (e) Forfeiture of Restricted Stock. Subject to Section 7(f), all of the restricted shares or units with respect to a Restricted Stock award shall be forfeited and all rights of the recipient with respect to such restricted shares or units shall terminate unless the recipient continues to be employed by the Company or its subsidiaries until the expiration of the forfeiture period and the satisfaction of any other conditions set forth in the award agreement. (f) Waiver of Forfeiture Period. Notwithstanding any other provisions of the Plan, the Committee may, in its sole discretion, waive the forfeiture period and any other conditions set forth in any award agreement under certain circumstances (including the death, Disability or Retirement of the recipient of the award or a material change in circumstances arising after the date of an award) and subject to such terms and conditions (including forfeiture of a proportionate number of the restricted shares) as the Committee shall deem appropriate. Section 8. Adjustment in Event of Change in Stock. Subject to Section 9, in the event of stock split, stock dividend, cash dividend (other than a regular cash dividend), combination of shares, merger, or other relevant change in the Company's capitalization, the Committee shall, subject to the approval of the Board of Directors, appropriately adjust the number and kind of shares available for issuance under the Plan, the number, kind and Option Price of shares subject to outstanding Options and Stock Appreciation Rights and the number and kind of shares subject to outstanding Restricted Stock awards; provided, however, that to the extent permitted in the case of incentive stock options by Sections 422 and 424 of the Code, in the event that the outstanding shares of Common Stock of the Company are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, through reorganization, merger, consolidation, liquidation, recapitalization, reclassification, stock split-up, combination of shares or dividend, appropriate adjustment in the number and kind of shares as to which Options may be granted and as to which Options or portions thereof then unexercised shall be exercisable, and in the Option Price thereof, shall be made to the end that the proportionate number of shares or other securities as to which Options may be granted and the optionee's proportionate interests under outstanding Options shall be maintained as before the occurrence of such event; provided, that any such adjustment in shares subject to outstanding Options (including any adjustments in the Option Price) shall be made in such manner as not to constitute a modification as defined by subsection (h)(3) of Section 424 of the Code; and provided, further, that, in the event of an adjustment in the number or kind of shares under a Restricted Stock award pursuant to this Section 8, any new shares or units issued to a recipient of a Restricted Stock award shall be subject to the same terms, conditions and restrictions as the underlying Restricted Stock award for which the adjustment was made. Section 9. Effect of a Change of Control. (a) For purposes of this Section 9, "Change in Control" shall, unless the Board of Directors of the Company otherwise directs by resolution adopted prior thereto or, in the case of a particular award, the applicable award agreement states otherwise, be deemed to occur if (i) any "person" (as that term is used in Sections 13 and 14(d)(2) of the Exchange Act) other than a Permitted Holder (as defined below) is or becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of 50% or more of either the outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally, (ii) during any period of two consecutive years, individuals who constitute the Board of Directors of the Company at the beginning of such period cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Company's stockholders of each new director was approved by a vote of at least three-quarters of the directors then still in office who were directors at the beginning of the period or (iii) the Company undergoes a liquidation or dissolution or a sale of all or substantially all of the assets of the Company. No merger, consolidation or corporate reorganization in which the owners of the combined voting power of the Company's then outstanding voting securities entitled to vote generally prior to said combination, own 50% or more of the resulting entity's outstanding voting securities shall, by itself, be considered a Change in Control. As used herein, "Permitted Holder" means (i) the Company, (ii) any corporation, partnership, trust or other entity controlled by the Company and (iii) any employee benefit plan (or related trust) sponsored or maintained by the Company or any such controlled entity. (b) Except to the extent reflected in a particular award agreement, in the event of a Change of Control: (i) notwithstanding any vesting schedule, or any other limitation on exercise or vesting, with respect to an award of Options, Stock Appreciation Rights or Restricted Stock, such Options or Stock Appreciation Rights shall become immediately exercisable with respect to 100 percent of the shares subject thereto, and the restrictions shall expire immediately with respect to 100 percent of such Restricted Stock award; and (ii) the Committee may, in its discretion and upon at least 10 days advance notice to the affected persons, cancel any outstanding Options, Stock Appreciation Rights or Restricted Stock awards and pay to the holders thereof, in cash, the value of such awards based upon the highest price per share of Company Common Stock received or to be received by other stockholders of the Company in connection with the Change of Control. Section 10. Amendment and Discontinuance. The Board of Directors of the Company may from time to time amend or revise the terms of the Plan, or may discontinue the Plan at any time as permitted by law, provided, however, that such amendment shall not (except as provided in Section 8), without further approval of the stockholders, (i) increase the aggregate number of shares with respect to which awards may be made under the Plan; (ii) change the manner of determining the Option Price (other than determining the fair market value of the Common Stock to conform with applicable provisions of the Code or regulations and interpretations thereunder); (iii) extend the term of the Plan or the maximum period during which any Option may be exercised or (iv) make any other change which, in the absence of stockholder approval, would cause awards granted under the Plan which are then outstanding, or which may be granted in the future, to fail to meet the exemptions provided by Rule 16b-3 under the Exchange Act and Section 162(m) of the Code. No amendments, revision or discontinuance of the Plan shall, without the consent of an optionee or a recipient of a Restricted Stock award, in any manner adversely affect his or her rights under any Option theretofore granted under the Plan. Section 11. Effective Date and Duration. The Plan was adopted by the Board of Directors of the Company on January 25, 1996, subject to approval by the stockholders of the Company at a meeting to be held in April 1996. Neither the Plan nor any Option or Stock Appreciation Right or Restricted Stock award shall become binding until the Plan is approved by a vote of the stockholders in a manner which complies with Rule 16b-3 promulgated pursuant to the Exchange Act and Sections 162(m) and 422(b)(1) of the Code. No Option may be granted and no stock may be awarded under the Plan before January 25, 1996 nor after January 24, 2006. Section 12. Tax Withholding. Notwithstanding any other provision of the Plan, the Company or its subsidiaries, as appropriate, shall have the right to deduct from all awards under the Plan cash and/or stock, valued at fair market value on the date of payment in accordance with Section 5(b), in an amount necessary to satisfy all federal, state or local taxes as required by law to be withheld with respect to such awards. In the case of awards paid in the Company's Common Stock, the optionee or permitted transferee may be required to pay to the Company or a subsidiary thereof, as appropriate, the amount of any such taxes which the Company or subsidiary is required to withhold, if any, with respect to such stock. Subject in particular cases to the disapproval of the Committee, the Company may accept shares of the Company's Common Stock of equivalent fair market value in payment of such withholding tax obligations if the optionee elects to make payment in such manner. Section 13. Construction and Conditions. The Plan and Options, Restricted Stock awards, and Stock Appreciation Rights granted thereunder shall be governed by and construed in accordance with the laws of the State of Delaware and in accordance with such federal law as may be applicable. Neither the existence of the Plan nor the grant of any Options or Stock Appreciation Rights or awards of Restricted Stock pursuant to the Plan shall create in any optionee the right to continue to be employed by the Company or its subsidiaries. Employment shall be "at will" and shall be terminable "at will" by the Company or employee with or without cause. Any oral statements or promises to the contrary are not binding upon the Company or the employee. EX-10.25 13 Exhibit 10.25 AMERICAN HOME PRODUCTS CORPORATION NONFUNDED DEFERRED COMPENSATION PLAN FOR DIRECTORS, AS AMENDED JANUARY 25, 1996 1. Method of Election to Defer Payment Pursuant to the provisions of this Plan, any director of the Company not a corporate officer may elect on or before the last business day of any month to defer payment of all or a specified part of that director's retainer and fee for service and attendance at Board and Committee meetings for the following calendar month and thereafter by filing a written notice substantially in the form attached hereto as Annex A with the Secretary of the Company. This notice shall specify: a) the effective date of the deferral; b) the amounts to be deferred; c) the length of time of the deferral; d) the method of payment of the deferred amount. 2. Deferral in Cash With Interest The deferred payment will accrue interest from the date on which payment thereof would have been made if this Agreement were not in effect. Such interest shall accrue up to the date of distribution at a rate based on the average of the quarter end yields for a ten year period (ending September 30 of the prior year) of 10 Year U.S. Treasury notes plus 2 percent. 3. Time and Method of Payment Payment of the deferred amount shall be made in a lump sum in January of the first calendar year after the individual ceases to be a director of the Company, unless the individual has indicated on the notice filed with the Secretary of the Company that payment shall be made in not more than ten annual installments beginning: a) on January 10th of a specified calendar year; or b) on January 10th of the first calendar year after the individual ceases to be a director of the Company. In the event the individual dies before payment of all of the deferred amount, the full remaining balance shall be paid in a lump sum to the individual's estate or as specified in his or her will. Where the director receives the balance of the deferred account in annual installments, the first installment of deferred compensation shall be a fraction of the value of the entire deferred compensation credited to a director's account under this Plan. The numerator of that fraction shall be "one" (1) and the denominator shall be the total number of installments during which the compensation is to be paid. Each subsequent annual installment shall be calculated in the same manner except that (a) the denominator in the fraction shall be reduced by the number of annual installments which have been previously paid and (b) the director's account shall be reduced by the amount of any installments paid, but shall be credited with interest at the rate set out in Section 2 hereof. 4. Termination or Modification of Election to Defer Payment A written election to defer payment pursuant to this Plan shall continue in effect until the director files a written notice of termination or modification of such election with the Secretary of the Company. The termination shall be effective as of the date of receipt by the Secretary or as of such future date as is specified in such notice. An election may be modified as to: a) amount of deferral; b) length of time of deferral; and c) method of payment of the deferred amount. Any modification shall be effective upon the last day of the calendar month in which such written notice is received by the Secretary of the Company or such later date as is specified in the notice. No more than two (2) modifications of (a), (b) or (c) may be made in any calendar year. Amounts credited to the account of a director prior to the effective date of any such termination or modification shall not be affected thereby and, subject to paragraph 6 below, shall be paid only in accordance with paragraph 3 of the Plan. 5. Payments Not Assignable The deferred amount, including the interest thereon credited to the account of an individual under this Plan shall not be subject to assignment by the individual. If any such assignment is made, the Company may disregard such assignment and discharge its obligation hereunder by making payment as though no such assignment had been made. 6. Payment in Hardship Cases A director may request, and the Company may for good cause in its sole discretion approve, the payment of principal and accrued interest in a lump sum or accelerated installments in lieu of the method of payment elected by the director. 7. Amendment or Termination of Plan The Company reserves the right to amend, modify or terminate this Plan at any time by action of its Board of Directors, provided that such action shall not adversely affect any participant's right to receive payment pursuant to the terms of this Plan of any unpaid amounts which were deferred prior to such action. 8. Annual Statements A statement shall be delivered to each participant in this Plan as soon as practicable after the end of each calendar year setting forth the amount deferred, the amount of interest accrued thereon, the amount of any payments during the year and the current rate of interest applicable to the Plan as determined by the Treasurer of the Company. Annex A NOTICE OF ELECTION TO DEFER PAYMENT OF DIRECTOR'S COMPENSATION To: Corporate Secretary American Home Products Corporation Five Giralda Farms Madison, NJ 07940 Pursuant to the terms of the American Home Products Corporation Nonfunded Deferred Compensation Plan for Directors (the "Plan"), I hereby elect to defer payment of my director's compensation as follows: 1) Effective Date of Deferral: Effective the last day of this month until further notice; or Effective from _____________, 19___, until further notice; or Effective from _____________, 19___, until ___________, 19___, 2) Amount of Compensation to be Deferred: The entire amount of my compensation; or _______________ % of my compensation each month. 3) Method of Payment: Payment of my deferred compensation shall be made as follows: Lump-sum; or Ten Annual Installments; or ____________ Annual Installments (not exceeding 10). 4) Time of Payment: Payment of my deferred compensation shall be made (in a lump-sum, or in the number of installments indicated above) beginning; On January 10th of the first calendar year after I cease to be a director of the Company; or On January 10th of 19___. Pursuant to the terms of the Plan, this election shall continue in effect until I file a written notice of termination or modification with the Secretary of the Company. Signed:__________________________ Dated: __________________________ AMERICAN HOME PRODUCTS CORPORATION NONFUNDED DEFERRED COMPENSATION PLAN FOR DIRECTORS, AS AMENDED JANUARY 25, 1996 INDEX Page Method of Election to Defer Payment.......................1 Deferral in Cash with Interest............................1 Time and Method of Payment................................1 Termination or Modification of Election to Defer Payment..2 Payments Not Assignable...................................2 Payment in Hardship Cases.................................3 Amendment or Termination of Plan..........................3 Annual Statements.........................................3 Form of Notice of Election to Defer.......................Annex A EX-10.26 14 Exhibit 10.26 AMERICAN HOME PRODUCTS CORPORATION STOCK OPTION AGREEMENT [Name and address] UNDER [YEAR] STOCK INCENTIVE PLAN DATED OPTION PRICE [NON-QUALIFIED OR INCENTIVE] STOCK OPTION SHARES BASIC TERMINATION DATE 1. Under the terms and conditions of this Agreement and of the American Home Products Corporation's [Year] Stock Incentive Plan, a copy of which is attached hereto and incorporated herein by reference, the Corporation hereby grants to the optionee named above an option or options to purchase the number of shares of the Corporation's common stock as specified above opposite the optionee's name ("Option Shares") at the price also above specified. 2. These options may be exercised one year from the date hereof, or within one year in the case of retirement, disability or death, either in whole at any time or in part from time to time in full shares, provided the optionee is then in the employ of the Corporation or any of its subsidiaries and has been continuously so employed since the date the options were granted, further provided, that the optionee has, at the date of exercise, been in the continuous employment of the Corporation and/or one or more of its subsidiaries for at least two years, and still further provided, that any Incentive Stock Option granted hereby shall become exercisable for the first time in the aggregate amount of no more than $100,000 (fair market value at time of grant) during any calendar year. If the optionee should retire, become disabled or die before the Option Shares become exercisable, the optionee or the optionee's estate will have up to three years from the date of retirement, disability or death to exercise all of the Option Shares covered by this Agreement, subject to the condition of non-competition in Section 5(g)(vii) of the Plan. 3. These options may be exercised by sending the Treasurer of the Corporation an option exercise notice indicating the number of shares for which the option is to be exercised at that time and the form in which the certificates are to be registered for shares purchased (in the name of the optionee or in his or her name and that of another person(s) as joint tenants with the right of survivorship). This notice shall be accompanied by a personal or bank check in U.S. Dollars payable to American Home Products Corporation and drawn on or payable at a United States bank and/or shares of the Corporation's common stock issued in the optionee's name and duly assigned to the Corporation or by any other form of consideration which has been approved by the Compensation and Benefits Committee, as and to the extent provided and permitted by Section 5(d) of the Plan, for the full purchase price of the number of shares. 4. This Agreement and these options as well as the Corporation's obligation to sell and deliver stock covered by these options is subject to all federal, state and other laws, rules and regulations of the United Stated and/or of the country wherein the optionee resides. Compliance with any recording, protocolization or registration requirements and payment of any fees or taxes applicable to this Agreement or the transactions it contemplates are the exclusive responsibility of the optionee. 5. These options are not transferable or assignable other than by will or by the laws of descent and distribution and may be exercised during the optionee's lifetime only by him or her. After the optionee's death the option may be exercised only the by the optionee's legal representative or legatee or such other person designated by an appropriate court as the person entitled to make such exercise. The option may be exercised after the optionee's death only to the extent that he or she was entitled to exercise it at the time of his or her death. 6. Subject to the express provisions of the Plan, this Agreement and such Plan are to be interpreted and administered by the Compensation and Benefits Committee, whose determination will be final. 7. This Agreement shall be governed by the laws of the State of Delaware and in accordance with such Federal law as may be applicable. ________________________________ *Or as otherwise provided in Section 5 of the Plan. Accepted and agree to: AMERICAN HOME PRODUCTS CORPORATION /S/ John R. Stafford Chairman of the Board ................................... Optionee's Signature ................................... Optionee's Social Security Number EX-10.27 15 Exhibit 10.27 AMERICAN HOME PRODUCTS CORPORATION SPECIAL STOCK OPTION AGREEMENT Social Security Number:[ ] Option Price: [ ] Non-Qualified Stock Option Shares: Date: [ ] Basic Termination Date: [ ]* 1. Under the terms and conditions of this Agreement and of the American Home Products Corporation's amended 1993 Stock Incentive Plan, a copy of which is attached hereto and incorporated herein by reference, the Corporation hereby grants to the optionee named above an option or options to purchase the number of shares of the Corporation's common stock as specified above opposite the optionee's name ("Option Shares") at the price also above specified. 2. One-third of these options may be exercised one year from the date hereof, an additional one-third of these options may be exercised two years from the date hereof and the remaining one- third of these options may be exercised three years from the date hereof (such one, two and three year periods each being referred to herein as a "Holding Period") provided that all such options may be exercised earlier in the case of disability or death, either in whole at any time or in part from time to time in full shares, provided the optionee is then in the employ of the Corporation or any of its subsidiaries and has been continuously so employed since the date the options were granted, and further provided that the optionee has, at the date of exercise, been in the continuous employment of the Corporation and/or one or more of its subsidiaries for at least two years. If the optionee should become disabled or die before the Option Shares become exercisable, the optionee or the optionee's estate will have up to three years from the date of disability or death to exercise all of the Option Shares covered by this Agreement, subject to the condition of non- competition in Section 5(g)(vii) of the Plan. Notwithstanding Section 5(g)(ii) of the Plan, upon termination of the optionee's employment by the Company or its subsidiaries due to any reason other than death (which is covered by Section 5(g)(iii) of the Plan) or disability (as to which Section 5(g)(ii) of the Plan remains applicable), any portion of these options that has not theretofore become exercisable as a result of the expiration of the Holding Period with respect thereto shall terminate concurrently with the time of such termination. 3. These options may be exercised by sending the Treasurer of the Corporation an option exercise notice indicating the number of shares for which the option is to be exercised at that time and the form in which the certificates are to be registered for shares purchased (in the name of the optionee or in his or her name and that of another person(s) as joint tenants with the right of survivorship). This notice shall be accompanied by a personal or bank check in U.S. Dollars payable to American Home Products Corporation and drawn on or payable at a United States bank and/or shares of the Corporation's common stock issued in the optionee's name and duly assigned to the Corporation or by any other form of consideration which has been approved by the Compensation and Benefits Committee, as and to the extent provided and permitted by Section 5(d) of the Plan, for the full purchase price of the number of shares. 4. This Agreement and these options as well as the Corporation's obligation to sell and deliver stock covered by these options is subject to all federal, state and other laws, rules and regulations of the United States and/or of the country wherein the optionee resides. Compliance with any recording, protocolization or registration requirements and payment of any fees or taxes applicable to this Agreement or the transactions it contemplates are the exclusive responsibility of the optionee. 5. These options are not transferable or assignable other than by will or by the laws of descent and distribution and may be exercised during the optionee's lifetime only by him or her. After the optionee's death the option may be exercised only by the optionee's legal representative or legatee or such other person designated by an appropriate court as the person entitled to make such exercise. The option may be exercised after the optionee's death only to the extent that he or she was entitled to exercise it at the time of his or her death. 6. Subject to the express provisions of the Plan, this Agreement and such Plan are to be interpreted and administered by the Compensation and Benefits Committee, whose determination will be final. 7. This Agreement shall be governed by the laws of the State of Delaware and in accordance with such Federal law as may be applicable. 8. The optionee hereby consents to the amendments to the Plan adopted by the Board of Directors of the Corporation on June 29, 1995 and reflected in the restated 1993 Stock Incentive Plan as amended through June 29, 1995 and agrees that such amendments shall apply to the Option granted hereby. ________________________________ *Or as otherwise provided in Section 5 of the Plan. Accepted and agreed to: AMERICAN HOME PRODUCTS CORPORATION - --------------------- ---------------------- Optionee's Signature Chairman of the Board EX-10.28 16 Exhibit 10.28 AMERICAN HOME PRODUCTS CORPORATION SPECIAL STOCK OPTION AGREEMENT Social Security Number: [ ] Option Price: [ ] [ ] Non-Qualified Stock Option Shares: Date: [ ] Basic Termination Date: [ ]* 1. Under the terms and conditions of this Agreement and of the American Home Products Corporation's amended 1993 Stock Incentive Plan, a copy of which is attached hereto and incorporated herein by reference, the Corporation hereby grants to the optionee named above an option or options to purchase the number of shares of the Corporation's common stock as specified above opposite the optionee's name ("Option Shares") at the price also above specified. 2. These options may be exercised three years from the date hereof, or earlier in the case of disability or death, either in whole at any time or in part from time to time in full shares, provided the optionee is then in the employ of the Corporation or any of its subsidiaries and has been continuously so employed since the date the options were granted, and further provided that the optionee has, at the date of exercise, been in the continuous employment of the Corporation and/or one or more of its subsidiaries for at least two years. If the optionee should become disabled or die before the Option Shares become exercisable, the optionee or the optionee's estate will have up to three years from the date of disability or death to exercise all of the Option Shares covered by this Agreement, subject to the condition of non-competition in Section 5(g)(vii) of the Plan. Notwithstanding Section 5(g)(ii) of the Plan, this Option shall terminate concurrently with the time of termination of the optionee's employment by the Company or its subsidiaries if such termination occurs before the Option Shares become exercisable and is due to any reason other than death (which is covered by Section 5(g)(iii) of the Plan) or disability (as to which Section 5(g)(ii) of the Plan remains applicable). 3. These options may be exercised by sending the Treasurer of the Corporation an option exercise notice indicating the number of shares for which the option is to be exercised at that time and the form in which the certificates are to be registered for shares purchased (in the name of the optionee or in his or her name and that of another person(s) as joint tenants with the right of survivorship). This notice shall be accompanied by a personal or bank check in U.S. Dollars payable to American Home Products Corporation and drawn on or payable at a United States bank and/or shares of the Corporation's common stock issued in the optionee's name and duly assigned to the Corporation or by any other form of consideration which has been approved by the Compensation and Benefits Committee, as and to the extent provided and permitted by Section 5(d) of the Plan, for the full purchase price of the number of shares. 4. This Agreement and these options as well as the Corporation's obligation to sell and deliver stock covered by these options is subject to all federal, state and other laws, rules and regulations of the United States and/or of the country wherein the optionee resides. Compliance with any recording, protocolization or registration requirements and payment of any fees or taxes applicable to this Agreement or the transactions it contemplates are the exclusive responsibility of the optionee. 5. These options are not transferable or assignable other than by will or by the laws of descent and distribution and may be exercised during the optionee's lifetime only by him or her. After the optionee's death the option may be exercised only by the optionee's legal representative or legatee or such other person designated by an appropriate court as the person entitled to make such exercise. The option may be exercised after the optionee's death only to the extent that he or she was entitled to exercise it at the time of his or her death. 6. Subject to the express provisions of the Plan, this Agreement and such Plan are to be interpreted and administered by the Compensation and Benefits Committee, whose determination will be final. 7. This Agreement shall be governed by the laws of the State of Delaware and in accordance with such Federal law as may be applicable. 8. The optionee hereby consents to the amendments to the Plan adopted by the Board of Directors of the Corporation on June 29, 1995 and reflected in the restated 1993 Stock Incentive Plan as amended through June 29, 1995 and agrees that such amendments shall apply to the Option granted hereby. ________________________________ *Or as otherwise provided in Section 5 of the Plan. Accepted and agreed to: AMERICAN HOME PRODUCTS CORPORATION - --------------------- ---------------------- Optionee's Signature Chairman of the Board EX-11 17 Exhibit 11 American Home Products Corporation and Subsidiaries Computation of Per Share Earnings (In thousands except per share amounts) Year Ended December 31, 1995 ------------ 1. Net income ................................................... $1,680,418 2. Reported earnings per share: a. Average number of shares outstanding during the year ..... 309,516 b. Shares issuable upon the conversion of preferred stock ... 319 --------- c. Shares for reported earnings per share calculation (2a+2b) 309,835 ========= d. Reported earnings per share(1/2c)......................... $5.42 ========= 3. Primary earnings per share: a. Average number of shares outstanding during the year...... 309,516 b. Shares issuable upon the conversion of preferred stock.... 319 c. Shares deemed outstanding from the assumed exercise of stock options reduced by the number of shares purchased with the proceeds (determined using average market price during the year) ......................................... 2,884 d. Deferred contingent common stock awards .................. 337 -------- e. Shares for primary earnings per share calculation (3a+3b+3c+3d) ............................................ 313,056 ========= f. Primary earnings per share (1/3e) ........................ $5.37 ========= 4. Fully diluted earnings per share: a. Average number of shares outstanding during the year...... 309,516 b. Shares issuable upon conversion of preferred stock ....... 319 c. Shares deemed outstanding from the assumed exercise of stock options reduced by the number of shares purchased with the proceeds (determined using market price at year-end) ....................................... 6,316 d. Deferred contingent common stock awards .................. 337 --------- e. Shares for fully diluted earnings per share calculation (4a+4b+4c+4d) ............................................ 316,488 ========= f. Fully diluted earnings per share (1/4e) .................. $5.31 ========= EX-12 18 Exhibit 12 AMERICAN HOME PRODUCTS CORPORATION RATIO OF EARNINGS TO FIXED CHARGES (Thousands of dollars, except ratio amounts)
Year Ended December 31, ------------------------------------------------------ Earnings: 1995 1994* 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- Earnings from continuing operations before taxes on income $2,438,698 $2,029,760 $1,992,665 $1,724,070 $1,759,810 Add: Fixed charges 704,903 155,187 91,500 63,403 50,554 Minority interest in earnings of consolidated subsidiary 5,642 5,303 4,027 3,803 3,823 Minority interest in loss of consolidated subsidiary (4,925) (17,873) (9,129) (3,149) - Equity loss - 1,691 - - - Amortization of capitalized interest 768 497 - - - Less: Capitalized interest 7,681 9,792 14,898 - - Equity income 8,129 - - - - Dividends on preferred stock of majority-owned subsidiary - - 3,436 4,589 - ---------- ---------- ---------- ---------- ---------- Total earnings as defined $3,129,276 $2,164,773 $2,060,729 $1,783,538 $1,814,187 ========== ========== ========== ========== ========== Fixed Charges: Interest and amortization of debt expense $665,021 $116,661 $47,871 $35,503 $31,431 Capitalized interest 7,681 9,792 14,898 - - Interest factor of rental expense (a) 32,201 28,734 25,295 23,311 19,123 Dividends on preferred stock of majority-owned subsidiary - - 3,436 4,589 - -------- -------- ------- ------- ------- Total fixed charges as defined $704,903 $155,187 $91,500 $63,403 $50,554 ======== ======== ======= ======= ======= Ratio of earnings to fixed charges 4.4 13.9 22.5 28.1 35.9
* - The 1994 results include one-month results of American Cyanamid Company which was acquired by American Home Products in December in a purchase transaction. Assuming the acquisition took place on January 1, 1994 the pro forma ratio of earnings to fixed charges would be 2.9 for the year ended December 31, 1994. (a) - A 1/3 factor was utilized to compute the portion of rental expenses deemed representative of the interest factor. EX-13 19 Exhibit 13 [PHOTO] [LOGO] American Home Products Corporation 1995 Annual Report American Home Products Corporation 1995 Annual Report Special Report: Growth through Innovation American Home Products Corporation [LOGO] American Home Products Corporation is a global leader in discovering and commercializing innovative, cost-effective health care and agricultural products that contribute to the quality of life for millions of people. We are at the leading edge of medical science, focusing one of the largest scientific discovery and clinical programs in our industry on finding breakthrough therapies for some of the most serious health problems. Our Company's broad, growing lines of prescription drugs, vaccines, nutritionals, over-the-counter medications and medical devices benefit health care worldwide. We are at the forefront of developing, manufacturing and marketing crop protection and animal health care products. AHP also is known for quality food brands in the United States and Canada. In 1995, the Company achieved record sales and earnings, and the dividend was increased for the 44th consecutive year. Pharmaceuticals 56% Consumer Health Care 15% Agricultural Products 14% Medical Devices 9% Food Products 6% [CHART] Net Sales by Segment Contents: 2 Chairman's Report to Shareholders 5 Special Report: Growth through Innovation 12 Pharmaceutical Products Pipeline 14 Review of Operations 27 Principal Products - United States 28 Financial Section 50 Principal Officers 50 Corporate Data IBC Board of Directors Cover: Susan Christman, Associate Chemist, Wyeth-Ayerst Research, Princeton, New Jersey. Wyeth-Ayerst's three-dimensional molecular modeling system allows optimal visualization of the molecular structure of new drug candidates. Financial Highlights
Years Ended December 31, 1995 1994* - -------------------------------------------------------------------------------- (In thousands except per share amounts) Net sales . . . . . . . . . . . . . . . . . . . . $13,376,089 $8,966,214 Net income . . . . . . . . . . . . . . . . . . . 1,680,418 1,528,254 Net income per common share . . . . . . . . . . . 5.42 4.97 Dividends per common share . . . . . . . . . . . 3.02 2.94 Working capital . . . . . . . . . . . . . . . . . 3,429,889 3,203,160 Shareholders' equity . . . . . . . . . . . . . . 5,542,998 4,254,101 - --------------------------------------------------------------------------------
* The 1994 information reflects the acquisition of American Cyanamid Company, effective December 1, 1994. [CHART] Earnings per Share [CHART] Dividends per Share [CHART] Net Sales [CHART] Net Income Net income in 1987 excludes a provision related to Dalkon Shield claims of $1.75 billion recorded by A.H. Robins Company, Incorporated prior to its acquisition by the Company in 1989. 1 Chairman's Report to Shareholders I am pleased to report that 1995 was a year of considerable achievement for American Home Products Corporation. The integration of American Cyanamid neared completion, significantly strengthening American Home Products' health care businesses and signaling the successful transition of our Company into a stronger, research-based organization with an enhanced presence in important international markets and a major crop protection business. The continued expansion of our global franchise and good results for many major products outside the United States - where more than 40% of total sales were recorded - sustained our growth even as we experienced lower sales contributions from some of our key domestic businesses. Further, the combination of AHP and Cyanamid provided significant cost savings that will fuel our profits and give us the flexibility to capitalize on opportunities. Since August 1994, when we initiated our efforts to acquire American Cyanamid Company, our stock price has grown to its recent all-time high, an increase of approximately 80%. In January 1996, we announced the Board of Directors' approval of a two-for-one split in the Company's common stock, subject to stockholder approval of an increase in the number of authorized shares from 600,000,000 to 1,200,000,000. Upon approval, the record date for stockholders entitled to receive such shares is April 24, 1996. In 1995, we reported increased sales and earnings, and the dividend increased for the 44th consecutive year. Reported net sales increased 49% to $13.4 billion. On a pro forma basis after adjusting for the Cyanamid acquisition and other businesses sold or purchased in 1994 and 1995, the increase was 4%. Reported earnings and earnings per share in 1995 were $1.68 billion and $5.42, respectively, compared with $1.53 billion and $4.97, respectively, for 1994. The 1995 results include an after-tax gain of $623.9 million related to the sale of the oral health care business in South America and charges of $425.5 million covering restructuring, environmental and other special charges. Excluding these items, net income and earnings per share were $1.48 billion and $4.78, respectively, for 1995. These results are consistent with our projections that 1995 earnings would be slightly behind 1994 due to the fact that initial dilution resulting from goodwill amortization and interest expense would exceed Cyanamid's income contribution. This dilution was greatly mitigated in 1995 by significant cost savings as we consolidated operations. In 1996, we expect additional incremental savings and higher sales that will result in a substantial increase in earnings over 1995. Pharmaceutical Research and Development We invested more than $1.35 billion in R&D in 1995, of which $1.1 billion was targeted for pharmaceutical research. This level of commitment puts AHP in the top tier of the world's pharmaceutical companies and underscores our determination to achieve growth through product innovation. Our R&D investment shows much promise with a pipeline which now includes more than 50 potential new pharmaceutical products in clinical development or on file with the U.S. Food and Drug Administration (FDA). Several New Drug Applications (NDA) are awaiting FDA approval, and there are numerous candidates in Phase III and Phase II clinical trials. The majority of these products have opportunities in markets around the world. Pages 12 and 13 of this report highlight some of the most promising new products in our pipeline. Importantly, our R&D shows strength across the spectrum of scientific discovery, from Wyeth-Ayerst's synthetic chemical-based research to the emerging field of biotechnology. Further, our extensive resources are focused on major, growing areas of medical therapy such as women's health, cardiovascular and metabolic disease, immuno-inflammatory disease, central nervous system disorders, vaccines and oncology. We continue to supplement our R&D by aggressively seeking alliances through licensing and co-development programs. Included among our recent collaborations is an agreement with Roussel Uclaf to jointly develop Trimegestone, a progestin for hormone replacement therapy and contraception. Ethical Pharmaceuticals We continued to build our pharmaceutical franchise worldwide, introducing new products, expanding sales for established lines in many markets and gaining registration approvals in numerous countries. Pharmaceutical sales were up on a worldwide basis but decreased slightly in the United States due in large part to our decision to change the timing of certain trade incentives on Wyeth-Ayerst products. The lower inventory that now is held by the trade will benefit our sales in 1996. Wyeth-Ayerst is making excellent progress in bringing to medical practitioners and patients new, breakthrough 2 [PHOTO] John R. Stafford Chairman, President and Chief Executive Officer therapies. A highlight in 1995 was the FDA's approval of Cordarone I.V., which is indicated for the treatment of life-threatening ventricular arrhythmia. Cordarone now is the only approved Class III antiarrhythmic product available in oral and intravenous forms. In January 1996, Wyeth-Ayerst introduced single tablet Prempro and Premphase in the United States. These are the first estrogen and progestin products to provide one-tablet per day dosing for prevention of osteoporosis and relief of menopausal symptoms. Also in January, we received marketing clearance for Naprelan, licensed from Elan Corporation, and RespiGam. Naprelan is the first prescription product to offer convenient, once-a-day dosing of naproxen sodium, a medication long considered a standard in arthritis treatment. RespiGam, which will be co-promoted with MedImmune, is the first product to protect high-risk infants against the worst effects of respiratory syncytial virus, the leading cause of pneumonia and bronchiolitis in infants. We expect to receive several other U.S. marketing approvals in 1996. Redux, co-marketed with Interneuron Pharmaceuticals, is expected to be indicated for the long-term treatment of obesity. This product was recommended for approval by the FDA's Endocrinologic & Metabolic Drugs Advisory Committee in 1995. Sales potential will be influenced by the product's labeling, which is under discussion with the FDA. In 1995, Lodine, a non-steroidal anti-inflammatory drug, received an approvable letter for the additional indication of rheumatoid arthritis. Duract is a non-narcotic analgesic developed for management of pain. Normiflo is a low molecular-weight heparin for prevention of venous thromboembolic disease in orthopedic surgery patients. Consumer Health Care Whitehall-Robins Healthcare, which now includes Lederle Consumer Products, is one of the world's leading OTC health care companies. Whitehall-Robins sales increased internationally while U.S. sales remained even versus the prior year. Of interest, marketing programs initiated in the fourth quarter of 1994, while resulting in lower U.S. factory sales of Advil during 1995, have enabled us to increase U.S. consumer sales and improve market share for this important analgesic in the face of major new competition. Our consumer health care business is well-positioned to sustain strong growth in the future. We have brands with leading market positions internationally, and in many major OTC categories in the United States. We are at the forefront of converting major ethical pharmaceuticals to OTC status in the United States - an initiative that benefits significantly from our strengths in the prescription and OTC businesses. In November, Whitehall-Robins launched Orudis KT, the OTC version of the prescription ketoprofen pain reliever Orudis, which has been marketed by Wyeth-Ayerst since 1986. In September, an NDA for an OTC version of the H2 antagonist Axid, licensed from Eli Lilly, was unanimously recommended for approval by the FDA's Non-Prescription Drugs and Gastrointestinal Drugs Advisory Committees. Upon approval, OTC Axid will compete in the rapidly expanding non-prescription acid-reducer/antacid category. Whitehall-Robins also expects approval in 1996 to switch Children's Advil Suspension, a Wyeth-Ayerst prescription product, to OTC status. Agricultural Products Cyanamid Agricultural Products is another business being driven by innovative R&D. The Company, which ranks among the leaders in agricultural products sales worldwide, achieved broad and significant growth in 1995. Cyanamid is at the leading edge of new product development in two of the key global crop protection markets: herbicides and insecticides. The Company's major herbicides are formulated with a unique class of chemical compounds that are essentially safe to wildlife and are effective at low application rates. In 1995, Cyanamid introduced a novel insecticide product in the United States that has proved to be highly effective against insects that are resistant to other insecticides. 3 Medical Devices The introduction of new products that improve productivity and cost-efficiency in clinical facilities, coupled with continued growth internationally, resulted in increased worldwide sales for our medical devices business. Davis & Geck, a leading wound closure company obtained in the Cyanamid acquisition, was merged with Sherwood Medical in September 1995. The new company, Sherwood-Davis & Geck, is one of the world's leading manufacturers and marketers of specialized medical devices. Animal Health Care On a pro forma basis, strong gains were recorded internationally for Fort Dodge Animal Health, but domestic sales declined primarily due to competition from new products. The research and development entities of Fort Dodge and Cyanamid were merged in 1995 to focus on new technologies for animal pharmaceutical and biological products. Food Products Sales were down significantly in our North American food products business. We have moved quickly to regain momentum for American Home Food Products, addressing problems related to excess inventories, trade incentive programs and operating costs as well as increased competition. We expect that these changes, as well as an increased emphasis on consumer advertising, will restore the growth of our leading food brands. Changes in Management Robert G. Blount was named Senior Executive Vice President. In addition to his existing responsibilities as chief financial officer, Mr. Blount now oversees our worldwide agricultural and animal health products businesses. Fred Hassan was named Executive Vice President. He had been senior vice president responsible for AHP's global pharmaceutical business. In his new position, Mr. Hassan is responsible for our global pharmaceutical and medical devices businesses. William J. Murray was named Senior Vice President, responsible for our global agricultural products and worldwide animal health products businesses. In January 1996, David M. Olivier was named Senior Vice President, responsible for the worldwide non-prescription drug business of Whitehall-Robins. Bernard Poussot was named President, Wyeth-Ayerst International, replacing Mr. Olivier. Jack M. O'Connor was elected Treasurer, American Home Products Corporation. Paul J. Jones was elected Vice President and Comptroller, American Home Products Corporation, and Kenneth J. Martin was named President of American Home Food Products. Outlook for 1996 and Beyond The acquisition of American Cyanamid and its integration into AHP have been two of the most significant events in the history of our Company. We are moving forward as a larger, more streamlined organization with the market presence, broad product franchise, R&D programs, organizational structure and financial strength to act quickly and decisively to capitalize on opportunities on a global scale. Our growth strategies are directed in large part at achieving several principal objectives: accelerated earnings-per-share growth and increased market share in our categories; the development of innovative products that become market leaders by contributing to the well-being of people worldwide; and the strengthening of our Company in ways that continue to be reflected in shareholder value. All of the successes outlined in this report have stemmed from the skill and dedication of our employees. On behalf of the Board of Directors, whose support in this year of transition has been invaluable, I would like to thank our employees throughout the world for their past efforts and express our enthusiasm about working with them in the future. Together, I am confident that we can take the actions necessary to continue to build shareholder value. /s/ John R. Stafford - -------------------- John R. Stafford Chairman, President and Chief Executive Officer March 5, 1996 4 Growth through innovation American Home Products Corporation is dedicated to building global leadership in its highly competitive markets through an expanding portfolio of innovative health care and crop protection products that help improve the quality of life worldwide. AHP's commitment to product innovation is supported by one of the largest research and development efforts in the industry. During 1995, AHP invested nearly $1.4 billion in R&D. Wyeth-Ayerst Research is focused on advancing medical therapy in areas of critical need, including: women's health, cardiovascular and metabolic diseases, central nervous system disorders, infectious disease, immuno-inflammatory disease and oncology. Wyeth-Lederle Vaccines and Pediatrics is a leader in the development of novel childhood and adult vaccines. Genetics Institute, Inc. and Immunex Corporation, companies in which AHP has majority ownership, have demonstrated success in using biotechnology and genetic engineering to discover and develop breakthrough therapies for a range of health problems. Expertise in switching products from prescription to over-the-counter status is enabling Whitehall-Robins to broaden self-medication options for consumers. Research at Cyanamid is generating unique products that are enhancing global agriculture. In this special section, products recently introduced to the marketplace or in late stages of development are profiled to exemplify how innovation is fueling near-term growth in AHP's core businesses worldwide. Research & Development Spending [CHART] [PHOTO] Researchers at Wyeth-Ayerst's Research Center in Pearl River, New York, enjoy a bright and spacious working environment in their new, state-of-the-art Chemical Research Laboratory, which was dedicated in September 1995. 5 Women's Health Care [PHOTO] Diane Pryde is a former fashion model and a principal in Model Image, an image consulting company in Chicago. Ms. Pryde began using Premarin about four years ago and feels that single tablet Prempro will make it even easier to maintain her very active and dynamic lifestyle. Wyeth-Ayerst is at the forefront of women's health care worldwide, leading the way in product sales, product innovation, research and clinical studies, and educational and informational initiatives. Underscoring this singular commitment is the Women's Health Research Institute - the first U.S. research facility devoted exclusively to finding new pharmaceutical options to improve women's health. A milestone was achieved in hormone replacement therapy in January 1996 when Wyeth-Ayerst introduced single tablet Prempro and Premphase (conjugated estrogens/medroxyprogesterone acetate), the next generation of therapies in the Premarin (conjugated estrogens) family. These products provide the more than 4.5 million postmenopausal women in the United States who use estrogen and progestin an opportunity for the first time to take just one tablet each day for prevention of osteoporosis and relief of menopausal symptoms. Prempro tablets, protected by U.S. and foreign patents, are being used in the Heart and Estrogen-Progestin Replacement Study (HERS), a $40 million clinical trial involving 2,700 patients that is being conducted and funded by Wyeth-Ayerst in the United States. HERS is the largest clinical study ever undertaken to examine the role of hormone replacement therapy in protecting against coronary heart disease events in postmenopausal women with existing coronary heart disease. [PHOTO] James H. Pickar, M.D., Senior Director of Clinical Research at Wyeth-Ayerst Research. Dr. Pickar and the Menopause Study Group that he directed were responsible for the research and clinical initiatives that resulted in the approval and marketing of Prempro and Premphase. The safety and efficacy profile of these therapies was confirmed in the largest prospective hormone replacement study ever conducted. 6 Cardiovascular Therapy A major contribution to the treatment of heart disease is made by Wyeth-Ayerst's extensive, growing line of cardiovascular products. The introduction of Cordarone I.V. (amiodarone HCl) in 1995 represents a significant addition to the therapeutic options for life-threatening ventricular arrhythmias, one of the most serious of cardiac emergencies. This intravenous formulation builds on the well-established value of oral Cordarone - which is not appropriate for emergency administration - by providing prompt antiarrhythmic action. The results of two ongoing studies could earn Cordarone I.V. a place on the Advanced Cardiac Life Support Guidelines, which is followed by emergency personnel in treating patients with out-of-hospital cardiac arrest. Tasosartan, an angiotensin II receptor antagonist, is being developed for the treatment of hypertension. This compound, which entered Phase III trials during 1995, effectively controls blood pressure with once-daily dosing and is well-tolerated by patients. A New Drug Application is planned in 1996 for tasosartan. [PHOTO] Gil Rose, M.D., Director of Clinical Research at Wyeth-Ayerst Research. The Cordarone I.V. project team, led by Dr. Rose, faced complex challenges in designing, undertaking and interpreting clinical trial data within the acute cardiac care setting. These trials were critical to obtaining market clearance for this important new antiarrhythmic therapy. [PHOTO] George S. Groman, M.D., of Columbia, Maryland, was among the first cardiologists in the United States to use Cordarone I.V. At Dr. Groman's request, Wyeth-Ayerst rushed the new product to him, on an emergency basis, virtually within hours of its commercial release. By administering Cordarone I.V., Dr. Groman was able to restore his patient's cardiac rhythm and achieve vascular stabilization. 7 Biotechnology [PHOTO] Recombinant Factor IX may provide persons with Hemophilia B - such as 12- year-old Gregory Price (above) of Falls Church, Virginia, who is participating in Genetics Institute's Phase III clinical trials - with an alternative to plasma-derived clotting factors and their associated risks. Genetics Institute, Inc. is focused on developing portfolios of genetically engineered human proteins and small molecules for use in treating a wide range of health problems. Recombinant hemophilia therapy is one of the areas in which Genetics Institute is a leader. In 1995, Phase III clinical trials were begun for recombinant Factor IX (rFIX), a blood-clotting protein that represents a potential breakthrough in the treatment of patients with Hemophilia B. Also known as Christmas disease, Hemophilia B is a blood-coagulation disorder caused by an inability to produce Factor IX. The condition can result in severe, uncontrollable bleeding and crippling joint destruction. People with Hemophilia B currently are treated with clotting factor products that are derived from human plasma. rFIX, manufactured and formulated without the use of animal- or human-derived proteins, eliminates the risk of viral contamination. Its supply is not dependent on blood donors. The progress of rFIX builds on the success of Genetics Institute's recombinant Factor VIII, the first protein-based therapy to reach patients with Hemophilia A, a bleeding disorder. [PHOTO] John B. Edwards, Recombinant Factor IX Project Director. More than 400 scientists, engineers, clinicians and support personnel at Genetics Institute are members of the team - led by Mr. Edwards - responsible for global commercialization of recombinant Factor IX. 8 Vaccines Wyeth-Ayerst, through its business group Wyeth-Lederle Vaccines and Pediatrics, is placing increased emphasis on infant and adult vaccines for global use, especially in developing countries where young children are still at significant risk of deadly diseases. Wyeth-Ayerst's research is focused on respiratory and gastrointestinal tract infection, sexually transmitted disease and novel vaccine delivery methodologies. A vaccine to prevent rotavirus infections in infants has been the subject of research activity for several years. Rotavirus is a leading cause of the most severe cases of acute infantile gastroenteritis, a disease that claims nearly 1 million lives each year. Diarrheal diseases are an important cause of morbidity in infants and young children worldwide and a leading cause of mortality. In the United States alone, the disease results in more than 3 million cases per year with 70,000 hospitalizations and over 100 deaths in infants and young children. In Asia, Latin America and Africa, the impact of this disease is enormous. The significant medical and economic costs which result may be vaccine preventable. In 1996, Wyeth-Ayerst plans to file a Product License Application for Rotashield, an orally administered rotavirus vaccine tested in concert with the World Health Organization and European government health agencies. Rotashield will be available under the trademark Rotamune outside the United States. In clinical trials, vaccinated infants have shown an 80% decrease in severe diarrheal episodes and have tolerated the vaccine well. The vaccine's effectiveness against diarrheal illnesses requiring medical intervention was more than 80%, and was even greater against dehydration due to rotavirus. [PHOTO] Edward Zito, Ph.D., Associate Director of Clinical Research and Development at Wyeth-Lederle Vaccines and Pediatrics. To date, more than 9,000 subjects worldwide have been studied in clinical trials for Rotashield. Dr. Zito plays a key role in the coordination of activities at the field clinical test sites with Wyeth-Ayerst research professionals and government health officials and in the handling and analysis of trial data. [PHOTO] Raymond Reid, M.D. - shown here with clinical field worker Carmelita Leonard and several patients - supervised the rotavirus vaccine clinical trials at the Johns Hopkins Clinic in Fort Defiance, Arizona. 9 Consumer Health Care [PHOTO] Ed LeCert (right), team trainer for the Boston Celtics, recommends Orudis KT for minor sprains and strains. Arnold Scheller, M.D., the Celtics team physician, is a well-known orthopedist who has prescribed Orudis for many years. Dr. Scheller is pleased that he now can offer his patients a convenient OTC alternative. Underscoring the deep commitment of Whitehall-Robins Healthcare to deliver new, cost-effective products to the consumer by switching from prescription to OTC status was the 1995 introduction of Orudis KT (ketoprofen) and the anticipated 1996 approval of OTC Axid (nizatidine). Orudis KT provides consumers with a new choice for OTC pain relief and gives Whitehall-Robins a major opportunity to expand its position as a leader in the $2.4 billion U.S. OTC analgesic category. The heritage of Orudis KT dates back to 1986 when the prescription formulation was successfully introduced by Wyeth-Ayerst. Prior to its recent introduction as an OTC product, more than 18 million Orudis prescriptions had been written and nearly a billion tablets sold. An OTC version of Axid, an H2 antagonist for the prevention of heartburn, acid indigestion and sour stomach, was unanimously recommended for approval by the U.S. Food and Drug Administration's (FDA) Non-Prescription Drugs and Gastrointestinal Drugs Advisory Committees in 1995. Whitehall-Robins is working with the FDA to obtain final approval and expects to market this product in 1996 under a licensing agreement with Eli Lilly and Company. With a favorable safety profile and fast onset of action, OTC Axid is well-suited to compete in the growing OTC acid reducer/antacid category, which is projected to exceed sales of $1 billion on an annual basis. [PHOTO] Jamie Greene, Ph.D., Senior Director of Clinical Research at Whitehall-Robins. Dr. Greene led the clinical research team that developed Orudis KT. The successful switch program for this important new OTC analgesic involved defining the optimal dosing regimen and conducting efficacy and safety studies that led to FDA approval. 10 Agricultural Products The world's food production system is challenged to support the needs of a global population that is expected to grow from less than 6 billion to more than 8 billion in the next 30 years. Cyanamid is responding with innovative products that are setting new standards for effectiveness and safety for users and for the environment. Herbicides are the largest business for Cyanamid, and its key products are from the imidazolinone family. Imidazolinones, which are essentially non-toxic to wildlife and other non-target species, also are effective at low application rates under a variety of agricultural practices. This has made for widespread acceptance of imidazolinone products in weed control worldwide. The pyrrole family of compounds represents a new major insecticide class for controlling insects that infest a wide variety of crops. The pyrroles have proved to be effective even where resistance to current insecticides exists. The first of the pyrrole insecticides, Pirate (chlorfenapyr), was sold in several U.S. states in 1995 under an emergency exemption for use on cotton and is marketed internationally. Pirate cotton insecticide and Alert, the formulation for fruits, vegetables and citrus, currently are under review for registration in the United States. Like the imidazolinones, the pyrroles have excellent prospects for becoming major global franchises. [PHOTO] Jody Furch, Research Chemist in Cyanamid's Agricultural Products Research Division. Jody Furch contributed to the synthesis of the breakthrough pyrrole compound used in Pirate. This compound is extremely effective against insects and mites. Mr. Furch also is co-inventor of a process that has allowed Cyanamid to prepare commercial quantities of pyrrole insecticides. [PHOTO] Mike Brunetti, a cotton producer in Jonesville, Louisiana, found that certain insects were resistant to his usual insecticides. In 1995, Mr. Brunetti used Pirate, which was available in certain states under an emergency exemption. He had excellent results and looks forward to EPA approval of this novel insecticide. 11 Pharmaceutical Products Pipeline More than 50 potential new pharmaceutical products are in clinical development at American Home Products. Certain of the most promising projects that are in Phase II and beyond are detailed below. We expect that many of the therapies, indications, dosage forms and vaccines in our pipeline will be made available to the medical community and patients within the next few years. More than half of these major clinical projects are either under review by regulatory authorities for marketing approval or are in advanced Phase III clinical development - the final step before a New Drug Application (NDA) is submitted. The majority of these products have significant potential in markets worldwide. A Approved NDA NDA filed PLA PLA amendment filed III Phase 3 II Phase 2 x United States / / International /x/ Worldwide
NDA --- Product Name Description / Indication Status A PLA III II - ----------------------------------------------------------------------------------------------------------------------------------- Lodine(R) XL Once-a-day dosing for osteoarthritis, rheumatoid arthritis and management of chronic pain / / x - ----------------------------------------------------------------------------------------------------------------------------------- Zosyn(R) Nosocomial pneumonia (additional indication) / / x - ----------------------------------------------------------------------------------------------------------------------------------- Duract(TM) Analgesia for acute and chronic pain (including primary dysmenorrhea) x - ----------------------------------------------------------------------------------------------------------------------------------- Normiflo(TM) Prophylaxis of DVT and PE in knee surgery x - ----------------------------------------------------------------------------------------------------------------------------------- Redux(TM) Long-term treatment of obesity in patients on a reduced calorie diet x - ----------------------------------------------------------------------------------------------------------------------------------- Lyrelle(R) Patch Estrogen replacement therapy for treatment of vasomotor symptoms related to menopause / / - ----------------------------------------------------------------------------------------------------------------------------------- Leukine(R) a b,d c (Immunex) a Prophylaxis of neutropenia resulting from chemotherapy x x x b Prevention of post-operative infection c Reduction of infection in HIV d Neonatal infection - ----------------------------------------------------------------------------------------------------------------------------------- Alredase(R) Adjunct to insulin/oral hypoglycemic agents for prevention/treatment of diabetic complications / / x - ----------------------------------------------------------------------------------------------------------------------------------- Harmonet(R) Lower dose estrogen with benefits of the progestin gestodene / / x - ----------------------------------------------------------------------------------------------------------------------------------- Tri-Minulet(R)/Minulet(R) Oral contraceptives containing the progestin gestodene / / x - ----------------------------------------------------------------------------------------------------------------------------------- Acel-Imune(R) Prophylaxis vs. D,T and P for children up to 7 years old (acellular pertussis component) /x/ - ----------------------------------------------------------------------------------------------------------------------------------- Effexor(R)XR Once-a-day dosing alternative for Effexor(R) antidepressant /x/ - ----------------------------------------------------------------------------------------------------------------------------------- Recombinant Factor IX (Genetics Institute) Hemophilia B; blood-clotting factor /x/ - ----------------------------------------------------------------------------------------------------------------------------------- Gestodene/EE Lowest-dose estrogen/progestin oral contraceptive / / - ----------------------------------------------------------------------------------------------------------------------------------- Levonorgestrel/EE Lowest available estrogen dose with the progestin levonorgestrel /x/ - ----------------------------------------------------------------------------------------------------------------------------------- Neumega(TM)rhIL-11 (Genetics Institute) Chemotherapy-induced thrombocytopenia and epithelial protection /x/ - ----------------------------------------------------------------------------------------------------------------------------------- Pneumococcal Conjugate Vaccine Prophylaxis against pneumococcal systemic disease /x/ - ----------------------------------------------------------------------------------------------------------------------------------- Prempro(TM) Secondary prevention of cardiovascular disease /x/ - -----------------------------------------------------------------------------------------------------------------------------------
12 x United States / / International /x/ Worldwide
NDA --- Product Name Description / Indication Status A PLA III II - ----------------------------------------------------------------------------------------------------------------------------------- Rotashield(TM)/Rotamune(TM) Orally administered vaccine to prevent rotaviral gastroenteritis in infants /x/ - ----------------------------------------------------------------------------------------------------------------------------------- Tasosartan Once-a-day A-II antagonist anti-hypertensive with improved side effects and compliance /x/ - ----------------------------------------------------------------------------------------------------------------------------------- Tasosartan/HCTZ Once-a-day A-II antagonist anti-hypertensive/diuretic with improved side effects and compliance /x/ - ----------------------------------------------------------------------------------------------------------------------------------- DTaP-HibTITER(R) Prophylaxis vs. D,T, P and Haemophilus influenzae b diseases (acellular pertussis component) /x/ - ----------------------------------------------------------------------------------------------------------------------------------- Trimegestone/17B-estradiol Treatment of vasomotor symptoms and prevention of osteoporosis with endometrial protection / / - ----------------------------------------------------------------------------------------------------------------------------------- Zaleplon Non-benzodiazepine sedative/hypnotic for the treatment of general insomnia /x/ - ----------------------------------------------------------------------------------------------------------------------------------- GPA-748 Oral therapy for the treatment of growth hormone deficiency x - ----------------------------------------------------------------------------------------------------------------------------------- Novantrone(R) a,b b,c (Immunex) a Hormone refractory prostate cancer x x b Metastatic breast cancer c Non-Hodgkin's lymphoma (Phase I and II) - ----------------------------------------------------------------------------------------------------------------------------------- Adatanserin Non-benzodiazepine for the treatment of anxiety /x/ - ----------------------------------------------------------------------------------------------------------------------------------- ARI-509 Adjunct to insulin/oral hypoglycemic agents for prevention/treatment of diabetic complications /x/ - ----------------------------------------------------------------------------------------------------------------------------------- rhBMP-2 (Genetics Institute) Bone repair and regeneration* (Phase I and II) /x/ - ----------------------------------------------------------------------------------------------------------------------------------- BTA-243 Antiobesity agent with no CNS action for chronic obesity treatment /x/ - ----------------------------------------------------------------------------------------------------------------------------------- Effexor(R)XL Once-a-day OROS(R) Effexor(R) dose form with improved convenience, compliance and side effects /x/ - ----------------------------------------------------------------------------------------------------------------------------------- Gestodene/17B-estradiol Novel oral contraceptive; combination of gestodene and 17B-estradiol / / - ----------------------------------------------------------------------------------------------------------------------------------- rhIL-12 Novel immunomodulator (Phase I and II); joint venture with Genetics Institute /x/ - ----------------------------------------------------------------------------------------------------------------------------------- Meningococcal Conjugate Vaccine Prophylaxis against meningococcal systemic type C disease /x/ - ----------------------------------------------------------------------------------------------------------------------------------- PDA-641 Oral prophylaxis for treatment of asthma; replacement for oral/inhaled steroids /x/ - ----------------------------------------------------------------------------------------------------------------------------------- Rapamune(TM) Immunosuppressive therapy for prophylaxis of renal transplant rejection /x/ - ----------------------------------------------------------------------------------------------------------------------------------- RSV Subunit Vaccine Prevention of RSV-mediated lower respiratory disease for at-risk children and the elderly /x/ - ----------------------------------------------------------------------------------------------------------------------------------- S-TNF-R Management of rheumatoid arthritis; joint venture with Immunex /x/ - -----------------------------------------------------------------------------------------------------------------------------------
* Under evaluation by the U.S. Food and Drug Administration as a combination device 13 Review of Operations [PHOTO] Ethical Pharmaceuticals, Vaccines and Nutritionals Wyeth-Ayerst is one of the largest pharmaceutical organizations in the world. Significant progress in integrating and consolidating operations worldwide after the American Cyanamid acquisition has created a highly coordinated, global enterprise that can quickly and efficiently focus resources on markets with the most potential for growth. In the United States, Wyeth-Ayerst products are prescribed more often and used in a broader range of therapeutic categories than those of any other research-based pharmaceutical company. Major programs are under way to position Wyeth-Ayerst as a valuable partner with managed care providers that account for an increasing percentage of health care products purchases. Wyeth-Ayerst has entered into agreements with most major managed care organizations and continues to establish customized programs, services, software and educational resources that support these growing customers. Additionally, by offering both branded and generic products, Wyeth-Ayerst is meeting the preference of many managed care providers to work with fewer suppliers of pharmaceutical products to achieve cost-efficiency. Internationally, Wyeth-Ayerst is a leader in women's health care, mental health and nutritionals. Indicative of its expanding, global presence are activities in the emerging markets of China, Southeast Asia and Eastern Europe. Wyeth-Ayerst is among the world leaders in pharmaceutical research and development investment. Clinical programs are global in scope and involve thousands of patients in a wide range of therapeutic areas. American Home Products is the majority shareholder in Genetics Institute, Inc., a leading company in biotechnology, and also is a majority owner of Immunex Corporation. In November 1995, American Home Products made a proposal to acquire all of the outstanding shares of Immunex not already owned by AHP for $14.50 per share in cash. Immunex subsequently rejected the proposal. Cardiovascular and Metabolic Disease Therapies Wyeth-Ayerst offers physicians a wide range of cardiovascular products for treating patients with arrhythmia, hypertension and angina. Cordarone (amiodarone HCl) oral was strengthened as the number one selling antiarrhythmia product in the United States. The growth of Cordarone reflects increasing acceptance among electrophysiologists and cardiologists. Cordarone I.V. was launched in the United States in October 1995 as therapy for life-threatening ventricular arrhythmias and will have market exclusivity for seven years. This new product also was approved for marketing in Canada. The synergy between the intravenous and oral formulations is expected to accelerate growth for the Cordarone family. Wyeth-Ayerst is represented in virtually all of the major anti-hypertensive classes. Leading products include Verelan (verapamil HCl), Ziac (bisoprolol fumarate/hydrochlorothiazide), Maxzide (triamterene/hydrochlorothiazide), Tenex (guanfacine HCl), Inderal LA (propranolol HCl) and Cardene I.V. (nicardipine HCl). Verelan remained an important product in the $3.7 billion calcium channel-blocker category. Verelan offers a unique sustained release delivery system that provides 24-hour blood pressure control in a single dose. Ziac was up significantly in sales in its second year on the market as the first and only low-dose combination product recommended for first-line therapy in mild-to-moderate hypertension. It provides efficacy with very few side effects. 14 [PHOTO] Maxzide, a potassium-conserving diuretic, is indicated for controlling blood pressure and offers physicians an alternative for patients who are susceptible to hypokalemia. Tenex is a centrally acting agent with a low side-effect profile that is highly suited to elderly patients. Cardene I.V. gives surgeons and anesthesiologists an easy and predictable option for controlling hypertensive situations in the hospital. In the angina category, ISMO (isosorbide mononitrate) and Isordil (isosorbide dinitrate) continue to give Wyeth-Ayerst a strong presence. ISMO was the first mononitrate on the market and maintains a leadership position. Wyeth-Ayerst expects to further expand its presence in institutional vascular products sales with the registration and introduction of Normiflo (ardeparin sodium), a low molecular-weight heparin for prevention of venous thromboembolic disease in orthopedic surgery patients. The U.S. Food and Drug Administration's (FDA) Endocrinologic & Metabolic Drugs Advisory Committee recommended approval of Redux (dexfenfluramine HCl). Final labeling for this product currently is under review at the FDA. Redux is the first new prescription antiobesity therapy in nearly 20 years and is expected to be indicated for long-term treatment of obesity. In 1996, data on the retinopathy indication for Alredase (tolrestat) will be analyzed, and a decision regarding a New Drug Application (NDA) submission is expected to be made. Anti-Inflammatory and Gastroenterology Drugs Wyeth-Ayerst is building leadership in pharmaceutical products for the treatment of pain and inflammation. Growth for Lodine (etodolac) and Oruvail (ketoprofen) strengthened Wyeth-Ayerst's number one position in the highly competitive $1.8 billion non-steroidal anti-inflammatory drug (NSAID) category in the United States. Lodine is the second most widely dispensed branded NSAID. In 1996, Wyeth-Ayerst expects to introduce a 500 mg. dosage form of Lodine which will further strengthen this franchise. Impressive sales growth for Lodine also was recorded internationally. The drug currently is registered in 52 countries as therapy for osteoarthritis, rheumatoid arthritis and pain and is marketed in 33 countries. The Wyeth-Ayerst and Takeda Chemical Industries, Inc. (Takeda) joint venture will markedly increase the size of the sales force promoting Lodine in Japan, where this product was launched in 1994. The introduction of new 100 mg. and 150 mg. dosage strengths contributed to significant sales growth for Oruvail, the extended release form of Orudis. Early in 1996, Wyeth-Ayerst received FDA market clearance for Naprelan (naproxen sodium), a product offering important improvements over the widely used conventional formulation of naproxen sodium. Naprelan uses the breakthrough Intestinal Protective Drug Absorption System to provide patients with both rapid onset and 24-hour relief from inflammation and pain with a single dose. Wyeth-Ayerst anticipates receipt of FDA market clearance in 1996 for Duract (bromfenac sodium), a potent non-narcotic analgesic developed for management of pain. Immunex research programs include a tumor necrosis factor receptor in Phase II trials that has shown promise in reducing symptoms of advanced rheumatoid arthritis. Genetics Institute is evaluating Neumega recombinant human interleukin-eleven (Neumega rhIL-11) in a Phase I study of Crohn's disease, a form of inflammatory bowel disease. Zoton/Lanzo (lansoprazole), a proton pump inhibitor licensed from Takeda, had strong sales in most of the 10 international markets where it is sold by Wyeth-Ayerst. Proton pump inhibitors are the latest and most effective treatment for reflux esophagitis and duodenal ulcers. 15 [PHOTO] Mental Health Products Wyeth-Ayerst markets important, innovative therapies for depression, anxiety and related disorders. Effexor (venlafaxine HCl), a structurally novel antidepressant, is experiencing steady growth and continued to expand in the United States and in international markets. Effexor is registered in 26 countries, was introduced in several important European markets in 1995 and has registrations pending in 20 countries. Launches scheduled for 1996 include major markets in Europe and Latin America. [PHOTO] More than 2 million prescriptions were dispensed for Effexor in its first full year on the market in the United States. Mounting worldwide acceptance is giving this unique product strong sales opportunities in the nearly $3.4 billion antidepressant market, which is growing by approximately 29% annually. Effexor inhibits both serotonin and norepinephrine reuptake, which are believed to play central roles in the cause of depression. A claim for rapid onset of action has been obtained in the majority of international markets where it has been approved, and Effexor began a U.S. clinical trial for this claim in 1995. Effexor also has been approved for use in some international markets in treating depression that often accompanies anxiety, and a Phase III trial is under way for this claim. In Europe, Wyeth-Ayerst is a leader in sales of tranquilizers and hypnotics. Ativan (lorazepam), one of the world's leading anti-anxiety drugs, grew in sales in many markets outside the United States. Sales declined in the United States due to generic competition. Other products recording increased sales internationally were Serepax (oxazepam), for short-term treatment of anxiety; Loramet (lormetazepam), a therapy for insomnia and sleep disorders; and Normison (temazepam), a hypnotic/sedative compound. Anti-Infectives Wyeth-Ayerst maintains a strong presence in anti-infectives with major products that are marketed worldwide. In the United States, sales of anti-infectives declined during 1995 due to increased competition from generics and new branded products. Suprax (cefixime) is an important once-a-day oral, third-generation cephalosporin indicated for adult and pediatric respiratory and urinary tract infections. Phase IIIb clinical trials are ongoing to support expanded indications. A supplemental NDA filing for sinusitis is expected in 1996. Zosyn (piperacillin sodium/tazobactam sodium) is a broad spectrum intravenous product that represents a therapeutic advance due to its stability in the presence of enzymes produced by some bacteria that inactivate certain antibiotics. Zosyn is expected to receive clearance in 1996 for the critically important indication of nosocomial pneumonia, a condition accounting for the largest hospital usage of antibiotics. Sales significantly increased for this product internationally, where it is marketed in 20 countries as Tazocin. Increased competition reduced sales for Pipracil (piperacillin), a broad spectrum, semi-synthetic penicillin. Minocin (minocycline HCl) declined slightly in sales in 1995 but maintained its position as the world's leading oral antibiotic for the treatment of moderate-to-severe acne. 16 [PHOTO] Genetics Institute and Wyeth-Ayerst are jointly evaluating recombinant human interleukin-twelve (rhIL-12) in early clinical studies of human immunodeficiency virus (HIV) and cancer to determine rhIL-12's potential as a novel anti-viral agent. Vaccines Wyeth-Lederle Vaccines and Pediatrics develops and markets a broad array of leading childhood and adult vaccines in the United States and is in the vanguard of efforts to discover new vaccines to prevent several of the most serious infectious diseases worldwide. In the United States, sales of vaccines showed modest growth in 1995 mainly due to the Vaccines for Children program, a new government entitlement that provides free vaccines not only to the underprivileged but increasingly to those who can afford to pay for them. We continue to regard vaccines as one of the most cost-effective components of health care. Tetramune, the leading combination vaccine licensed for protection against diphtheria, tetanus, pertussis and Haemophilus influenzae type b, recorded sales growth in its second full year on the market in the United States. This vaccine reduces by half the number of injections a child requires by age 15 months for immunization against these diseases. Tetramune also is sold internationally. Wyeth-Lederle is one of the largest suppliers of influenza, cholera, typhoid and adenovirus vaccines in the United States and is the only U.S. manufacturer of oral polio vaccine, marketed under the Orimune trademark. Sales of Pnu-Imune 23, a pneumococcal vaccine, increased as a result of growing physician and patient acceptance of adult immunization. RespiGam, an immune globulin with high levels of antibodies against respiratory syncytial virus (RSV), was licensed for marketing in January 1996. RespiGam, which is co-promoted with MedImmune, is indicated in certain high-risk children for the prevention of respiratory syncytial virus, the leading cause of pneumonia and bronchiolitis in infants. Phase III studies are nearing completion, and a Product License Application (PLA) is planned in late 1996 for Rotashield/ Rotamune, the first vaccine to prevent a major cause of severe acute gastroenteritis in infants and young children. A supplement to the PLA for Acel-Imune, a combination of diphtheria and tetanus toxoids with an acellular pertussis component, will be filed in early 1996 to support its use in infants, based on recently completed efficacy trials. New vaccines are being developed to protect against infant pneumonia and middle ear infections. Research priorities also include new combination vaccines and delivery systems designed to reduce the number of injections required to fully immunize children. Pediatric Health Care In January 1996, Wyeth-Ayerst announced that it will phase out its U.S. infant nutritional products business, largely due to a changing marketplace and the spiraling growth of the Women, Infants and Children (WIC) Supplemental Food Program, which now accounts for more than half of all formula consumed in the United States and requires product to be sold below our cost of production. Wyeth-Ayerst will continue to market infant formula outside the United States, where more than 85% of global sales are recorded and category growth potential remains strong. Nutritional franchise sales increased internationally. The first-age formula S-26 has widespread support and is a leader in Australia, China, Hong Kong and the United Kingdom. S-26 incorporates the latest scientific advances in infant nutritional formulas to physiologically simulate human milk. Nursoy, a soy-based formula for infants and children allergic to cow's milk, had steady sales increases in many countries. Follow-on formulas such as Promil for infants aged six months and older posted excellent sales gains and continued to grow in importance as a result of increased support from the pediatric community. Sales exceeded expectations for Progress, a 17 [PHOTO] growing-up milk specially formulated for children one to four years of age. Generic Products ESI Lederle, a business division of Wyeth-Ayerst, is among the largest manufacturers and suppliers of generic oral and injectable products in the United States and is a leading supplier of injectables to hospitals. It offers more than 125 different oral and injectable products in over 550 different dosage sizes and packages. ESI Lederle is positioned to benefit from the favorable long-term growth prospects of the generics business. In 1995, ESI Lederle launched 11 new products. Abbreviated New Drug Applications were filed for six new products. Wyeth-Ayerst also is intensifying efforts to build the generics business in Europe through Pan-Efeka, a new company that became fully operational in 1995. Pan-Efeka is focused on Germany, where Wyeth-Ayerst has developed a major, growing generics business through acquisitions, as well as Denmark, the Netherlands, the United Kingdom and other major markets. Cough/Cold/Allergy Products Wyeth-Ayerst is a leader in prescriptions for cough/cold/allergy products in the United States. Key products include the Robitussin lines of cough control products, the combination antihistamine/decongestant formulas of Dimetane and the codeine formulas of the Phenergan (promethazine) line which are used in the treatment of serious colds and allergies. Oncology Therapies Several advances in oncology therapy were made by Immunex, which markets anti-cancer products in North America. The FDA approved Leukine (sargramostim) for several new indications in 1995. This product became the first white blood cell stimulant to receive clearance for use in older adults following high-dose chemotherapy for acute myelogenous leukemia. Leukine also was approved for use following allogeneic bone marrow transplantation from genetically matched donors and is the first growth factor indicated for use in mobilizing peripheral blood progenitor cells (PBPC) and for use after PBPC transplantation. Leukine was found to shorten the time for white blood cell recovery and to decrease the overall incidence of infection and length of hospital stays. Sales of Novantrone (mitoxantrone) were up in 1995. Novantrone is used in the treatment of acute myelogenous leukemia in the United States and also is registered internationally for the treatment of breast cancer and non-Hodgkin's lymphoma. Biopharmaceuticals and Immunomodulators Phase II clinical studies are proceeding for Wyeth-Ayerst's Rapamune (sirolimus) as first-line chronic therapy in renal transplant patients for the prevention and treatment of acute rejection. Rapamune has been shown to be safe and well-tolerated and to significantly reduce the occurrence of acute rejection episodes in renal transplant recipients when taken with certain other therapies. Phase III trials are planned for 1996. Significant progress was made in several areas by Genetics Institute, which is focused on developing portfolios of genetically engineered human proteins for use in treating a range of health problems. Genetics Institute is one of the world's two suppliers of recombinant Factor VIII for the treatment of Hemophilia A, a bleeding disorder. In 1995, Genetics Institute's sales of recombinant Factor VIII to its marketing partner, Baxter Healthcare Corporation, increased by more than 90%. Recombinant Factor IX advanced into global Phase III clinical trials for the treatment of Hemophilia B. Submissions for market approvals are expected to be made in the United States and Europe by the second half of 1996. Phase III clinical trials were begun for Neumega rhIL-11, an agent for enhancing blood platelet production. 18 [PHOTO] Recombinant human bone morphogenetic protein-two (rhBMP-2) is expected to enter pivotal clinical trials in 1996. This protein has shown encouraging preclinical activity as a treatment for multiple indications where bone growth or repair is desired. Phase I/II clinical trials began for rhIL-12 in cancer patients. Wyeth-Ayerst and Genetics Institute are jointly developing and commercializing this immune system modulator. Women's Health Care A world leader in women's health care, Wyeth-Ayerst is the largest provider of hormone replacement therapy (HRT) and hormonal contraceptive products. In the United States, Premarin (conjugated estrogens) continued to be the most widely dispensed product and was among the most economical prescription medications, costing patients approximately 40 cents per day. Internationally, the Premarin family of products reached higher levels of acceptance and recorded significant sales growth in many markets. Premarin is registered in 86 countries, and approvals for various Premarin products are pending in 43 countries. Premarin is indicated for prevention of osteoporosis, a debilitating bone disease that begins soon after menopause, and as therapy for short-term symptoms of menopause such as hot flashes and vaginal atrophy. Approximately one in four women over the age of 50 are at risk for osteoporosis, which causes approximately 1.5 million bone fractures each year in the United States alone and results in medical costs exceeding $10 billion annually. The Premarin franchise continued to expand with products that provide individualized therapy for menopausal and postmenopausal women. The recent introduction of single tablet Prempro and Premphase in the United States in January 1996 marked a major advance in HRT therapy. Wyeth-Ayerst's commitment to osteoporosis therapy was broadened this year by a collaborative venture with Merck & Co., Inc. (Merck) involving Fosamax (alendronate sodium). Fosamax, the first in a new class of medicines for the treatment of osteoporosis in postmenopausal women, received FDA clearance in October 1995. Under its agreement with Merck, Wyeth-Ayerst is promoting Fosamax to obstetricians and gynecologists in the United States. This venture is expected to complement the Premarin business and to further develop the expanding market for osteoporosis therapies. Wyeth-Ayerst continued to be the leader in the $2.6 billion global oral contraceptive market. Triphasil (levonorgestrel), also marketed internationally under the trademark Trinordiol, remained the second most widely prescribed triphasic oral contraceptive in the United States. It is registered in 82 countries worldwide and has registration approvals pending in five. Minulet (monophasic gestodene) and Tri-Minulet (triphasic gestodene) recorded sales gains in Europe. These third-generation progestins have pharmacologic and biochemical profiles similar to natural progesterone and provide a low dose of steroid per cycle. PEPI Results Confirm Benefits of Combination HRT The benefits of combination hormone replacement therapy (HRT) have been reconfirmed for postmenopausal women. According to the latest Postmenopausal Estrogen/Progestin Interventions (PEPI) trial finding, adding a progestin to estrogen replacement therapy offers protection of the uterus in nonhysterectomized women by helping to prevent endometrial hyperplasia (overgrowth of the lining of the uterus). These findings, recently published in the Journal of the American Medical Association, emphasize the benefits of HRT, a therapy combining estrogen and progestin. 19 [PHOTO] Tri-Minulet is available in 22 countries and has registrations pending in two others. Minulet is available in 74 countries with registrations pending in nine others. Recently published data regarding a possible association between oral contraceptives and the risk of venous thromboembolism led to a review of oral contraceptive products by the European regulatory committee - the Committee on Proprietary Medicinal Products or the CPMP. After its preliminary review, the CPMP decided to take no formal action. However, along with other manufacturers, Wyeth-Ayerst is submitting additional data for further evaluation by the CPMP. An NDA is scheduled to be submitted early in 1996 for a new, low-dose levonorgestrel product that would have the lowest estrogen content available in the United States. Specialty Pharmaceuticals The Specialty Pharmaceuticals Division companies provide specialized products and services to the pharmaceutical industry. The Eurand Group offers a broad spectrum of oral drug delivery technologies for tastemasking and for controlling the release of a pharmaceutical product in the body to prolong activity or provide improved absorption. During 1995, Eurand achieved two major milestones: completion of construction of its technologically advanced research and production facility near Milan, Italy, and completion of formulation development of an oral form of calcitonin for the treatment of osteoporosis. Scientific Protein Laboratories (SPL) is a leading supplier of heparin and pancreatin bulk drug substances, which are derived from animal tissue. During 1995, under agreements with two pharmaceutical research companies, SPL also scaled up processes and produced drug substances for Phase III clinical trials on two new drugs for which the active component is extracted from material of animal origin. Disease Management A joint venture company was formed in 1995 by Wyeth-Ayerst and Medco Containment Services, Inc., a subsidiary of Merck, to develop, market and implement comprehensive disease management and health management programs. The mission of the new company is to meet the U.S. health care system's need for integrated medical, pharmaceutical and patient management services in selected therapeutic areas, thereby improving the quality of care and reducing overall costs. The venture will strive to become the premier designer, developer and provider of women's health management programs in areas such as menopause, osteoporosis, family planning and prenatal care. Programs also will be developed for arthritis and cardiac arrhythmias. Consumer Health Care The OTC medications and vitamin and mineral supplements of Whitehall-Robins and Lederle represent one of the largest consumer health care franchises in the world with premier brands that receive high consumer recognition. On a pro forma basis, OTC sales in the United States during 1995 remained even versus the prior year while international sales increased. Higher worldwide sales of vitamins and nutritional products and cough/cold products largely were offset by lower sales of analgesic, asthma and family planning products. Whitehall-Robins and Lederle have three of the top 10 selling brands in the large and intensely competitive U.S. marketplace - Advil, Robitussin and Centrum - and overall maintain the number one or number two position in 12 major OTC segments. A key to this leadership is a major, coordinated research, development, marketing and manufacturing effort to bring prescription drugs to the OTC market. Orudis KT (ketoprofen) was approved by the FDA for OTC marketing in the United States and was launched on November 8, 1995. In addition, the FDA Non-Prescription and Gastrointestinal Drugs Advisory 20 [PHOTO] Committees unanimously recommended approval of a non-prescription version of Axid (nizatidine), an H2 antagonist for the prevention of heartburn, acid indigestion and sour stomach. Whitehall-Robins also is a leading supplier of OTC medicines in Canada and continues to build major franchises in Europe, Asia and Latin America through expansion of popular brands in core categories such as analgesics, digestive remedies, cough medicines, cold remedies and vitamins. New products developed specifically for local markets are contributing to growth as well. New Advil Gel Caplets, a concentrated medication with an easy-to-swallow gelatin coating, strengthened the competitive position of Advil in the United States and reinforced the brand's "advanced medicine" image. Advil is the largest-selling OTC ibuprofen product in the United States, Canada and France and is the second largest-selling OTC analgesic in the United States. Analgesics Whitehall-Robins further strengthened its position in the U.S. analgesic category by increasing share for the Advil (ibuprofen) line. While factory sales declined, consumer sales growth for Advil was achieved in the face of intense competition and was fueled by heavy advertising and the introduction of Advil Gel Caplets. An NDA was filed in 1995 to switch Children's Advil Suspension, a Wyeth-Ayerst prescription product, to OTC status. FDA approval to market this product in the growing OTC children's analgesics category is anticipated in 1996. Cough/Cold/Allergy Remedies During 1995, Robitussin cough syrups outpaced the category in sales growth, reaching a new high in share. A major sales contribution was made by Robitussin Cold, Cough & Flu Liqui-Gels, introduced last year. Additional contributions were made by Robitussin Pediatric Night Relief and by the launch of Robitussin Pediatric Drops, an expectorant/decongestant/cough suppressant combination. Consumer sales gains also were recorded for Robitussin Cough Drops, the second largest-selling brand of cough drops in the United States. In the highly competitive cold segment, Dimetapp sales growth outpaced that of the category. The brand capitalized on growth in the allergy segment, recording increased sales from the introduction of Dimetapp Allergy Dye-Free Elixir and Dimetapp Allergy Sinus caplets. The successful introduction of Dimetapp Cold & Fever in the growing children's cough/cold category benefited sales as well. Advil Cold & Sinus (ibuprofen and pseudoephedrine) continued to record growth in the United States and Canada. Vitamin and Mineral Supplements Significant increases in sales and market share were exhibited by Centrum and Centrum Silver, the number one and number two selling products, respectively, in the growing U.S. adult multivitamin category. Centrum, Jr. holds the number two position in the U.S. children's vitamin category. Caltrate PLUS, an advanced formula introduced at the end of 1994, posted sales gains and helped to establish Caltrate as the number two brand in the calcium supplement category. This category is experiencing strong growth primarily due to media coverage of the benefits of calcium supplements and the increasing number of women who are entering menopause and are at risk of osteoporosis. Consumer sales were up for FiberCon, a bulk-forming fiber laxative in the United States. 21 [PHOTO] Hemorrhoidal and Asthma Relief U.S. sales for Preparation H increased relative to the prior year. The brand continued to lead in the hemorrhoidal relief category in the United States, Canada, Mexico and several European countries. Sales of Primatene, the number one OTC asthma relief product in the United States, were lower in 1995 due to competition from private label products. In-Home Diagnostics A sales gain was recorded for Clearplan Easy, the leader in the growing U.S. ovulation predictor category. Clearblue Easy declined in sales in the U.S. pregnancy test kit category as a result of increasing price competition. Lip Care, Topical Oral Analgesics and Medicated Shampoo The Chap Stick lip balm franchise grew in sales as a category leader in the United States, bolstered by continued success of its medicated line and the introduction of Chap Stick Ultra SPF 30 in the sun care segment. Sales gains in the maximum strength segment sustained Anbesol as a leading line of topical oral analgesics in the adult and baby categories. Sales increases in the extra strength segment helped maintain Denorex as a leader in medicated shampoos in the United States and Canada. Medical Devices Sherwood-Davis & Geck and Storz Instrument Company manufacture and market one of the world's leading portfolios of specialized medical devices. Their innovative products are recognized by patients and health care providers for quality and cost-efficiency. Sherwood-Davis & Geck was formed in 1995 through the merger of Sherwood Medical and Davis & Geck. Complementary products and a broadened research and development program are enabling the combined entities to more effectively address new market requirements related to the proliferation of national group purchasing organizations and the growth of local integrated health care networks. The new company also is better positioned to capitalize on opportunities in global markets. Tubes, Catheters and Chest Drainage Products Strong growth was recorded for the Argyle line, giving Sherwood-Davis & Geck U.S. leadership in important categories such as umbilical vessel catheters, naso-gastric tubes and incentive breathing exercisers. The company also holds a major share in chest drainage products in the United States. Sherwood-Davis & Geck expanded its presence in critical and chronic care products by assuming responsibility for marketing the Quinton disposable catheter product line. This line includes a variety of short- and long-term vascular access catheters for hemodialysis as well as peritoneal dialysis catheters and insertion accessories. Disposable Syringes and Needles Hypodermic needles and syringes continued to be an area of emphasis for Sherwood-Davis & Geck. In the safety category, a complete range of Monoject needle and syringe combinations is marketed to protect health care workers from accidental needlesticks and exposure to blood-borne pathogens. The Monoject Bone Marrow Biopsy needle was introduced in 1995. This product provides more control and effectiveness in obtaining biopsy samples. Enteral Feeding Systems The introduction of the new Kangaroo EntriFlush pump strengthened Sherwood-Davis & Geck's leadership in enteral feeding devices in the United States. The pump features a unique pro- 22 [PHOTO] grammable flushing system that enhances the ease of fluid control. Sales of enteral access devices increased significantly in the United States led by jejunal feeding tubes, which are used to reach and feed the jejunum section of the small intestine. Thermometry Sales for Sherwood-Davis & Geck's FirstTemp Genius infrared tympanic thermometers increased significantly in the United States, fueled by agreements with three major national purchasing alliances. Growth also was achieved internationally, led by sales increases in Europe and Australia. Wound Care and Wound Closure Products Sherwood-Davis & Geck's non-adherent dressing line in the United States was broadened by the introduction of the new Vaseline oil emulsion dressing. Wound closure products posted sales growth internationally, led by Dexon II, Maxon and Surgilene sutures. The introduction of Staysharp plastic surgery needles in the United States marked a significant improvement in strength and sharpness in the area of cosmetic and reconstructive surgery. Cardiopulmonary Instrumentation and Devices The introduction of a new generation of technologically advanced cardiac testing systems strengthened Quinton Instrument Company as a leading provider of monitoring products that support the patient from initial diagnosis through cardiac rehabilitation. Quinton's position as a leader in stress-testing equipment is expected to benefit significantly from the release of the Q710 Monitor. Designed as a cost-efficient system for physicians' offices, this product combines sophisticated exercise and resting electrocardiogram testing in a single portable system. Vision Care Products Storz is a global manufacturer and marketer of ophthalmic products. In 1995, Storz extended its market penetration in ophthalmic surgical equipment throughout the world. Hydroview foldable lens was introduced into international markets and currently is in Phase II clinical trials in the United States. Research and development activity is focused on innovative technologies for new markets. Chondroitinase, an enzyme to facilitate and enhance safety during certain retinal procedures, entered Phase I clinical trials. An Investigational New Drug application was filed for cidofovir, a broad spectrum topical anti-viral agent for the treatment of herpes and adenovirus. Work is in progress on an injectable gel for the correction of myopia and astigmatism. Agricultural Products Cyanamid is a leader in the global agricultural market. Innovative research vaulted Cyanamid to the forefront in marketing novel compounds for crop and noncrop uses that meet increasingly stringent safety and environmental demands. Cyanamid continued to expand its presence in emerging markets by receiving more than 100 worldwide registrations in 1995 for new uses and combinations of existing products and began 1996 with six new compounds under regulatory review. A large number of discovery compounds, many with potential worldwide application, moved through the discovery phase, including three which advanced to full development. Cyanamid's global research and development network expanded with the opening of a new Discovery and Development Agricultural Center in Japan that primarily will support commercial activities in the Far East. Herbicides The principal Cyanamid herbicides are based on the imidazolinones, a unique class of chemical compounds that are essentially safe to wildlife and are effective at low application rates. 23 [PHOTO] Pursuit (imazethapyr) recorded excellent sales growth, further strengthening its position as the leading broadleaf soybean herbicide in the United States, Argentina and Canada. Gains in the United States were attributable to higher soybean acreage and weather that increased the demand for this premier post-emergent product. Farmers also responded favorably to Pursuit in the ECO-PAK, a water soluble package that eliminates container disposal problems. Pursuit also is used in the United States for weed control in peanuts and was introduced to the alfalfa market in 1995. Prowl (pendimethalin) recorded strong sales growth in the United States as the leading grass herbicide in soybeans. The brand had a substantial sales increase internationally, where it is marketed as Stomp. Gains also were registered in Europe and the Middle East for Assert (imazamethabenz-methyl), a herbicide used on cereal crops. Arsenal (imazapyr), the leading forestry herbicide in the United States, was up in sales and registered gains internationally. Other important crop herbicides sold in various markets are Squadron (pendimethalin/imazaquin) and Scepter (imazaquin). New product introductions include Detail (imazaquin/ dimethenamid), a soybean herbicide combining broadleaf and grass control, and Resolve SG (imazethapyr/dicamba), a broad spectrum corn herbicide that improves weed control and minimizes the potential for development of weed resistance. The U.S. Environmental Protection Agency (EPA) granted an Experimental Use Permit for Raptor (imazamox), which provides a broad spectrum of weed control for a variety of crops, including imidazolinone-resistant crops. A new rice herbicide is under development that offers effective weed control when applied at transplanting. This feature makes it particularly appropriate for Japan, the number one rice herbicide market in the world, where the majority of rice grown is transplanted. Registration filings are under way in key markets throughout the Asia/Pacific region. Insecticides Counter (terbufos) increased its share of corn soil insecticide sales in the United States and recorded a major increase in sales internationally. Customers continued to shift to the new, easier-to-use packaging and a low-dust, controlled-release formulation. Counter, together with Thimet (phorate), which also is sold internationally, maintained the leading position in corn soil insecticides in the United States. Cascade (flufenoxuron) and Fastac (alpha-cypermethrin), used for a variety of crops, achieved strong sales gains internationally. Pirate (chlorfenapyr), a new cotton insecticide, was introduced under an emergency exemption for use on cotton in several U.S. states. This insecticide, marketed internationally, is the first product from the novel pyrrole family, a new class of compounds developed by Cyanamid researchers. The pyrroles have produced excellent results in field trials for controlling insects, including those that have become resistant to other insecticides. Fungicides Excellent growth for the fungicide business internationally was due in large part to the continued success of Caramba (metconazole), Delan (dithianon) and Acrobat (dimethomorph), which are used on a wide range of crops. Acrobat MZ became the first product from the acquisition of the agricultural business of Shell Petroleum Company Ltd. to be launched by Cyanamid in the United States. This fungicide, which has a new mode of action that has proved to be effective in controlling late blight in potatoes, was sold under an emergency exemption in 1995. An EPA registration application has been submitted. Acrobat has been approved for marketing in key Latin American markets. 24 [PHOTO] Animal Health Care Fort Dodge Animal Health is a leader in animal health care worldwide, ranking second in animal vaccines in North America and expanding rapidly in international biological and pharmaceutical markets. A significant research and development effort is focused on finding new technologies for a wide range of animal health problems. On a pro forma basis, U.S. sales of animal health care products declined in 1995 while international sales increased. Small Animal and Equine Products Increased sales for Duramune combination canine biologicals maintained Fort Dodge's leadership in U.S. canine biologicals. Duramune products were licensed in Denmark, Holland and Spain. LymeVax (Borrelia burgdorferi bacterin), the canine Lyme disease vaccine, entered the European market with license approval in Spain. Fel-O-Vax Lv-K IV, a combination vaccine, recorded a sales increase in the growing U.S. feline biological market. This product also is the largest dollar-volume companion animal vaccine in Canada. Licenses were approved for other Fel-O-Vax combination vaccines in Denmark, Holland, Italy, Switzerland and the United Kingdom. The first moxidectin formulation for horses, Equest Gel, was launched in New Zealand. It is the only product on the market to provide single-dose control of encysted cyathostomes, an internal parasite that is a common cause of equine colic. Dairy, Cattle and Sheep Products Fort Dodge strengthened its position in the beef cattle market by acquiring the Syntex Animal Health business from affiliates of F. Hoffmann-La Roche Ltd. Acquired products include the Synovex line of hormonal implants, designed to improve the feed efficiency and increase the rate of weight gain in beef cattle, and Synanthic (oxfendazole), used for removal and control of parasites in beef and non-lactating dairy cattle. Approval was received early in 1996 for Synovex Plus, which will enable Fort Dodge to compete in the fast-growing trenbolone acetate combination implant market. Fort Dodge Animal Health holds a leading position in sales of intra-mammary mastitis prevention and treatment products for the U.S. dairy industry with ToDAY, ToMORROW, Cefa-Lak and Cefa-Dri. Bovine biological sales were strengthened by the strong performance of PYRAMID MLV 4, which was introduced in 1994. This is the first four-way modified live vaccine licensed by the U.S. Department of Agriculture (USDA) that provides single-dose administration as well as the option of subcutaneous or intramuscular injection. [PHOTO] Cydectin, a formulation of moxidectin, received European registration approvals in 1995 for use in treating sheep and cattle. A major effort is under way to develop new label claims and novel formulations for moxidectin, an endectocide developed by Cyanamid to protect livestock and companion animals against a broad range of internal and external parasites. The worldwide market for endectocides is estimated to be more than $700 million. Registration approvals were received in Europe for moxidectin formulations under the Cydectin trademark for use in treating sheep and cattle. Eweguard, the first and only endectocide and vaccine combination product, was registered for sheep in New Zealand and gained a leadership position in ovine endectocides within three months of its introduction. 25 [PHOTO] Integrated Global Research and Development The research and development entities of Fort Dodge and Cyanamid merged in 1995 to form global units for animal biological and pharmaceutical R&D. U.S. biological research and development primarily is focused on areas of traditional strength - dogs, cats, cattle and horses. Second- and third-generation Lyme disease products are under development in the canine area. Feline pipeline products include recombinant DNA-delivered vaccines for protection against an AIDS-like syndrome and peritonitis disease. New bovine respiratory and shipping fever vaccines are being developed. In early 1996, a new strain of equine influenza vaccine was approved by the USDA. Food Products American Home Food Products and Canadian Home Products are recognized for high-quality, nutritious convenience foods. In the United States during 1995, sales for all major brands declined due to higher trade inventories - resulting from previous trade-incentive programs - and new competitive entries. Despite these pressures, key brands continued to be leaders in major categories, and several initiatives were undertaken late in the year to expand these leadership positions. These steps include a significant increase in consumer advertising support and the planned introduction of aggressive new advertising and public relations campaigns. Prepared Meals and Side Dishes Chef Boyardee, the leading brand in the prepared pasta category in the United States, expanded its offerings for toddlers and children through the introduction of Spider-Man and X-Men canned pasta varieties. These line extensions obtained high distribution and were well-received by consumers. Chef Boyardee Microwave Meals, which holds a leading share in the microwave pasta segment, benefited from the success of rice products in chicken and beef varieties. Food Enhancements and Snacks PAM, the largest-selling no-stick cooking spray in the United States, continued to be favored by consumers as a low-fat, no cholesterol alternative to butter, margarine and oil. Polaner All Fruit, which contains no added sugar or fat, remained the number one fruit juice sweetened spreadable fruit. A new boysenberry variety was added to the line, and aggressive efforts to expand the brand's availability resulted in an increased presence in mass merchandisers. Crunch 'n Munch, a leading brand of glazed popcorn in the United States, expanded its presence in the warehouse-snack category. Crunch 'n Munch Reduced Fat was launched successfully, and the introduction of Buttery Toffee in a 3.5-ounce size provided an additional opportunity to increase distribution in smaller retail outlets as well as drug stores and special market franchises. Gulden's remained the largest-selling spicy brown mustard in the United States. Ro*Tel continued as the number one selling brand of canned tomatoes and green chilies. 26 Principal Products - United States Ethical Pharmaceuticals, Vaccines and Nutritionals - -------------------- Women's Health Lo/Ovral Nordette Ovral Ovrette Premarin Premphase Prempro Stuartnatal Plus Triphasil - -------------------- Cardiovascular Cordarone Cordarone I.V. Inderal LA ISMO Isordil Maxzide Quinidex Sectral Tenex Verelan Ziac - -------------------- Mental Health Ativan Effexor Serax - -------------------- Anti-Inflammatories Lodine Naprelan Orudis Oruvail - -------------------- Anti-Infectives Minocin Myambutol Pipracil Suprax Zosyn - -------------------- Vaccines Acel-Imune FluShield HibTITER Orimune Pnu-Imune 23 Tetramune Tri-Immunol - -------------------- Pediatric Health Children's Advil Suspension Donnagel - -------------------- Oncology Therapies Ativan Injection Leukine Novantrone Reglan Thioplex - -------------------- Generic Products atenolol Aygestin cefaclor cimetidine Cycrin gemfibrozil heparin propranolol HCl Tubex vancomycin HCl Wydase - -------------------- Other Products Dimetane Micro-K Phenergan Consumer Health Care - -------------------- Analgesics and Cough/Cold/Allergy Advil Advil Cold & Sinus Anacin Dimetapp Dristan Orudis KT Robitussin - -------------------- Vitamin and Mineral Supplements Caltrate Centrum Centrum, Jr. Centrum Silver - -------------------- Other Products Anbesol Chap Stick Clearblue Easy Clearplan Easy Denorex FiberCon Preparation H Primatene Food Products - -------------------- Chef Boyardee Prepared Foods Canned and microwave entrees Packaged dinners Pizza mixes, sauces - -------------------- Regional Specialties Dennison's Luck's Ranch Style Ro*Tel - -------------------- Food Enhancements and Snacks Crunch 'n Munch Gulden's Jiffy Pop PAM Polaner Medical Devices - -------------------- Sherwood-Davis & Geck Argyle tubes, catheters and drainage devices Blisterfilm, Ultec and Viasorb dressings Davis & Geck wound closure products, including sutures, nee- dles and skin staplers FirstTemp Genius tym- panic thermometers and Filac predictive thermometers Kangaroo enteral feed- ing systems and enteral access devices Monoject needles and syringes Quinton dialysis catheters Voldyne incentive breathers - -------------------- Quinton Instruments Cardiac stress test systems Cardiopulmonary exercise systems Cath lab hemodynamic systems Digital imaging and analysis systems Electrocardiographs Electrophysiology systems Holter monitoring systems Telemetry systems Treadmills - -------------------- Storz Instruments Diamox, Neptazane glaucoma therapies EZE-FIT intraocular lenses Microseal microsurgery handpieces Ocuvite ocular vitamins Premiere, Protege microsurgical equip- ment Agricultural Products - -------------------- Herbicides Arsenal Assert Detail Prowl Pursuit Resolve Scepter Squadron - -------------------- Insecticides Amdro Counter Thimet Animal Health Care - -------------------- Veterinary Pharmaceuticals and Biologicals Cydectin Discovery Duramune Fel-O-Vax Fluvac Ketaset LymeVax Presponse PYRAMID Synanthic Synovex ToDAY ToMORROW Triangle 27 Ten-Year Selected Financial Data
American Home Products Corporation and Subsidiaries - ------------------------------------------------------------------------------------------------------- (Dollar amounts in thousands except per share amounts) Years Ended December 31, 1995 1994(2) 1993 ======================================================================================================= Summary of Sales and Earnings Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $13,376,089 $8,966,214 $8,304,851 Net income(1) . . . . . . . . . . . . . . . . . . . . . . . 1,680,418 1,528,254 1,469,300 Net income per common share . . . . . . . . . . . . . . . . 5.42 4.97 4.73 Dividends per common share . . . . . . . . . . . . . . . . 3.02 2.94 2.86 ======================================================================================================= Year-End Financial Position Current assets . . . . . . . . . . . . . . . . . . . . . . $7,986,137 $7,821,246 $4,807,684 Current liabilities . . . . . . . . . . . . . . . . . . . . 4,556,248 4,618,086 1,584,411 Ratio of current assets to current liabilities . . . . . . 1.75 1.69 3.03 Total assets . . . . . . . . . . . . . . . . . . . . . . . 21,362,923 21,674,812 7,687,353 Long-term debt . . . . . . . . . . . . . . . . . . . . . . 7,808,757 9,973,240 859,278 Average shareholders' equity . . . . . . . . . . . . . . . 4,898,550 4,065,295 3,719,539 ======================================================================================================= Shareholders - Outstanding Shares Number of common shareholders . . . . . . . . . . . . . . . 68,763 71,223 72,664 Number of preferred shareholders . . . . . . . . . . . . . 605 666 726 Average number of common shares outstanding used for earnings per share calculation (in thousands) . 309,835 307,413 310,668 Preferred shares outstanding at year-end (in thousands) . . 34 37 40 ======================================================================================================= Employment Data Number of employees at year-end . . . . . . . . . . . . . . 64,712 74,759 51,399 Wages and salaries . . . . . . . . . . . . . . . . . . . . $2,674,330 $1,820,450 $1,654,984 Benefits (including social security taxes) . . . . . . . . 684,077 441,768 396,045 - -------------------------------------------------------------------------------------------------------
(1) Net income in 1995 includes a gain of $623,870 on the sale of the South American oral health care business, special charges of $308,317 and a restructuring charge of $117,156. Excluding these items, 1995 net income was $1,482,021, and net income per common share was $4.78. Net income in 1992 includes the impact of Statement of Financial Accounting Standards Nos. 106 and 109, adopted January 1, 1992. The net effect of these statements increased net income $310,104. Net income in 1992 also includes a charge of $220,000 for research acquired from Genetics Institute, Inc. Excluding these items, 1992 net income was $1,370,738, and net income per common share was $4.36. Net income in 1987 excludes a provision related to Dalkon Shield claims of $1.75 billion recorded by A.H. Robins Company, Incorporated prior to its acquisition by the Company in 1989. (2) The 1994 information reflects the acquisition of American Cyanamid Company for the one month ended December 31, 1994. 28
- ----------------------------------------------------------------------------------------------------------- 1992 1991 1990 1989 1988 1987 1986 =========================================================================================================== $7,873,687 $7,079,443 $6,775,182 $6,747,016 $6,401,454 $5,850,383 $5,683,507 1,460,842 1,375,273 1,230,597 1,102,158 995,461 928,232 865,922 4.65 4.36 3.92 3.54 3.22 2.98 2.73 2.66 2.375 2.15 1.95 1.80 1.67 1.55 =========================================================================================================== $4,552,077 $4,119,057 $3,826,075 $3,532,786 $3,256,494 $3,310,467 $3,249,404 1,492,717 1,270,135 1,693,852 1,108,895 1,067,599 1,392,800 1,103,109 3.05 3.24 2.26 3.19 3.05 2.38 2.95 7,141,405 5,938,797 5,637,107 5,681,487 5,492,424 5,411,150 4,928,476 601,934 104,710 111,430 1,895,796 100,057 90,076 70,815 3,431,568 2,987,885 2,322,623 1,651,050 1,077,462 1,572,972 2,227,801 =========================================================================================================== 73,064 71,209 69,907 70,904 70,021 73,353 75,405 780 870 931 1,021 1,110 1,187 1,314 314,201 315,726 314,066 311,644 309,396 311,975 317,678 43 51 57 64 71 77 87 =========================================================================================================== 50,653 47,938 48,700 50,816 51,464 50,623 49,896 $1,575,615 $1,388,397 $1,398,721 $1,391,233 $1,284,208 $1,171,788 $1,045,691 367,899 300,810 312,750 256,458 245,834 215,109 164,306 - -----------------------------------------------------------------------------------------------------------
29 Consolidated Balance Sheets
American Home Products Corporation and Subsidiaries - ---------------------------------------------------------------------------------------------------------------------- (In thousands except share amounts) December 31, 1995 1994 ====================================================================================================================== Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,802,397 $ 1,696,204 Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,672 247,970 Accounts receivable less allowances (1995 - $135,609 and 1994 - $99,468) . . . . . . . . 2,613,439 2,380,730 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,301,953 2,246,150 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050,676 1,250,192 -------------------------- Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,986,137 7,821,246 Property, plant and equipment: Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,534 178,693 Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,705,772 2,422,113 Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,165,440 2,857,269 -------------------------- 6,045,746 5,458,075 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,085,411 1,646,145 -------------------------- 3,960,335 3,811,930 Goodwill and other intangibles, net of accumulated amortization (1995 - $971,057 and 1994 - $705,399) . . . . . . . . . . . . . . . . . . . . . . . . 8,649,985 9,181,129 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766,466 860,507 -------------------------- $21,362,923 $21,674,812 -------------------------- ====================================================================================================================== Liabilities Loans payable to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,217 $ 113,284 Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980,114 1,042,468 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,150,758 2,999,127 Accrued federal and foreign taxes on income . . . . . . . . . . . . . . . . . . . . . . . 353,159 463,207 -------------------------- Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,556,248 4,618,086 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,808,757 9,973,240 Accrued postretirement benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . 732,063 696,814 Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,415,620 1,809,153 Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307,237 323,418 ====================================================================================================================== Shareholders' Equity $2 convertible preferred stock, par value $2.50 per share; 5,000,000 shares authorized . 85 91 Common stock, par value $.33 1/3 per share; 600,000,000 shares authorized (outstanding shares: 1995 - 313,700,000 and 1994 - 305,981,000) . . . . . . . . . . . 104,567 101,994 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,515,154 1,020,658 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,980,665 3,226,100 Currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . (57,473) (94,742) -------------------------- Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,542,998 4,254,101 -------------------------- $21,362,923 $21,674,812 -------------------------- - ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated balance sheets. 30 Consolidated Statements of Income
American Home Products Corporation and Subsidiaries - ------------------------------------------------------------------------------------------------------- (In thousands except per share amounts) Years Ended December 31, 1995 1994 1993 Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . $13,376,089 $8,966,214 $8,304,851 ------------------------------------------ Cost of goods sold . . . . . . . . . . . . . . . . . . . . 4,534,320 2,795,581 2,723,902 Selling, general and administrative expenses . . . . . . . 4,974,253 3,175,684 2,922,579 Research and development expenses . . . . . . . . . . . . . 1,354,963 817,090 662,689 Interest expense (income), net . . . . . . . . . . . . . . 514,920 8,756 (42,503) Other (income) expense, net . . . . . . . . . . . . . . . . (98,184) (34,354) 45,519 Gain on sale of oral health care business . . . . . . . . . (959,845) - - Restructuring charges . . . . . . . . . . . . . . . . . . . 180,240 173,697 - Special charges . . . . . . . . . . . . . . . . . . . . . . 436,724 - - ------------------------------------------ 10,937,391 6,936,454 6,312,186 ------------------------------------------ Income before federal and foreign taxes on income . . . . . 2,438,698 2,029,760 1,992,665 Provision for taxes on income: Federal . . . . . . . . . . . . . . . . . . . . . . . . 401,573 249,961 287,846 Foreign . . . . . . . . . . . . . . . . . . . . . . . . 356,707 251,545 235,519 ------------------------------------------ 758,280 501,506 523,365 ------------------------------------------ Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 1,680,418 $1,528,254 $1,469,300 ========================================== Net Income per Share of Common Stock . . . . . . . . . . . $ 5.42 $ 4.97 $ 4.73 ========================================== - -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements. 31 Consolidated Statements of Retained Earnings and Additional Paid-in Capital
American Home Products Corporation and Subsidiaries - --------------------------------------------------------------------------------------------------------------------------------- (In thousands except per share amounts) Years Ended December 31, 1995 1994 1993 ================================================================================================================================= Retained Earnings Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,226,100 $2,884,244 $2,547,719 Add: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,680,418 1,528,254 1,469,300 -------------------------------------- 4,906,518 4,412,498 4,017,019 -------------------------------------- Less: Cash dividends declared: Preferred stock (per share: 1995 - 1993, $2.00) . . . . . . . . . . . . . . . . 71 76 82 Common stock (per share: 1995 - 1993, $3.02, $2.94, $2.86) . . . . . . . . . . . 934,725 903,089 888,100 -------------------------------------- 934,796 903,165 888,182 Cost of treasury stock acquired, less amounts charged to capital . . . . . . . . . 6,544 272,061 244,593 -------------------------------------- 941,340 1,175,226 1,132,775 -------------------------------------- Change in unrealized gain/(loss) on marketable securities . . . . . . . . . . . . . . 15,487 (11,172) - -------------------------------------- Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,980,665 $3,226,100 $2,884,244 -------------------------------------- ================================================================================================================================= Additional Paid-in Capital Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,020,658 $1,014,911 $953,155 Add: Excess over par value of common stock issued . . . . . . . . . . . . . . . . . . 495,323 41,448 84,013 Less: Cost of treasury stock acquired, less amounts charged to retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 827 35,701 22,257 -------------------------------------- Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,515,154 $1,020,658 $1,014,911 -------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements. 32 Consolidated Statements of Cash Flows
American Home Products Corporation and Subsidiaries - --------------------------------------------------------------------------------------------------------------------------------- (In thousands) Years Ended December 31, 1995 1994 1993 ================================================================================================================================= Operating Activities Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,680,418 $ 1,528,254 $ 1,469,300 Adjustments to reconcile net income to net cash provided from operating activities: Gains on sales of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . (959,845) (51,612) - Restructuring and special charges . . . . . . . . . . . . . . . . . . . . . . . . 616,964 173,697 - Gains on sales of other assets . . . . . . . . . . . . . . . . . . . . . . . . . (23,703) (42,115) - Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . 679,221 306,169 241,068 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (145,070) (92,259) 153,314 Changes in working capital, net of businesses acquired or sold: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (268,445) 13,972 (135,038) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (111,147) (157,072) (8,341) Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (102,073) (161,674) (13,101) Trade accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . (85,331) 324,795 62,758 Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110,720) 121,807 27,333 Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342,795 (16,040) (115,905) --------------------------------------- Net cash provided from operating activities . . . . . . . . . . . . . . . . . . . . . $ 1,513,064 $ 1,947,922 $ 1,681,388 --------------------------------------- ================================================================================================================================= Investing Activities Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . $ (637,501) $ (472,510) $ (517,912) Purchases of businesses for cash, net of cash acquired . . . . . . . . . . . . . . . (130,000) (9,356,230) (67,500) Proceeds from sales of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,519,059 113,539 13,614 Proceeds from sales of other assets/(purchases of other assets), net . . . . . . . . 526,988 75,435 (16,038) Proceeds from marketable securities, net . . . . . . . . . . . . . . . . . . . . . . 45,842 24,307 6,154 --------------------------------------- Net cash provided from/(used for) investing activities . . . . . . . . . . . . . . . $ 1,324,388 $(9,615,459) $ (581,682) --------------------------------------- ================================================================================================================================= Financing Activities Net proceeds from commercial paper and notes . . . . . . . . . . . . . . . . . . . . $ - $ 8,639,718 $ 251,646 Net repayments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,205,550) - - Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (934,796) (903,165) (888,182) Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,402) (313,807) (277,495) Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469,763 37,805 69,255 Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,502) (46,413) - --------------------------------------- Net cash provided from/(used for) financing activities . . . . . . . . . . . . . . . (2,736,487) 7,414,138 (844,776) --------------------------------------- Effects of exchange rates on cash balances . . . . . . . . . . . . . . . . . . . . . 5,228 12,769 (10,857) --------------------------------------- Increase/(decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . 106,193 (240,630) 244,073 Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . 1,696,204 1,936,834 1,692,761 --------------------------------------- Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . $ 1,802,397 $ 1,696,204 $ 1,936,834 --------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements. 33 Notes to Consolidated Financial Statements 1 Summary of Significant Accounting Policies Principles of Consolidation: The accompanying consolidated financial statements include the accounts of American Home Products Corporation and its subsidiaries (the Company). The financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on judgments and estimates made by management. As of December 31, 1995, the Company owned approximately 63% of Genetics Institute, Inc. (G.I.) and 53% of Immunex Corporation. The Company holds an option to acquire the remaining shares of G.I. from the public shareholders until December 31, 1996 at prices escalating by approximately $1.84 per quarter, to $85 per share. Description of Business: The Company is a U.S.-based multi-national corporation engaged in the discovery, development, manufacture, distribution and sale of a diversified line of products in three business segments: health care products, agricultural products and food products. Health care products include branded and generic ethical pharmaceuticals, biologicals, nutritionals, consumer health care products, medical devices, and animal biologicals and pharmaceuticals. Agricultural products include crop protection and pest control products such as herbicides, insecticides, fungicides and plant growth regulators. Food products include entrees, side dishes, spreadable fruit products, snacks and other food products. The Company sells its diversified line of products to wholesalers, pharmacies, hospitals, physicians, retailers and other health care institutions located in various markets in 145 countries throughout the world. The Company is not dependent on any single or major group of customers for its sales. The Company is not dependent on any one patent-protected product or line of products for a substantial portion of its revenues or profits. However, Premarin, the Company's conjugated estrogens product, which has not had patent protection for many years, does contribute significantly to sales and results of operations. See "Competition" in Management's Discussion and Analysis of Financial Condition and Results of Operations on page 49 for further details. Cash and Cash Equivalents, for purposes of reporting cash flows, consists primarily of certificates of deposit, time deposits and other short-term, highly liquid securities and is stated at cost, which approximates fair value. Marketable Securities consists of U.S. government or agency issues and corporate bonds and are stated at fair value, which approximates amortized cost. The fair values are estimated based on quoted market prices. Inventories are valued at the lower of cost or market. Inventories valued under the last-in, first-out (LIFO) method amounted to $688,736,000 at December 31, 1995 and $716,354,000 at December 31, 1994. Current value exceeded LIFO value by $66,367,000 and $70,206,000 at December 31, 1995 and 1994, respectively. The remaining inventories are valued under the first-in, first-out (FIFO) or the average cost method. Inventories at December 31 consisted of:
In thousands) 1995 1994 - --------------------------------------------------------- Finished goods . . . . . . . $1,142,174 $1,158,045 Work in progress . . . . . . 567,437 525,269 Materials and supplies . . . 592,342 562,836 ------------------------- $2,301,953 $2,246,150 =========================
Property, Plant and Equipment is carried at cost. Depreciation is provided over the estimated useful lives of the related assets, principally on the straight-line method. Goodwill, the excess of cost over the fair value of net assets acquired, is being amortized on the straight-line method over various periods not exceeding 40 years. The Company continually reviews goodwill to evaluate whether changes have occurred that would suggest goodwill may be impaired based on the estimated cash flows of the entity acquired over the remaining amortization period. If this review indicates that the remaining estimated useful life of goodwill requires revision or that the goodwill is not recoverable, the carrying amount of the goodwill is reduced by the estimated shortfall of cash flows on a discounted basis. During 1995, Statement of Financial Accounting Standards (SFAS) No. 121 - "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of " was issued. SFAS No. 121 is effective for fiscal years beginning after December 15, 1995 and is not expected to have a material impact on the Company's results of operations. Long-Term Debt is stated at face value, which approximates fair value. The fair value of the Company's long-term debt is estimated based on market prices. Interest Rate Swap and Foreign Currency Agreements: The Company enters into interest rate swap and foreign currency agreements to manage specifically identifiable risks. The Company does not speculate on interest or currency exchange rates. The fair value of interest rate swap and foreign currency agreements is based on market prices. The value represents the estimated amount the Company would receive/pay to terminate the agreements taking into consideration current interest rates or currency exchange rates. 34 Currency Translation: The majority of the Company's international operations are translated into U.S. dollars using current exchange rates with translation adjustments accumulated in shareholders' equity. Net Income per Share of Common Stock is based on the average number of common shares outstanding during the year: 309,835,000 shares in 1995, 307,413,000 shares in 1994 and 310,668,000 shares in 1993. The dilutive effect of the Company's common share equivalents related to outstanding stock options was not considered in the calculations of net income per share of common stock since the effect was less than 3%. As a result, the presentation of fully diluted earnings per share is not shown. Common Stock Split: There were 600,000,000 shares of common stock authorized at December 31, 1995. In January 1996, the Company's Board of Directors approved a stock split in the form of a 100% stock dividend, subject to shareholder approval of an increase in the number of authorized shares of common stock from 600,000,000 to 1,200,000,000 at the Company's annual meeting on April 23, 1996. The amount of outstanding shares and related per share amounts for the current and prior periods presented in the accompanying consolidated financial statements have not been adjusted retroactively to reflect the proposed common stock split. Reclassifications: Certain reclassifications have been made to the 1994 and 1993 consolidated financial statements to conform with the 1995 presentation. 2 Acquisitions and Divestitures On November 21, 1994, the Company acquired substantially all the outstanding shares of American Cyanamid Company (ACY) for approximately $9.6 billion, including acquisition-related costs. The acquisition was accounted for under the purchase method of accounting, and, accordingly, ACY's operating results have been included with the Company's since December 1, 1994. Based upon a final evaluation of the fair values allocated to the net assets of ACY, the purchase price exceeded the net assets acquired by approximately $8.1 billion. The amount differs from the initial estimate of $8.5 billion due to additional adjustments in 1995 to the net assets of ACY. The following unaudited pro forma results of operations reflect the ACY acquisition as if it had occurred at the beginning of 1994 after including the impact of adjustments for interest expense on ACY acquisition debt, amortization of ACY goodwill and merger-related financing costs, and related income tax benefits:
(In thousands except per share amounts) 1994 - --------------------------------------------------------- Sales . . . . . . . . . . . . . . . . . . $13,500,376 Net income . . . . . . . . . . . . . . . $ 1,273,000 Net income per share of common stock . . $ 4.14 - ---------------------------------------------------------
The unaudited pro forma results are not necessarily indicative of what actually would have occurred if the ACY acquisition had been in effect for the period presented. Further, the pro forma results are not intended to be a projection of future results and do not reflect any integration costs, cost savings resulting from synergistic opportunities or the results of operations of other businesses acquired or disposed of in 1995 and 1994. In addition to the ACY acquisition, the Company divested various businesses and other assets as follows: In January 1995, the Company sold its South American oral health care business for approximately $1.0 billion, resulting in a pre-tax gain of $959,845,000. The net proceeds from the sale were used primarily to reduce the debt relating to the ACY acquisition. Net income and net income per share for 1995 include an after-tax gain of $623,870,000 or $2.01 per share related to this transaction. During 1995, the Company sold certain businesses and other assets acquired in the ACY acquisition for total pre-tax proceeds aggregating $956,004,000. Gains on the sales of these items reduced ACY acquisition-related goodwill. The businesses sold in 1995 were not material to the Company's consolidated financial position or results of operations. The Company had other acquisitions and divestitures during the 1993 - 1995 period, the effects of which, individually and in the aggregate, were not material to the Company's consolidated financial position or results of operations. 3 Restructuring and Special Charges In the 1995 third quarter, the Company recorded a restructuring charge of $180,240,000 ($117,156,000 after-tax) to recognize the costs of implementing the integration plan for the ACY acquisition related to American Home Products Corporation operations. The integration plan eliminates excess production capacity and facilities, reduces overhead and realigns the Company's resources to achieve its strategic objectives. The restructuring charge excluded costs associated with ACY personnel and facilities as these costs were included in the overall evaluation of net assets acquired from ACY. 35 In the 1994 second quarter, the Company recorded a restructuring charge of $173,697,000 ($112,903,000 after-tax) to recognize the costs of consolidating the manufacturing, distribution and quality control functions for the U.S. pharmaceutical and consumer health care businesses. Since the implementation of these restructuring programs, the combined restructuring accruals have decreased by approximately $135,329,000 due to cash expenditures related primarily to severance and related outplacement costs, production and administrative facility closure costs, and noncash charges to reduce the carrying value of certain assets related to manufacturing operations. Since 1994, total workforce reductions related to all restructuring and integration plans have resulted in the elimination of approximately 6,900 positions worldwide. Special charges aggregating $436,724,000 ($308,317,000 after-tax) were recorded in the 1995 fourth quarter. The special charges included provisions for environmental liabilities related to ACY due to changes in estimates of $228,224,000 and provisions for other special charges of $208,500,000, including the shutdown and discontinuance of the U.S. infant nutritional business and other contingent liability adjustments. The U.S. infant nutritional business is not material to the Company's consolidated financial position or results of operations. 4 Debt and Financing Arrangements The Company's debt at December 31 consisted of:
In thousands) 1995 1994 - ---------------------------------------------------------------- Commercial paper . . . . . . . . . . . $4,749,680 $ 8,796,507 Notes payable: 6.875% notes due 1997 . . . . . . . 250,000 250,000 7.70% notes due 2000 . . . . . . . 1,000,000 - 6.50% notes due 2002 . . . . . . . 250,000 250,000 7.90% notes due 2005 . . . . . . . 1,000,000 - 7.25% debentures due 2023 . . . . . 250,000 250,000 Pollution control and industrial revenue bonds: 5.10% - 8.75% due 1996 - 2020 . . . 162,405 165,932 Sinking fund debentures: 7.375% - 8.375% due 2001 - 2006 . . - 95,129 Other debt: 1.53% - 9.61% due 1996 - 2009 . . . 218,889 278,956 ------------------------ 7,880,974 10,086,524 Less current portion . . . . . . . . . 72,217 113,284 ------------------------ $7,808,757 $ 9,973,240 ========================
In connection with the acquisition of ACY, the Company and certain of its subsidiaries issued short-term notes (commercial paper), of which $4.7 billion was outstanding at December 31, 1995. The weighted average interest rate on the commercial paper outstanding at December 31, 1995 and 1994 was 5.69% and 6.06%, respectively. The commercial paper has original maturities not exceeding 270 days and a weighted average remaining maturity of 44 days as of December 31, 1995. The commercial paper is supported by two credit agreements, established in 1994 to finance the acquisition of ACY, among the Company and certain of its subsidiaries and a syndicate of lenders. The credit facilities were composed initially of a $3.0 billion, five-year credit facility and a $7.0 billion, 364-day credit facility. In 1995, the $10.0 billion of credit facilities were amended to $7.0 billion of credit facilities consisting of a $3.0 billion, five-year credit facility and a $4.0 billion, 364-day credit facility which may be renewed annually with the consent of the majority lenders for an additional 364-day period. Under the terms of the credit facility, if the 364-day credit facility is utilized, the borrowing is extendible for another 364-day period at the option of the Company. The interest rate on borrowings under the credit facilities is based on various rate options available to the Company. The proceeds of the credit facilities may be used to support commercial paper and the Company's general corporate and working capital purposes. The credit facilities contain a financial covenant and various other customary covenants, representations, warranties, conditions and default provisions. As of December 31, 1995, there were no borrowings outstanding under the credit facilities. Commercial paper outstanding at December 31, 1995 is classified as long-term since the Company intends, and has the ability, to refinance these obligations through the issuance of additional commercial paper, through the use of its credit facilities or through the issuance of long-term debt. In February 1995, the Company issued, under a $3.5 billion shelf registration statement, $1.0 billion of 7.70% notes due February 2000 and $1.0 billion of 7.90% notes due February 2005. Net proceeds from these issuances were used to repay commercial paper. The non-callable notes, which have semiannual interest payments due on February 15 and August 15, are unsecured and unsubordinated. 36 The 6.875% and 6.50% non-callable notes have semiannual interest payments due on April 15 and October 15. The 7.25% non-callable debentures have semiannual interest payments due on March 1 and September 1. These notes payable are unsecured and unsubordinated. The aggregate maturities of debt during the next five years as of December 31, 1995 are as follows:
(In thousands) - --------------------------------------------------------- 1996 . . . . . . . . . . . . . . . . . . . $ 72,217 1997 . . . . . . . . . . . . . . . . . . . 293,135 1998 . . . . . . . . . . . . . . . . . . . 60,652 1999 . . . . . . . . . . . . . . . . . . . 20,697 2000 . . . . . . . . . . . . . . . . . . . 1,024,599 Thereafter . . . . . . . . . . . . . . . . 1,659,994 ---------- 3,131,294 Commercial paper . . . . . . . . . . . . . 4,749,680 ---------- Total debt . . . . . . . . . . . . . . . . $7,880,974 ==========
Interest payments in connection with the Company's debt obligations for the years ended December 31, 1995, 1994 and 1993 amounted to $655,111,000, $114,831,000 and $55,215,000, respectively. In October 1994, the Company entered into $4.75 billion notional amount of simple, unleveraged interest rate swap agreements as a means of (1) locking in the underlying U.S. treasury security rates to be paid in connection with long-term debt planned to be issued during 1995 and (2) converting a portion of the commercial paper issued in connection with the acquisition of ACY from a floating rate obligation to a fixed rate obligation. The swap agreements are contracts under which the Company pays a fixed rate of interest and receives a floating rate of interest over the term of the swap agreements without the exchange of the underlying notional amounts. During 1995, the weighted average interest rates paid and received on these agreements were 7.8% and 6.0%, respectively. The swap agreements have maturities ranging from 1996 to 2005. In February 1995, the Company terminated $2.0 billion of interest rate swap agreements in connection with the $2.0 billion issuance of five- and 10-year notes, as discussed above. The effect of terminating these swap agreements was deferred and is being amortized to interest expense over the five- and 10-year terms of the related notes. At December 31, 1995, the fair value of the remaining $2.75 billion of interest rate swap agreements was a payable of $216,906,000. The Company enters into foreign exchange forward contracts as part of its management of foreign currency exposures. The Company does not engage in speculation on foreign currency. At December 31, 1995 and 1994, the Company had notional amounts of $458,900,000 and $312,100,000, respectively, of foreign exchange forward contracts outstanding. The notional amounts of foreign exchange forward contracts approximate fair value. The Company believes that the risk of loss associated with the interest rate or foreign currency agreements, from either non-performance by the counterparties or due to fluctuations in interest or foreign exchange rates, is not material to results of operations. 5 Employee Benefit Plans Pension Plans: The Company sponsors various retirement plans for most full-time employees. Total pension expense for 1995, 1994 and 1993 was $139,329,000, $90,395,000 and $69,741,000, respectively. The Company sponsors defined benefit plans for most domestic and certain foreign locations. Pension plan benefits for the defined benefit plans are based primarily on participants' compensation and years of credited service. It has been the Company's policy to fund all current and prior year service costs under defined benefit retirement plans, and substantially all liabilities for accrued vested and nonvested benefits have been fully funded. The Company also sponsors defined contribution plans for most domestic and certain foreign locations. Contributions to the defined contribution plans are based on a percentage of employees' compensation. Pension expense recognized for these plans totaled $64,682,000 in 1995, $43,029,000 in 1994 and $34,487,000 in 1993. Prior to the ACY acquisition, ACY had various pension plans covering substantially all employees in the United States, Canada and certain European locations. Effective December 31, 1994, ACY's U.S. Employee Retirement Plan was merged with the Company's U.S. pension plan. Net periodic pension cost of defined benefit pension plans was as follows (principally U.S. pension plans):
(In thousands) 1995 1994 1993 - ------------------------------------------------------------------------------ Service cost on benefits earned during the year . . . . . . . . . . $ 55,283 $ 35,642 $ 31,520 Interest cost on projected benefit obligation . . . . . . . . 180,859 69,598 59,485 Actual (return) loss on plan assets . . . . . . . . . . . . . . (490,286) 62,498 (113,393) Net amortization and deferral . . . . . 328,791 (120,372) 57,642 ------------------------------------- Net periodic pension cost . . . . . . . $ 74,647 $ 47,366 $ 35,254 =====================================
37 The actuarial present value of benefit obligations and funded status of the Company's defined benefit pension plans, as of December 31, was as follows (principally U.S. pension plans):
(In thousands) 1995 1994 - ------------------------------------------------------------------------------ Benefit obligations: Vested benefits . . . . . . . . . . . . . . . . $2,126,995 $2,062,791 Nonvested benefits . . . . . . . . . . . . . . 85,840 89,103 ------------------------ Accumulated benefit obligation . . . . . . . . . . 2,212,835 2,151,894 Effect on benefits from projected compensation increases . . . . . . . . . . . . 244,943 276,139 ------------------------ Projected benefit obligation . . . . . . . . . . . 2,457,778 2,428,033 Plan assets at fair value, primarily listed stocks and bonds . . . . . . . . . . . . 2,281,772 2,053,595 ------------------------ Projected benefit obligation in excess of plan assets . . . . . . . . . . . . . 176,006 374,438 Unrecognized net gain (loss) . . . . . . . . . . . 171,404 (36,235) Unrecognized net transition obligation . . . . . . (5,499) (3,787) Unrecognized prior service cost . . . . . . . . . . 5,925 (18,991) ------------------------ Net pension liability . . . . . . . . . . . . . . . $ 347,836 $ 315,425 ========================
The change in the unrecognized net gain (loss) in 1995 is due primarily to the deferral of the difference between the expected return on plan assets and the actual return on plan assets, offset partially by an unrecognized loss due to the decrease in the discount rate. Assumptions used in developing the projected benefit obligation as of December 31 were as follows:
1995 1994 1993 - ------------------------------------------------------------------------------ Discount rate . . . . . . . . . . . . . 7.5% 8.5% 7.5% Rate of increase in compensation . . . 4.0% 5.0% 4.5% Rate of return on plan assets . . . . . 9.0% 8.5-9.0% 8.5% - ------------------------------------------------------------------------------
Postretirement Benefits: The Company provides postretirement health care and life insurance benefits for retired employees of most domestic locations and Canada. Most full-time employees become eligible for these benefits after attaining specified age and service requirements. Prior to the ACY acquisition, ACY had various postretirement benefit plans covering substantially all employees in the United States and Canada. Effective December 31, 1995, ACY's U.S. postretirement plan was combined with the Company's U.S. postretirement plan. Net periodic postretirement health care cost includes the following components:
(In thousands) 1995 1994 1993 - ------------------------------------------------------------------------------ Service cost on benefits earned during the year . . . . . . $15,057 $13,447 $9,759 Interest cost on accumulated postretirement benefit obligation (APBO) . . . . . . . . . 61,693 31,612 26,765 Net amortization . . . . . . . . . . . 290 6,016 1,230 ----------------------------------- Net periodic postretirement health care cost . . . . . . . . . $77,040 $51,075 $37,754 ===================================
The APBO as of December 31 was as follows:
(In thousands) 1995 1994 - ------------------------------------------------------------------------------ Retirees . . . . . . . . . . . . . . . . . . . . . $540,404 $538,617 Fully eligible active participants . . . . . . . . . . . . . . . . . 118,505 147,852 Other active participants . . . . . . . . . . . . . 164,500 144,156 ---------------------- APBO . . . . . . . . . . . . . . . . . . . . . . . 823,409 830,625 Unrecognized net loss . . . . . . . . . . . . . . . (33,300) (78,811) Unrecognized prior service cost . . . . . . . . . . (3,046) - ---------------------- Accrued postretirement benefit obligation . . . . . . . . . . . . . . 787,063 751,814 Less current portion . . . . . . . . . . . . . . . 55,000 55,000 ---------------------- $732,063 $696,814 ======================
Assumptions used in developing the APBO were as follows:
1995 1994 1993 - ------------------------------------------------------------------------------ Discount rate . . . . . . . . . . . . . 7.5% 8.5% 7.5% Increase in per capita cost of health care benefits that gradually decreases over 10 years and is held constant thereafter . . . . . . . . 10%-6% 10.5%-6% 11%-6% - ------------------------------------------------------------------------------
A one percentage point increase in the assumed health care cost trend rates would increase the APBO as of December 31, 1995 by approximately $101,598,000, and the total of the service and interest cost components of the net periodic postretirement health care cost would increase by approximately $9,932,000. 38 6 Other Noncurrent Liabilities Other noncurrent liabilities include reserves for contingencies relating to income taxes, environmental matters, product liability and other litigation, as well as Management Incentive Plan and other employee benefit liabilities. Other noncurrent liabilities also include reserves for restructurings, integration and special charges as discussed in Note 3. The Company has responsibility for environmental, safety and cleanup obligations under various local, state and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. As of December 31, 1995, the Company was a party to, or otherwise involved in, legal proceedings directed at the cleanup of 70 Superfund sites. Thirty-five of these sites are the result of acquiring ACY. These sites exclude sites for which full liability was assumed by Cytec Industries Inc. (Cytec), which was spun off by ACY in 1993, but include certain sites for which there is shared responsibility between ACY and Cytec. In many cases, future environmental-related expenditures cannot be quantified with a reasonable degree of accuracy. It is the Company's policy to accrue environmental cleanup costs if it is probable that a liability has been incurred and an amount is reasonably estimable. As investigations and cleanups proceed, these liabilities are reviewed and adjusted as additional information becomes available. The aggregate environmental-related accruals were $467,800,000 and $248,772,000 at December 31, 1995 and 1994, respectively. As discussed in Note 3, during 1995, a provision of $228,224,000 was recorded for environmental liabilities related to ACY due to changes in estimates. Environmental-related accruals have been recorded without giving effect to any possible future insurance proceeds or the timing of the payments. See Note 11 for a discussion of contingencies. The Company's Management Incentive Plan provides for cash and deferred contingent common stock awards to key employees. The maximum shares issuable under the plan are 12,000,000 shares of common stock, of which 8,900,968 have been awarded through December 31, 1995. Deferred contingent common stock awards plus accrued dividends totaling 421,126 shares were outstanding at December 31, 1995. Awards for 1995, which included ACY participants, amounted to $52,909,000, which included deferred contingent common stock of $10,197,000 (106,271 shares). Total participants in the plan increased to 2,360 employees in 1995 versus 1,429 in the prior year due primarily to the addition of ACY participants. Awards for 1994 were $35,842,000, which included deferred contingent common stock of $6,513,000 (102,398 shares). Awards for 1993 amounted to $31,266,000, which included deferred contingent common stock of $7,120,000 (101,348 shares). 7 Capital Stock There were 600,000,000 shares of common stock and 5,000,000 shares of preferred stock authorized at December 31, 1995. Of the authorized preferred shares, there is a series of shares (34,142 outstanding), which is designated as $2 convertible preferred stock. Each share of the $2 series is convertible at the option of the holder into nine shares of common stock. This series may be called for redemption at $60 per share plus accrued dividends. See Note 1 for a discussion of the proposed stock split approved by the Company's Board of Directors on January 25, 1996. Changes in outstanding common shares during 1995, 1994 and 1993 are summarized as follows:
(In thousands) 1995 1994 1993 - ------------------------------------------------------------------------------ Balance, beginning of year . . . . . . 305,981 310,326 313,048 Issued for stock options and Management Incentive Plan . . . . . 7,792 958 1,754 Conversions of preferred stock (2,371, 3,624 and 3,011 shares in 1995, 1994 and 1993, respectively) . . . . . . 21 33 27 Purchase of shares for treasury . . . . (94) (5,336) (4,503) ----------------------------------- Balance, end of year . . . . . . . . . 313,700 305,981 310,326 ===================================
39 8 Stock Options The Company has three Stock Option Plans - 1985, 1980 and 1978 - and two Stock Incentive Plans - 1993 and 1990. Under the 1993 and 1990 plans, a maximum of 14,000,000 and 12,000,000 options to purchase shares, respectively, may be granted at prices not less than 100% of the fair market value at the date of option grant. No further grants will be made under the 1985, 1980 and 1978 plans. At December 31, 1995, 1,566,560 shares were available for future grants under the 1993 and 1990 plans. In January 1996, the Board of Directors adopted, subject to shareholder approval at the Company's annual meeting on April 23, 1996, the 1996 Stock Incentive Plan under which 15,000,000 shares are available for future grants. The plans provide for the granting of incentive stock options as defined under the Internal Revenue Code. Under the plans, grants may be made to selected officers and employees of non-qualified stock options with a 10-year term or incentive stock options with a term not exceeding 10 years. The plans provide for the granting of Stock Appreciation Rights (SAR), which permit the optionee to surrender an exercisable option for an amount equal to the excess of the market price of the common stock over the option price when the right is exercised. During 1995, SARs were granted to executive officers in tandem with outstanding and newly granted stock options at the exercise price of the underlying option. SARs in tandem with options covering 2,113,635 shares were outstanding and exercisable at December 31, 1995. During 1995, a pre-tax charge of $62,716,000 was incurred related to SARs due to an increase in the market price of the Company's stock and the increased number of outstanding SARs. The 1996, 1993 and 1990 plans, among other things, provide for the issuance of up to 2,000,000 of the available options as restricted stock performance awards under each plan. Restricted stock performance awards representing 26,100 and 54,400 units were granted in 1995 and 1994, respectively, under the plans to certain key executives. These units will be converted to shares of restricted stock based on the achievement of certain performance criteria over a three-year period of restriction. Transactions involving the plans are summarized as follows:
Option Shares 1995 1994 - ------------------------------------------------------------------------------ Outstanding January 1 . . . . . . . . . . . . . . . 21,468,032 21,340,924 Granted . . . . . . . . . . . . . . . . . . . . . . 10,419,750 1,984,050 Canceled . . . . . . . . . . . . . . . . . . . . . (408,540) (971,380) Exercised (1995 - $31.75 to $79.31 per share) . . . . . . . . . . . . . . . (7,735,850) (885,562) ------------------------ Outstanding December 31 (1995 - $35.59 to $91.31 per share) . . . . . . . . . . . . . . . 23,743,392 21,468,032 ======================== Exercisable December 31 . . . . . . . . . . . . . . 13,601,742 19,379,282 ========================
In April 1994, the shareholders approved the Restricted Stock Plan for Non-Employee Directors. Under the plan, a maximum of 25,000 restricted shares may be granted to non-employee directors at not less than 100% of the fair market value at the date of grant. The restricted shares will not be delivered until the end of the restricted period which does not exceed five years. During 1995, SFAS No. 123 - "Accounting for Stock-Based Compensation" was issued. SFAS No. 123 is effective for fiscal years beginning after December 15, 1995 and will have no impact on the Company's results of operations. 9 Interest Expense (Income), Net Interest expense (income), net in the Consolidated Statements of Income includes interest income of $150,101,000, $106,430,000 and $89,677,000 for the years ended December 31, 1995, 1994 and 1993, respectively. 40 10 Income Taxes The provision for income taxes consisted of:
(In thousands) 1995 1994 1993 - ------------------------------------------------------------------------------ Current: Domestic . . . . . . . . . . . . . $545,434 $351,581 $150,916 Foreign . . . . . . . . . . . . . . 357,916 242,184 219,135 ------------------------------------ 903,350 593,765 370,051 Deferred: Domestic . . . . . . . . . . . . . (143,861) (101,620) 136,930 Foreign . . . . . . . . . . . . . . (1,209) 9,361 16,384 ------------------------------------ (145,070) (92,259) 153,314 ------------------------------------ $758,280 $501,506 $523,365 ====================================
Deferred tax assets (liabilities), inclusive of a valuation allowance for deferred tax assets, were reflected in the consolidated balance sheets at December 31 as follows:
(In thousands) 1995 1994 - ------------------------------------------------------------------------------ Net current deferred tax assets . . . . . . . . . . $ 638,291 $629,205 Net noncurrent deferred tax assets . . . . . . . . 374,839 345,730 ------------------------ Net deferred tax assets . . . . . . . . . . . . . . $1,013,130 $974,935 ========================
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Deferred tax assets result principally from the recording of certain accruals and reserves which currently are not deductible for tax purposes. Deferred tax liabilities result principally from temporary differences in the recognition of gains and losses from certain investments and from the use, for tax purposes, of accelerated depreciation. The components of the Company's deferred tax assets and liabilities at December 31 are as follows:
(In thousands) 1995 1994 - ------------------------------------------------------------------------------ Deferred tax assets: Product and environmental liabilities and other operating accruals . . . . . . . . $ 675,180 $ 630,272 Postretirement and other employee benefits . . . . . . . . . . . . . . 478,177 422,458 Net operating loss and other tax credit carryforwards . . . . . . . . . . . . 125,950 167,464 Restructuring and reorganization accruals . . . . . . . . . . . 346,927 306,804 Inventory reserves . . . . . . . . . . . . . . . 131,657 118,817 Investments and advances . . . . . . . . . . . . 54,402 163,794 Other . . . . . . . . . . . . . . . . . . . . . . 67,757 133,592 ------------------------ Total deferred tax assets . . . . . . . . . . . . . $1,880,050 $1,943,201 ------------------------ Deferred tax liabilities: Investments . . . . . . . . . . . . . . . . . . $ (228,394) $ (235,866) Depreciation . . . . . . . . . . . . . . . . . (315,124) (207,637) Pension benefits . . . . . . . . . . . . . . . (65,218) (79,999) Other . . . . . . . . . . . . . . . . . . . . . (51,540) (193,788) ------------------------ Total deferred tax liabilities . . . . . . . . . . $ (660,276) $ (717,290) ------------------------ Deferred tax asset valuation allowance . . . . . . . . . . . . . . (206,644) (250,976) ------------------------ Net deferred tax assets . . . . . . . . . . . . . . $1,013,130 $ 974,935 ========================
Valuation allowances have been established for certain deferred tax assets related to net operating loss carryforwards, reorganizations, product and environmental liabilities, and portions of other deferred tax assets as the Company determined that it was more likely than not that these benefits will not be realized. During 1995, the valuation allowance decreased by $44,332,000 due primarily to the reversal of allowances of $89,936,000 on investments which were sold during the year. These decreases were offset partially by additional allowances of $45,604,000 for deferred tax assets related to net operating loss carryforwards and environmental liabilities. During 1994, the valuation allowance increased by $159,613,000 as reductions in these reserves of $68,929,000 were more than offset by increases of $228,542,000 as a result of the ACY acquisition. During 1993, the valuation allowance was reduced by $9,961,000. A reconciliation between the Company's effective tax rate and the U.S. statutory rate is as follows: 41
Tax Rate 1995 1994 1993 - ------------------------------------------------------------------------------ U.S. statutory rate . . . . . . . . . . 35.0% 35.0% 35.0% Effect of Puerto Rico and Ireland manufacturing operations . . . . . (6.4) (5.5) (6.1) Research credits . . . . . . . . . . . (.6) (1.2) (1.3) ACY goodwill amortization . . . . . . 3.3 - - Other, net . . . . . . . . . . . . . . (.2) (3.6) (1.3) -------------------------------- Effective tax rate . . . . . . . . . . 31.1% 24.7% 26.3% ================================
The higher effective tax rate in 1995 was due primarily to nondeductible goodwill amortization related to the ACY acquisition and the reversal of certain tax reserves that no longer were deemed necessary in 1994. Total income tax payments for the years ended December 31, 1995, 1994 and 1993 amounted to $992,393,000, $536,854,000 and $335,102,000, respectively. 11 Contingencies The Company is involved in various legal proceedings, including product liability and environmental matters of a nature considered normal to its business (see Note 6 for a discussion of environmental matters). It is the Company's policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable. The Company has entered into an agreement to settle the class action case in the Brand Name Prescription Drug Antitrust Litigation relating to claims made by certain retail pharmacies against the Company. The settlement agreement is subject to court approval. The Company continues to be a defendant in the remaining cases in this litigation. The Company believes it has complied with the antitrust laws and other applicable laws and has settled this matter in order to avoid the costs and risks of litigation. The proposed settlement is not an admission of any violation of law. The Company had accrued for the costs of this proposed settlement at December 31, 1995. The Company is self-insured against ordinary product liability risks and has liability coverage in excess of certain limits from various insurance carriers. In the opinion of the Company, although the outcome of any legal proceedings cannot be predicted with certainty, the ultimate liability of the Company in connection with these proceedings will not have a material adverse effect on the Company's financial position but could be material to the results of operations in any one accounting period. 12 Company Data by Industry Segment
(In millions) Years Ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------ Net Sales to Customers - ------------------------------------------------------------------------------ Health Care Products: Pharmaceuticals . . . . . . . . . . $ 7,521.2 $ 5,180.8 $ 4,774.6 Consumer Health Care . . . . . . . 1,994.8 1,821.2 1,743.0 Medical Devices . . . . . . . . . . 1,131.4 883.6 851.5 ------------------------------------- 10,647.4 7,885.6 7,369.1 Agricultural Products . . . . . . . . . 1,909.8 83.3 - Food Products . . . . . . . . . . . . . 818.9 997.3 935.8 ------------------------------------- Consolidated Total . . . . . . . . . . $13,376.1 $ 8,966.2 $ 8,304.9 ===================================== Income before Taxes - ------------------------------------------------------------------------------ Health Care Products(2)(4)(5)(6)(7) . . $ 2,873.4 $ 1,828.9 $ 1,836.7 Agricultural Products(2) . . . . . . . 284.0 8.7 - Food Products . . . . . . . . . . . . . 59.1 155.6 152.4 Corporate(3)(4)(7) . . . . . . . . . . (777.8) 36.6 3.6 ------------------------------------- Consolidated Total . . . . . . . . . . $ 2,438.7 $ 2,029.8 $ 1,992.7 ===================================== Total Assets at December 31(1) - ------------------------------------------------------------------------------ Health Care Products . . . . . . . . . $12,584.8 $13,026.2 $ 5,165.3 Agricultural Products . . . . . . . . . 4,671.2 4,616.1 - Food Products . . . . . . . . . . . . . 485.9 558.8 504.4 Corporate . . . . . . . . . . . . . . . 3,621.0 3,473.7 2,017.7 ------------------------------------- Consolidated Total . . . . . . . . . . $21,362.9 $21,674.8 $ 7,687.4 ===================================== Depreciation and Amortization Expense - ------------------------------------------------------------------------------ Health Care Products(2) . . . . . . . . $ 488.2 $ 258.7 $ 214.4 Agricultural Products(2) . . . . . . . 141.0 14.7 - Food Products . . . . . . . . . . . . . 23.8 19.1 16.9 Corporate . . . . . . . . . . . . . . . 26.2 13.7 9.8 ------------------------------------- Consolidated Total . . . . . . . . . . $ 679.2 $ 306.2 $ 241.1 ===================================== Capital Expenditures - ------------------------------------------------------------------------------ Health Care Products . . . . . . . . . $ 521.4 $ 424.4 $ 416.3 Agricultural Products . . . . . . . . . 52.1 6.3 - Food Products . . . . . . . . . . . . . 26.4 35.5 24.9 Corporate . . . . . . . . . . . . . . 37.6 6.3 76.7 ------------------------------------- Consolidated Total . . . . . . . . . . $ 637.5 $ 472.5 $ 517.9 =====================================
42 Company Data by Geographic Segment
(In millions) Years Ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------ Net Sales to Customers - ------------------------------------------------------------------------------ United States . . . . . . . . . . . . . $ 7,929.1 $ 5,908.0 $ 5,695.8 Europe and Africa . . . . . . . . . . . 3,111.2 1,422.7 1,196.6 Canada and Latin America . . . . . . . 1,292.1 1,022.4 897.7 Asia and Australia . . . . . . . . . . 1,043.7 613.1 514.8 ------------------------------------- Consolidated Total . . . . . . . . . . $13,376.1 $ 8,966.2 $ 8,304.9 ===================================== Income before Taxes - ------------------------------------------------------------------------------ United States(2)(3)(4)(5)(6)(7) . . . . $ 736.9 $ 1,353.0 $ 1,465.7 Europe and Africa(2)(5) . . . . . . . . 535.6 295.7 224.0 Canada and Latin America(2)(4)(5) . . . 1,031.3 269.1 214.9 Asia and Australia(2)(5) . . . . . . . 134.9 112.0 88.1 ------------------------------------- Consolidated Total . . . . . . . . . . $ 2,438.7 $ 2,029.8 $ 1,992.7 ===================================== Total Assets at December 31(1) - ------------------------------------------------------------------------------ United States . . . . . . . . . . . . . $14,746.0 $14,794.5 $ 5,736.6 Europe and Africa . . . . . . . . . . . 3,894.2 4,098.6 1,075.7 Canada and Latin America . . . . . . . 1,547.4 1,517.5 467.5 Asia and Australia . . . . . . . . . . 1,175.3 1,264.2 407.6 ------------------------------------- Consolidated Total . . . . . . . . . . $21,362.9 $21,674.8 $ 7,687.4 =====================================
(1) 1995 includes net goodwill of approximately $7,841.5 related to the purchase of ACY identified as follows: Health Care Products - $4,509.6, Agricultural Products - $3,331.9, United States - $5,042.1, Europe and Africa - $1,717.3, Canada and Latin America - $588.1, Asia and Australia - $494.0 (see Note 2). 1994 includes net goodwill of approximately $8,495.0 related to the purchase of ACY identified as follows: Health Care Products - $4,907.8, Agricultural Products - $3,442.2, Corporate - $145.0, United States - $5,461.4, Europe and Africa - $1,906.1, Canada and Latin America - $614.8, Asia and Australia - $512.7 (see Note 2). (2) 1995 includes ACY goodwill amortization of $258.9 identified as follows: Health Care Products - $155.8, Agricultural Products - $103.1, United States - $156.7, Europe and Africa - $61.2, Canada and Latin America - $23.3, Asia and Australia - $17.7 (see Note 2). 1994 includes ACY goodwill amortization of $19.1 identified as follows: Health Care Products - $11.0, Agricultural Products - $8.1, United States - $12.3, Europe and Africa - $4.2, Canada and Latin America - $1.4, Asia and Australia - $1.2 (see Note 2). (3) 1995 includes ACY acquisition-related interest expense of $559.1 identified as follows: Corporate - $559.1 and United States - $559.1 (see Note 4). 1994 includes ACY acquisition-related interest expense of $55.6 identified as follows: Corporate - $55.6 and United States $55.6 (see Note 4). (4) 1995 includes the gain on sale of South American oral health care business of $959.8 identified as follows: Health Care Products - $814.9, Corporate - $144.9, United States - $144.9, Canada and Latin America - $814.9 (see Note 2). (5) 1995 includes the restructuring charge of $180.2 identified as follows: Health Care Products - $180.2, United States - $66.2, Europe and Africa - $100.3, Canada and Latin America - $9.1, Asia and Australia - $4.6 (see Note 3). (6) 1994 includes the restructuring charge of $173.7 identified as follows: Health Care Products - $173.7 and United States - $173.7 (see Note 3). (7) 1994 includes gains on sales of assets of $75.8 identified as follows: Health Care Products - $32.8, Corporate - $43.0, United States - $75.8. 43 Report of Independent Public Accountants To the Board of Directors and Shareholders of American Home Products Corporation: We have audited the accompanying consolidated balance sheets of American Home Products Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, retained earnings, additional paid-in capital and cash flows for each of the three years in the period ended December 31, 1995. 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, the financial statements referred to above present fairly, in all material respects, the financial position of American Home Products Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Arthur Andersen LLP New York, N.Y. January 24, 1996 Management Report on Financial Statements Management has prepared and is responsible for the Company's consolidated financial statements and related notes. They have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on judgments and estimates made by management. All financial information in this Annual Report is consistent with the financial statements. The Company maintains internal accounting control systems and related policies and procedures designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorization and are properly recorded, and that accounting records may be relied upon for the preparation of financial statements and other financial information. The design, monitoring and revision of internal accounting control systems involve, among other things, management's judgment with respect to the relative cost and expected benefits of specific control measures. The Company also maintains an internal auditing function which evaluates and formally reports on the adequacy and effectiveness of internal accounting controls, policies and procedures. The Company's financial statements have been audited by independent auditors who have expressed their opinion with respect to the fairness of these statements. The Audit Committee of the Board of Directors, composed of non-employee directors, meets periodically with the external and internal auditors to evaluate the effectiveness of the work performed by them in discharging their respective responsibilities and to assure their independent and free access to the Committee. John R. Stafford Robert G. Blount Chairman, President and Senior Executive Vice Chief Executive Officer President and Chief Financial Officer 44 Quarterly Financial Data
- -------------------------------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter (In thousands except per share amounts) 1995 1995 1995 1995 - -------------------------------------------------------------------------------------------------------- Net Sales . . . . . . . . . . . . . . . $3,491,029 $3,299,300 $3,257,789 $3,327,971 Gross Profit . . . . . . . . . . . . . 2,246,001 2,092,552 2,187,197 2,316,019 Net Income . . . . . . . . . . . . . . 1,022,620(1) 299,608 276,526(2) 81,664(3) Net Income per Common Share . . . . . . $ 3.33(1) $ 0.97 $ 0.89(2) $ 0.26(3) - --------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter 1994 1994 1994 1994 - -------------------------------------------------------------------------------------------------------- Net Sales . . . . . . . . . . . . . . . $2,144,045 $1,977,853 $2,258,525 $2,585,791 Gross Profit . . . . . . . . . . . . . 1,486,580 1,349,958 1,523,522 1,810,573 Net Income . . . . . . . . . . . . . . 415,800 299,981 412,985 399,488 Net Income per Common Share . . . . . . $ 1.34 $ 0.98 $ 1.35 $ 1.30 - --------------------------------------------------------------------------------------------------------
(1) First quarter 1995 includes an after-tax gain of $623,870 ($2.03 per share) on the sale of the South American oral health care business. (2) Third quarter 1995 includes an after-tax restructuring charge of $117,156 ($.38 per share) to record the costs of implementing the integration plan for the ACY acquisition related to American Home Products Corporation operations. (3) Fourth quarter 1995 includes after-tax special charges of $308,317 ($.99 per share) to record provisions for ACY environmental liabilities due to changes in estimates and provisions for other special charges, including the shutdown and discontinuance of the U.S. infant nutritional business. Market Prices of Common Stock and Dividends
1995 Range of Prices* 1994 Range of Prices* - ---------------------------------------------------------------------- ---------------------------- Dividends Dividends High Low per Share High Low per Share - ----------------------------------------------------------------------------------------------------- First Quarter . . . . . . . . . . . . . $76.38 $61.75 $0.75 $65.75 $57.25 $0.73 Second Quarter . . . . . . . . . . . . 79.75 71.50 0.75 60.50 55.63 0.73 Third Quarter . . . . . . . . . . . . . 87.50 73.63 0.75 60.50 55.38 0.73 Fourth Quarter . . . . . . . . . . . . 99.88 83.50 0.77 67.25 58.00 0.75 - -----------------------------------------------------------------------------------------------------
* Prices are those of the New York Stock Exchange - Composite Transactions. 45 Management's Discussion and Analysis of Financial Condition and Results of Operations The following commentary should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements on pages 30 to 43. Results of Operations Effective December 1, 1994, the Company consolidated the results of operations of American Cyanamid Company (ACY). As a result, significant variations exist when the results for the year ended 1995 are compared with those for the year ended 1994 since the Company's 1995 operating results reflect ACY's operating results and related acquisition interest expense and goodwill amortization for the full year. Accordingly, management's discussion and analysis of results of operations for the year ended 1995 has been presented, for the most part, on a pro forma basis, including the sales of ACY and other acquired businesses as of January 1, 1994 and excluding the sales of businesses disposed of in 1995 and 1994. The 1994 pro forma results of operations include the impact of adjustments for interest expense on ACY acquisition debt, amortization of ACY goodwill and merger-related financing costs, and related income tax benefits. The 1994 pro forma results of operations are not necessarily indicative of what actually would have occurred if the ACY acquisition had taken place on January 1, 1994 and do not reflect any integration costs, cost savings from merger-related synergies or the results of operations of other businesses acquired or disposed of in 1995 and 1994. Management's discussion and analysis of results of operations for the year ended 1994 has been presented on an as-reported basis excluding ACY's operating results for the month of December 1994 and sales of businesses disposed of in 1994. Net sales increased 49% to $13.4 billion in 1995 on an as-reported basis. On a pro forma basis, consolidated net sales increased 4% for the year ended 1995. The results reflect higher sales of international health care and worldwide agricultural products, offset partially by lower sales of domestic food and health care products. The increase in 1995 sales was composed of volume increases of 2%, price increases of 1% and favorable foreign exchange of 1%. Worldwide sales of health care products increased 4%, agricultural products increased 18% and food products decreased 18% in 1995. Net sales increased 8% to $9.0 billion in 1994 on an as-reported basis. Excluding the impact of ACY, net sales for the year ended 1994 increased 4%. The increase of 4% was composed of unit volume growth of 2% and price increases of 2%. Foreign exchange had less than a 1% effect on the Company's consolidated worldwide sales for 1994. Worldwide sales of health care products increased 4%, and food products increased 7% in 1994. The following table sets forth net sales results by industry segment and geographic segment together with percentage changes of the "As-Reported" and "Pro Forma" net sales:
As-Reported Pro Forma ($ in Millions) Year Ended December 31, % Increase % Increase Net Sales to Customers 1995 1994 (Decrease) (Decrease) - ------------------------------------------------------------------------------------------------------------------------- Industry Segment Health Care Products: Pharmaceuticals . . . . . . . . . . . . . . $ 7,521.2 $5,180.8 45% 4% Consumer Health Care . . . . . . . . . . . 1,994.8 1,821.2 10% 4% Medical Devices . . . . . . . . . . . . . . 1,131.4 883.6 28% 3% ----------------------------- Total Health Care Products . . . . . . . . . 10,647.4 7,885.6 35% 4% Agricultural Products . . . . . . . . . . . . 1,909.8 83.3 - 18% Food Products . . . . . . . . . . . . . . . . 818.9 997.3 (18)% (18)% ----------------------------- Consolidated Net Sales . . . . . . . . . . . $13,376.1 $8,966.2 49% 4% ============================= Geographic Segment United States . . . . . . . . . . . . . . . . $ 7,929.1 $5,908.0 34% (2)% Europe and Africa . . . . . . . . . . . . . . 3,111.2 1,422.7 119% 20% Canada and Latin America . . . . . . . . . . 1,292.1 1,022.4 26% 3% Asia and Australia . . . . . . . . . . . . . 1,043.7 613.1 70% 15% ----------------------------- Consolidated Net Sales . . . . . . . . . . . $13,376.1 $8,966.2 49% 4% =============================
46 Worldwide pharmaceutical sales increased 4% for the year ended 1995. U.S. pharmaceutical sales decreased 1% for the year ended 1995 as higher sales of Effexor, Oruvail, Ziac, Cordarone and Premarin products were offset by lower sales of Ativan, oral contraceptives, infant nutritionals, veterinary products, and Lederle antibiotic and generic products. U.S. pharmaceutical sales reflect the impact of a change in timing of trade incentive programs on Wyeth-Ayerst products in the 1995 second quarter, which affected all major Wyeth-Ayerst product categories. The decrease in U.S. pharmaceutical sales was composed of unit volume decreases of 1%. International pharmaceutical sales increased 12% in 1995 due primarily to higher sales of oral contraceptives, Tazocin, Premarin, infant nutritionals, Ativan, Effexor and veterinary products. The increase in international sales was composed of unit volume increases of 7%, price increases of 2% and favorable foreign exchange of 3%. Worldwide pharmaceutical sales increased 5% in 1994. U.S. pharmaceutical sales increased 3% in 1994 due to unit volume growth. The 1994 sales growth was attributable to increased sales of Premarin, as well as cardiovascular, anti-inflammatory and oral contraceptive products. Effexor, which was introduced in the United States in early 1994, also contributed to these sales increases. Offsetting these increases, in part, were lower sales of Norplant, Ativan and infant nutritional products. The decline in Norplant sales was attributable to patient and health care provider concerns over use of the product, largely generated by adverse publicity associated with product liability lawsuits. The Company intends to vigorously defend the product and the lawsuits. International pharmaceutical sales increased 9% in 1994 due to unit volume growth of 4% and price increases of 5%. The 1994 sales increases were driven by increased growth of infant nutritional and female health care products. Worldwide consumer health care sales increased 4% in 1995. U.S. consumer health care sales in 1995 were comparable to 1994 levels as introductory sales of Orudis KT and higher sales of Centrum and other vitamins were offset by lower sales of Advil and Anacin. The decrease in Advil and Anacin sales was due to a combination of increased competition and the timing and extent of trade incentive programs and promotional efforts. U.S. consumer health care sales in 1995 consisted of volume decreases of 1%, offset by price increases of 1%. International consumer health care sales increased 13% in 1995 due principally to higher sales of vitamins, analgesics and cough/cold products. Sales gains in the international consumer health care market were led by higher sales of Centrum, Advil and Anacin. Higher sales of Robitussin and Dimetapp also contributed to the increase. The increase in international sales was composed of unit volume increases of 5% and price increases of 8%. Worldwide consumer health care sales increased 3% in 1994. U.S. consumer health care sales decreased 1% in 1994. U.S. consumer health care price increases in 1994 of 4% were more than offset by a 5% decline in unit volumes, particularly in the cough/cold/allergy, family planning and asthma relief product lines. These decreases were offset partially by increased sales of Advil and lip care products. The cough/cold/allergy product category, particularly the Robitussin, Dimetapp and Dristan product lines, was negatively impacted by the mild cold and flu season. Sales decreased in the family planning category in 1994 as a result of lower sales of Today Sponge. International consumer health care sales in 1994 increased 9%. This increase is attributable to unit volume growth of 3%, with price increases of 7% being offset slightly by unfavorable foreign exchange of 1%. The Company was able to increase prices in line with inflation and related currency devaluations in several Latin American markets in 1994, particularly Brazil, which contributed to the sales gains. The 1994 increase was due primarily to increased sales of oral health care products and cough/cold products in certain Latin American countries. In January 1995, the Company sold its oral health care business in South America for approximately $1.0 billion. This business had sales of approximately $270 million in 1994. Excluding these sales, international consumer health care sales would have increased 6% in 1994. Worldwide medical devices sales increased 3% for the year ended 1995 due principally to higher international sales of the Sherwood product line and favorable foreign exchange. Sales gains in the international markets were led by higher sales of needles and syringes, tubes and catheters, tympanic thermometry products, probe covers and enteral feeding devices. The increase in sales was composed of unit volume increases of 1%, with favorable foreign exchange of 3% being partially offset by price decreases of 1%. Worldwide sales of medical devices increased 6% in 1994 due to increases in sales of needles and syringes, tympanic thermometry products and surgical devices. The 1994 increase was composed of unit volume increases of 5% and favorable foreign exchange of 1%. Competitive conditions in the hospital supply market continued to place significant pressure on prices in both 1995 and 1994. Worldwide agricultural products sales increased 18% in 1995. U.S. sales increased 8% in 1995 as unusually wet spring conditions resulted in the following: a shift in sales from pre-emergent herbicides to post-emergent herbicides; a shift in acreage from corn to soybeans; and an extended planting season into mid-July. These factors resulted in higher sales of Pursuit 47 and Prowl herbicides and other crop protection products which were offset partially by lower sales of Squadron and Scepter herbicides and Counter insecticide. The increase in U.S. sales was composed of unit volume increases of 7% and price increases of 1%. Due to the seasonality of the U.S. agricultural products business, a majority of U.S. agricultural products sales and results of operations are realized in the first half of the year. International agricultural products sales increased 28% for the year ended 1995 due primarily to higher sales of Prowl (marketed as Stomp internationally) and Pursuit herbicides, Caramba and Delan fungicides, and other international crop protection products. The increase in international agricultural products sales was composed of unit volume increases of 21% and favorable foreign exchange of 7%. Unit volume increases were due primarily to favorable weather conditions in Europe throughout the 1995 growing season. Sales of food products decreased 18% for the year ended 1995. The sales decrease was due primarily to competitive new products and marketing activity and the timing and extent of trade incentives, promotions and product introductions. The decrease in sales was composed of unit volume decreases of 19%, offset by price increases of 1%. Sales of food products increased 7% in 1994. The 1994 increase was attributable to a 6% volume increase and a 1% increase in price. On a pro forma basis, cost of goods sold, as a percentage of net sales, decreased for the year ended 1995. The decrease was due, in part, to the changes in the pharmaceutical and agricultural product mix and the realization of ACY acquisition-related synergies. Cost of goods sold in 1994, excluding the impact of ACY, decreased compared with 1993 due to improved product mix, reductions in inventory losses and reduced royalties. On a pro forma basis, selling, general and administrative expenses, as a percentage of net sales, increased for the year ended 1995. Lower selling and administrative expenses resulting from ACY acquisition-related synergies were offset by increased general expenses. Higher general expenses in 1995 were due, in part, to the reversal of certain litigation reserves in 1994 that no longer were required which lowered 1994 general expenses. Selling, administrative and general expenses in 1994, excluding the impact of ACY, were comparable to 1993. On a pro forma basis, research and development expenses decreased for the year ended 1995 due primarily to ACY acquisition-related synergies. Research and development expenses, excluding the impact of ACY, increased 16% in 1994. Pharmaceutical research and development expense, as a percentage of worldwide pharmaceutical sales, exclusive of nutritional sales, was 15% and 13% in 1995 and 1994, respectively. On a pro forma basis, interest expense decreased for the year ended 1995 due primarily to the reduction of long-term debt. The effective tax rate increased to 31.1% in 1995 from 24.7% in 1994 due primarily to the non-deductibility of goodwill amortization related to the ACY acquisition and the reversal of certain tax reserves which lowered the tax provision in 1994. Also on June 30, 1995, the U.S. research tax credit expired, which negatively impacted the effective tax rate. These items were offset partially by additional Section 936 tax benefits derived from ACY manufacturing operations in Puerto Rico. Additional tax benefits also were recognized from the Company's manufacturing operations in Ireland. Net income and net income per share for 1995 on an as-reported basis increased 10% and 9%, respectively, above 1994 levels. ACY operating results for 1995 were more than offset by acquisition-related interest expense and goodwill amortization. Net income and net income per share for 1994 on an as-reported basis increased 4% and 5%, respectively, above 1993 levels. ACY operating results for the month of December 1994 were more than offset by acquisition-related interest expense and goodwill amortization. Net income and net income per share for 1994, excluding the impact of ACY, increased 5% and 6%, respectively, over 1993 levels. The Company's 1995 operating results included a gain of $960 million ($624 million after-tax) from the sale of the South American oral health care business, special charges of $437 million ($308 million after-tax) and a $180 million ($117 million after-tax) restructuring charge to record the costs of implementing the integration plan for the ACY acquisition related to American Home Products Corporation operations. In the aggregate, these items increased net income and net income per share by $199 million and $.64, respectively. Excluding these items, 1995 net income and net income per share on an as-reported basis decreased 3% and 4%, respectively, due primarily to the net dilution, as anticipated, resulting from the ACY acquisition. On a pro forma basis, net income and net income per share for 1995, excluding the items previously discussed, increased 16% and 15%, respectively, due principally to lower interest expense, increased net sales, and cost savings from acquisition-related synergies with ACY and the Company's previously announced Organizational Effectiveness and Supply Chain programs. As of December 31, 1995, the Company had initiated all aspects of the integration plan for the ACY acquisition, resulting in significant workforce reductions, realignment of strategic resources, and closures of certain production and administrative facilities. The Company's 1994 operating results included a $174 million charge to record the costs of implementing certain restructuring programs primarily related to the U.S. pharmaceutical and consumer health care businesses and gains of approximately $76 million from the sale of Corometrics Medical Systems, Agri-Bio and the Company's former headquarters 48 building. Also, a reversal of certain tax reserves of approximately $64 million related to reserves that no longer were deemed necessary was recorded. In the aggregate, these items had no net impact on 1994 net income and net income per share. Significant progress has been made in the integration of ACY's business, which is expected to result in substantial production and administrative cost savings in 1996. Competition The Company is not dependent on any one patent-protected product or line of products for a substantial portion of its revenues or profits. However, Premarin, the Company's conjugated estrogens product, which has not had patent protection for many years, does contribute significantly to sales and results of operations. A U.S. Food and Drug Administration (FDA) advisory committee meeting was held in July 1995 to discuss relative differences in safety and efficacy among estrogen products and to advise the FDA on the activity of various estrogenic components in Premarin relative to the FDA's review of applications for generic conjugated estrogens. The FDA advisory committee concluded that there is insufficient data to assess whether or not any individual component or combination of components of Premarin, other than estrone and equilin, must be present to achieve clinical efficacy and safety. The Company cannot predict the timing or outcome of the FDA's action on currently pending applications for generic conjugated estrogen products. While the introduction of generic competition ordinarily is expected to significantly impact the market for a brand name product, the extent of such impact on Premarin and related products cannot be predicted with certainty due to a number of factors, including the nature of the product and the introduction of new combination estrogen and progestin products in the Premarin family. Liquidity, Financial Condition and Capital Resources The Company's $10.0 billion of credit facilities, established in 1994 to finance the ACY acquisition, were amended to $7.0 billion of credit facilities in 1995. The amended credit facilities are composed of a $3.0 billion, five-year credit facility and a $4.0 billion, 364-day credit facility. In February 1995, the Company issued, under a $3.5 billion shelf registration statement, $1.0 billion of 7.70% notes due February 2000 and $1.0 billion of 7.90% notes due February 2005. Net proceeds from these issuances were used to repay commercial paper. The notes are unsecured and unsubordinated and may not be redeemed prior to maturity. In connection with the $2.0 billion note issue, the Company terminated $2.0 billion of the interest rate swap agreements that previously had been entered into. The cost to unwind these swap agreements was deferred and is being amortized to interest expense over the five- and 10-year terms of the related notes. Cash flows from operations continued to be strong in 1995. Cash flows from operating activities of $1.5 billion, proceeds from sales of businesses and other assets of $2.0 billion, and proceeds from the exercise of stock options of $470 million were used principally for long-term debt reduction of $2.2 billion, dividend payments of $935 million and capital expenditures of $638 million. Capital expenditures included the expansion of the Company's manufacturing/distribution and packaging facilities worldwide. The Company believes that the foreign currency risks to which it is exposed are not reasonably likely to have a material adverse effect on the Company's results of operations or financial position given the concentration of sales in the United States. No single foreign currency accounted for more than 5% of 1995 worldwide sales. The ratio of earnings to fixed charges decreased from 13.9 in 1994 to 4.4 in 1995 on an as-reported basis. The decrease is due primarily to increased fixed charges related to ACY acquisition interest expense in 1995 (12 months) versus one month in 1994. On a pro forma basis, the ratio increased from 2.9 in 1994 to 4.4 in 1995. The increase is due primarily to the gain on the sale of the oral health care business and lower interest expense in 1995 due to the reduction of long-term debt. The Company has established aggressive objectives in order to reduce its current debt position, including, but not limited to, additional sales of non-strategic assets. Synergies from the ACY acquisition are expected to substantially increase operating cash flows. Therefore, management is confident that the cash flows from the combined businesses will be adequate to repay both the principal and interest on the acquisition financing without requiring the disposition of any significant strategic core businesses or assets and, further, to allow the Company to continue to fund its operations, pay dividends and maintain its ongoing programs of capital expenditures without restricting its ability to make further acquisitions as may be appropriate. 49 Principal Officers Principal Corporate Officers John R. Stafford(1,2,3) Chairman, President and Chief Executive Officer Robert G. Blount(1,2,3) Senior Executive Vice President Fred Hassan(2,3) Executive Vice President Stanley F. Barshay(2,3) Senior Vice President Joseph J. Carr(2,3) Senior Vice President Louis L. Hoynes, Jr.(2,3) Senior Vice President and General Counsel William J. Murray(2,3) Senior Vice President David M. Olivier(2,3) Senior Vice President John B. Adams Vice President-Corporate Development Thomas G. Cavanagh Vice President-Investor Relations John R. Considine(2,3) Vice President-Finance Leo C. Jardot Vice President-Government Relations Gerald A. Jibilian Vice President and Associate General Counsel Paul J. Jones(2) Vice President and Comptroller Rene R. Lewin(2) Vice President-Human Resources David Lilley(2,3) Vice President Thomas M. Nee(2) Vice President-Taxes Edward A. Schefer Vice President-Management Information Systems Steven A. Tasher Vice President-Environmental Affairs and Associate General Counsel-Environment Carol G. Emerling Secretary Jack M. O'Connor Treasurer Principal Division and Subsidiary Officers American Home Food Products, Inc. Kenneth J. Martin,(3) President Cyanamid Agricultural Products Howard L. Minigh, Ph.D., President Cyanamid Agricultural Products Research Mark W. Atwood, Ph.D., President Cyanamid International Agricultural Products Marco A. Fonseca, President Cyanamid Latin America Agricultural Products Ken Bakshi, Vice President Fort Dodge Laboratories E. Thomas Corcoran,(3) President Genetics Institute, Inc.* Gabriel Schmergel, President and Chief Executive Officer Immunex Corporation* Edward V. Fritzky, Chairman and Chief Executive Officer Quinton Instrument Company Steven C. Tallman, President Sherwood-Davis & Geck David A. Low,(3) President Specialty Pharmaceuticals Division David G. Strunce, President Storz Instrument Company Robert H. Blankemeyer, President Whitehall International, Inc. Jean-Claude Leroux,(3) President Whitehall-Robins Healthcare Terrence L. Stecz,(3) President Wyeth-Ayerst International, Inc. Bernard Poussot,(3) President Wyeth-Ayerst Laboratories Robert Essner,(3) President Wyeth-Ayerst Research Robert I. Levy, M.D.,(3) President (1) Executive Committee (2) Finance Committee (3) Operations Committee * AHP is majority owner Corporate Data Independent Auditors Arthur Andersen LLP Transfer Agent and Registrar Chemical Mellon Shareholder Services, L.L.C. Overpeck Center 85 Challenger Road Ridgefield Park, NJ 07660 Executive Offices American Home Products Corporation Five Giralda Farms Madison, NJ 07940 (201) 660-5000 Annual Meeting The Annual Meeting of Shareholders will be held on April 23, 1996, in Whippany, New Jersey. Form 10-K A copy of the Company's Form 10-K Annual Report to the Securities and Exchange Commission may be obtained by any shareholder without charge upon request to: American Home Products Corporation Treasurer's Department Five Giralda Farms Madison, NJ 07940 (201) 660-6936 Equal Employment Opportunity Our established affirmative action and equal employment programs demonstrate our long-standing commitment to provide job and promotional opportunities for all qualified persons regardless of age, color, national origin, physical or mental disability, race, religion, sex, or status as a Vietnam-era veteran or a disabled veteran. Master Investment Plan The plan provides shareholders with the opportunity to auto- matically reinvest dividends or to make cash purchases of addi- tional shares of the Company's common stock. Inquiries should be directed to: Chemical Bank c/o Chemical Mellon Shareholder Services, L.L.C. P.O. Box 750 Pittsburgh, PA 15230 (800) 565-2067 For the Hearing Impaired (800) 231-5469 (TDD) Policy on Health, Safety and Environmental Protection A copy of the Company's "Policy on Health, Safety and Environmental Protection" may be obtained upon written request to: American Home Products Corporation Department of Environment and Safety Five Giralda Farms Madison, NJ 07940 Product designations appearing in differentiated type are trademarks. Design: Context Inc, South Norwalk, CT Text: Gabbe & Gabbe Printing: Avanti/Case-Hoyt Location Photography: Ted Horowitz and Mark Tuschman Product Photography: Jim Barber [RECYCLE LOGO] Pages 27-50 are printed on recycled paper. 50 Board of Directors John R. Stafford(1,2,3) Chairman, President and Chief Executive Officer Clifford L. Alexander, Jr. President, Alexander & Associates, Inc. Frank A. Bennack, Jr.(1) President and Chief Executive Officer, The Hearst Corporation Robert G. Blount(1,2,3) Senior Executive Vice President Robin Chandler Duke National Chair, Population Action International John D. Feerick Dean, Fordham University School of Law Fred Hassan(2,3) Executive Vice President John P. Mascotte Consultant Mary Lake Polan, M.D., Ph.D. Chairman, Department of OB/GYN, Stanford University School of Medicine John R. Torell III Chairman, Torell Management Inc. William Wrigley President and Chief Executive Officer, Wm. Wrigley Jr. Company Directors Emeriti John W. Culligan Retired - Former Chairman of the Board William F. Laporte Retired - Former Chairman of the Board (1) Executive Committee (2) Finance Committee (3) Operations Committee [PHOTO] (l to r): John R. Stafford, Robin Chandler Duke, John P. Mascotte [PHOTO] (l to r): Frank A. Bennack, Jr., Mary Lake Polan, M.D., Ph.D., Robert G. Blount [PHOTO] (l to r): John D. Feerick, John R. Torell III, Clifford L. Alexander, Jr., Fred Hassan [PHOTO] (l to r): William F. Laporte, John W. Culligan, William Wrigley [LOGO] American Home Products Corporation Five Giralda Farms Madison, New Jersey 07940 EX-21 20 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT DECEMBER 31, 1995 State or Country of Name Incorporation Domestic AH Investments Ltd. Delaware A.H. Robins Company, Inc. Virginia A.H. Robins International Company Nevada AHP Subsidiary Holding Corporation Delaware AHP Subsidiary (10) Corporation Delaware American Cyanamid Company New Jersey American Home Foods, Inc. Delaware Ayerst Laboratories Incorporated New York Ayerst-Wyeth Pharmaceuticals Inc. Delaware Cyanamid Agricultural de Puerto Rico, Inc. New Jersey Cyanamid de Argentina S.A. Delaware Cyanamid International Corporation Limited Delaware Davis & Geck, Inc. New Jersey Genetics Institute, Inc. Delaware Immunex Corporation Delaware Lederle Parenterals, Inc. New Jersey Lederle Piperacillin, Inc. New Jersey Quinton Instrument Company Washington Route 24 Holdings, Inc. Delaware Sherwood Medical Company Delaware Storz Instrument Company Missouri Symbiosis Corp. Florida Whitehall Laboratories Inc. Delaware Wyeth-Ayerst International Inc. New York Wyeth Laboratories Inc. New York Wyeth Nutritionals Inc. Delaware Foreign AHP Holdings B.V. Netherlands American Home Products Holdings (UK)plc Britain Ayerst International S.A. France Brenner-EFEKA Pharma G.m.b.H. Germany Cyanamid Australia Pty. Limited Victoria Cyanamid Finance B.V. Netherlands Netherlands Cyanamid GmbH Germany Cyanamid Iberica S.A. Spain Cyanamid Italia, S.p.A. Italy Cyanamid of Great Britain Limited United Kingdom Cyanamid (Japan), Ltd. Japan Cyanamid Quimica do Brasil Ltda. Brazil Cyanamid Taiwan Corporation Republic of China Dimminaco A.G./S.A./Ltd. Switzerland Eurand International, S.p.A. Italy John Wyeth Laboratorios S.A. Argentina Laboratoires Lederle S.A. France Laboratorios Wyeth Whitehall Ltda. Brazil Sherwood Medical Industries Limited England Whitehall Italia SpA Italy State or Country of Name Incorporation Foreign (Continued) Wyeth Australia Pty. Ltd Australia Wyeth (Japan) Corporation Japan John Wyeth & Brother Limited England Wyeth-Ayerst Canada, Inc. Canada Wyeth-Pharma G.m.b.H. Germany Wyeth S.p.A. Italy Wyeth-Philippines Inc. Philippines There have been omitted from the above list the names of subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. EX-23 21 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated January 24, 1996 included in American Home Products Corporation's (the Company) Annual Report to Shareholders for the year ended December 31, 1995. Furthermore, we consent to the incorporation of our reports dated January 24, 1996 included in or made part of this Form 10-K, into the Company's previously filed Registration Statements on Form S-3 (File Nos. 33-45324 and 33-57339) and on Form S-8 (File Nos. 2- 96127, 33-24068, 33-53733, 33-41434, 33-55449, 33-45970, 33-14458, 33- 50149 and 33-55456). ARTHUR ANDERSEN LLP New York, New York March 27, 1996 EX-27 22
5 Exhibit 27 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND CONSOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 12-MOS DEC-31-1995 DEC-31-1995 1,802,397 217,672 2,749,048 135,609 2,301,953 7,986,137 6,045,746 2,085,411 21,362,923 4,556,248 7,808,757 104,567 0 85 5,438,346 21,362,923 13,376,089 13,376,089 4,534,320 4,534,320 1,354,963 273,057 514,920 2,438,698 758,280 1,680,418 0 0 0 1,680,418 5.37 5.31
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