<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
THE UPJOHN COMPANY
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
THE UPJOHN COMPANY
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
--------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
--------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
--------------------------------------------------------------------------------
(3) Filing party:
--------------------------------------------------------------------------------
(4) Date filed:
--------------------------------------------------------------------------------
<PAGE> 2
(UPJOHN LOGO)
THE UPJOHN COMPANY
7000 PORTAGE ROAD
KALAMAZOO, MICHIGAN 49001
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NEW MEETING DATE: APRIL 18, 1995
--------------------------------------------------------------------------------
To Our Shareholders:
This year, the Annual Meeting of Shareholders of The Upjohn Company, a Delaware
corporation, will be held on Tuesday, April 18, 1995, instead of on the third
Tuesday in May as in prior years. The Annual Meeting will commence at 1:30 p.m.
on April 18, 1995, at the Radisson Plaza Hotel, 100 West Michigan Avenue,
Kalamazoo, Michigan, for the following purposes:
1. To elect five directors for a term of three years and one director for a term
of two years.
2. To vote on three shareholder proposals.
3. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on March 3, 1995 are entitled to
notice of and to vote at the meeting or any adjournments thereof.
By Order of the Board
Kalamazoo, Michigan Kenneth M. Cyrus
March 23, 1995 Secretary
--------------------------------------------------------------------------------
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN THE PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE> 3
THE UPJOHN COMPANY
7000 PORTAGE ROAD
KALAMAZOO, MICHIGAN 49001
PROXY STATEMENT
This proxy statement and related proxy are being mailed to shareholders of The
Upjohn Company on or about March 23, 1995 in connection with the solicitation by
the Company of proxies to be used at the Annual Meeting of Shareholders of the
Company to be held at the Radisson Plaza Hotel, Kalamazoo, Michigan, on Tuesday,
April 18, 1995, at 1:30 p.m., and at all adjournments thereof.
Any person giving a proxy has the power to revoke it at any time before it is
voted. The Company will bear the costs of solicitation of proxies. The Company
may also reimburse persons holding stock in their names or in those of their
nominees for their reasonable expenses in sending proxy material to their
principals and obtaining their proxies. The solicitation is being made by mail
and may also be made by telephone or by telegraph by officers, directors and
regular employees of the Company. In addition, the Company has engaged the
services of D. F. King & Co., Inc., to assist in the solicitation of proxies for
a fee not to exceed $20,000, plus out-of-pocket expenses.
It is the Company's policy that all proxies, ballots and voting tabulations
that identify how shareholders voted will be kept confidential, except where
disclosure may be required by applicable law, where disclosure is expressly
requested by a shareholder, and in proxy solicitations not approved and
recommended by the Board of Directors, and that the tabulators and the
inspectors of election be independent and not employees of the Company.
Shareholders of record at the close of business on March 3, 1995 are entitled
to notice of and to vote at the meeting. At the close of business on January 31,
1995, the Company had 173,143,319 shares (excluding 17,448,204 treasury shares)
of Common Stock outstanding, each share being entitled to one vote. These shares
will be voted as specified in the shareholder's proxy. The Company's fiscal year
is a calendar year.
If a shareholder participates in the Company's Dividend Reinvestment and Stock
Purchase Plan, any proxy given by such shareholder will also govern the voting
of all full shares held for the shareholder's account under that Plan.
At the close of business on January 31, 1995, shares of Series B Convertible
Perpetual Preferred Stock of the Company were held by The Upjohn Company
Employee Stock Ownership Trust pursuant to The Upjohn Employee Savings Plan
having votes equivalent to 7,322,020 shares of Common Stock. Shares under The
Upjohn Employee Savings Plan that have been allocated to participant accounts
will be voted as specified in the participant's proxy. If a participant is also
a shareholder of record, the proxy given by such person will govern the voting
of shares held by the participant both directly and through the Plan. State
Street Bank and Trust Company, as the Trustee of the Plan, will vote unallocated
and unvoted shares in the same proportion as shares voted by Plan participants.
Matters submitted to a vote of shareholders must be approved by the holders of
a majority of the shares voting on such matter at the Annual Meeting. In
determining whether a quorum exists at the meeting for purposes of all matters
to be voted on, all votes "for" or "against," as well as all abstentions
(including votes to withhold authority to vote in certain cases), with respect
to the proposal receiving the most such votes, will be counted. Abstentions with
respect to a particular proposal will be counted as part of the base number of
votes to be used in determining if that particular proposal has received the
requisite percentage of base votes for approval, while broker non-votes will not
be counted in such base for such proposal. Thus, an abstention will have the
same effect as a vote "against" such proposal while a broker non-vote will have
no effect. If an individual has signed a proxy card but failed to indicate a
vote "for," "against" or "abstaining" from a particular proposal, such proxy
will be voted for all nominees and against all shareholder proposals in
accordance with the recommendation of the Board of Directors.
1
<PAGE> 4
ELECTION OF SIX DIRECTORS
The Board of Directors is composed of three classes of members. One class of
directors is elected each year to hold office for a three-year term and until
successors of such class are duly elected and qualified. Except where the
authority to do so has been withheld, it is the intention of the persons named
in the proxy to vote to elect M. Kathryn Eickhoff, Daryl F. Grisham, Lawrence C.
Hoff, Jerry R. Mitchell, M.D. and William U. Parfet as directors for three-year
terms. Antonio M. Gotto, Jr., who was appointed by the Board as a director in
November 1994, has been nominated for election by the shareholders for his
remaining two-year term.
It is expected these nominees will serve, but if, for any unforeseen cause,
any of them should decline or be unable to serve, the proxies will be voted to
fill any vacancy so arising before the Annual Meeting of Shareholders in
accordance with the discretionary authority of the persons named in the proxy.
Information with respect to the nominees for election and the directors
continuing in office with respect to age, positions with the Company or other
principal occupations for the past five years, other directorships and the year
each was initially elected a director of the Company is as follows:
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR THREE-YEAR TERM EXPIRING IN 1998
<TABLE>
<S> <C>
[PHOTO] M. KATHRYN EICKHOFF, AGE 55, PRESIDENT, EICKHOFF ECONOMICS INCORPORATED,
ECONOMIC CONSULTANTS. Ms. Eickhoff is the former associate director for
Economic Policy, United States Office of Management and Budget. She serves
as a director of AT&T, National Westminster Bancorp. Inc. and Tenneco Inc.
Ms. Eickhoff is a member of several business organizations including The
Conference of Business Economists, The Economic Club of New York and the
National Association of Business Economists. She served as a Director of
The Upjohn Company from 1982 to 1985 and returned as a Director in 1987.
She is a member of the Audit; the Executive; the Finance; and the
Nominating Committees of the Board of Directors.
[PHOTO] DARYL F. GRISHAM, AGE 68, PRESIDENT AND CHIEF EXECUTIVE OFFICER, PARKER
HOUSE SAUSAGE COMPANY. Mr. Grisham joined Parker House Sausage Company in
1954. He has been a director of that company since 1961 and was promoted
to his current position in 1969. Mr. Grisham is a former director for G.
D. Searle and Company and Illinois Bell Telephone Co. He serves as a
director of Harris Bankcorp, Inc.; Lincoln Park Zoological Society and the
Rehabilitation Institute of Chicago. He also serves as a trustee for the
Chicago Museum of Science & Industry and Northwestern University. He has
served as a Director of The Upjohn Company since 1989 and is a member of
the Compensation and Incentive; the Executive; the Nominating; and the
Social Responsibility Committees of the Board of Directors.
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
[PHOTO] LAWRENCE C. HOFF, AGE 66, FORMER PRESIDENT AND CHIEF OPERATING OFFICER OF
THE COMPANY. Mr. Hoff has long been active in major industry and
educational associations including having served as director, American
Diabetes Association, Inc.; trustee, Borgess Medical Center; director,
Council on Family Health; chairman, Pharmaceutical Research and
Manufacturers of America; member, U.S. Chamber of Commerce, International
Policy Committee. He holds an honorary Doctor of Science in Pharmacy
degree from Massachusetts College of Pharmacy and Allied Health Sciences,
and is currently a director of Alpha Beta Technology, Inc.; Curative
Technologies, Inc.; and MedImmune, Inc. He has served as a Director of The
Upjohn Company since 1973 and is a member of the Audit and the Social
Responsibility Committees of the Board of Directors.
[PHOTO] JERRY R. MITCHELL, M.D., AGE 53, VICE CHAIRMAN OF THE BOARD AND PRESIDENT,
UPJOHN LABORATORIES. Previously, Dr. Mitchell had been Executive Vice
President and President, Upjohn Laboratories (1991-92); and Senior Vice
President and President, Upjohn Laboratories (1990). Prior to joining The
Upjohn Company, Dr. Mitchell was a professor of internal medicine and the
director of the Center for Experimental Therapeutics, Baylor College of
Medicine and Affiliated Hospitals. During his distinguished career, Dr.
Mitchell has served on many national advisory boards and committees and
has received numerous honors and scientific awards. He has published two
books and has written hundreds of manuscripts and abstracts. Dr. Mitchell
has been a Director of The Upjohn Company since 1991.
[PHOTO] (1)WILLIAM U. PARFET, AGE 48, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
RICHARD-ALLAN MEDICAL INDUSTRIES, INC., A MANUFACTURER OF SURGICAL
EQUIPMENT AND MEDICAL SUPPLIES. Prior to joining Richard-Allan in October
1993, Mr. Parfet had been Vice Chairman of the Board of the Company, and
was President (1991-93) and Executive Vice President (1989-91) before
that. Mr. Parfet serves on various boards of directors, including Bissell,
Inc., CMS Energy Corporation, the Financial Accounting Foundation, Flint
Ink Corporation, Old Kent Financial Corporation, Stryker Corporation and
Universal Foods, Inc. He has served as a Director of The Upjohn Company
since 1985 and is a member of the Finance and the Social Responsibility
Committees of the Board of Directors.
</TABLE>
3
<PAGE> 6
NOMINEE FOR ELECTION TO THE BOARD OF DIRECTORS
FOR TWO-YEAR TERM EXPIRING IN 1997
<TABLE>
<S> <C>
[PHOTO] ANTONIO M. GOTTO, JR., M.D., AGE 59, CHAIRMAN OF THE DEPARTMENT OF
MEDICINE AT BAYLOR COLLEGE OF MEDICINE. Dr. Gotto was appointed to the
Board of Directors of The Upjohn Company in November 1994. He is
Distinguished Service Professor and Chairman of the Department of Internal
Medicine at Baylor College of Medicine. He holds the J.S. Abercrombie
Chair of Atherosclerosis Research and the Bob and Vivian Smith Chair in
Internal Medicine. He is Chief of the Internal Medicine Service at The
Methodist Hospital and Ben Taub County Hospital in Houston, Texas. He is a
director of the Medtronic Corporation. He is a former member of: the
National Academy of Sciences -- Institute of Medicine; the National Heart,
Lung, and Blood Advisory Council for the National Institutes of Health;
and the National Diabetes Advisory Board. He has served as National
President of the American Heart Association. He is currently President of
the International Atherosclerosis Society, Co-Chairman of the U.S.-Russian
and U.S.-Italian Cardiovascular Workgroups and Secretary of the Texas and
district Rhodes Scholar Selection Committee. He has received many awards,
honorary degrees and recognition by foreign governments. He is a member of
the Audit and the Social Responsibility Committees of the Board of
Directors.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING IN 1996
[PHOTO] RICHARD H. BROWN, AGE 47, VICE CHAIRMAN OF AMERITECH CORP., A TELECOM-
MUNICATIONS COMPANY. Mr. Brown was elected Ameritech vice chairman in
January 1993. He joined Illinois Bell as president and chief executive
officer in 1990 and, prior to that, he was executive vice president of
United Telecom and U. S. Sprint. He is a member of the Economic Club of
Chicago, trustee, Rush-Presbyterian-St. Luke's Medical Center, vice
chairman of the board of trustees of Ohio University Foundation and serves
actively in many non-profit organizations in Illinois. Mr. Brown is a
director of Ameritech Corp. and serves on a number of other boards. He has
served as a Director of The Upjohn Company since September 1993 and is a
member of the Compensation and Incentive; the Nominating; and the Social
Responsibility Committees of the Board of Directors.
</TABLE>
4
<PAGE> 7
<TABLE>
<S> <C>
[PHOTO] GERALDINE A. KENNEY-WALLACE, AGE 51, PRESIDENT AND VICE-CHANCELLOR OF
MCMASTER UNIVERSITY, HAMILTON, ONTARIO, CANADA. Dr. Kenney-Wallace is a
member of the board of directors of the Bank of Montreal, Dofasco Inc.,
DMR Inc., General Motors (Canada) and Northern Telecom Ltd. She serves on
the advisory board of the Canadian Foundation for AIDS Research, the
Manning Foundation, the Canada-Japan Forum, the Canadian National
Roundtable on the Environment and the Economy and the Singapore National
Science and Technology Boards. During her scientific career in lasers,
ultra-fast phenomena and opto-electronics, Dr. Kenney-Wallace has received
numerous honors and scientific awards. She has served as a Director of The
Upjohn Company since 1993 and is a member of the Audit; the Finance; and
the Social Responsibility Committees of the Board of Directors.
[PHOTO] WILLIAM E. LAMOTHE, AGE 68, FORMER CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER OF KELLOGG COMPANY, A FOOD COMPANY. Mr. LaMothe is a
former director of the Food and Drug Law Institute, Kimberly Clark
Corporation, Unisys Corporation and the Western Michigan University
Foundation. He is currently a director of Allstate Insurance Companies,
Kellogg Company and Sears Roebuck and Company; and he is a member of the
board and a trustee for the W. K. Kellogg Foundation Trust. Mr. LaMothe
serves on the board of governors of the Battle Creek Community United Arts
Council and The Battle Creek Community Foundation. He has served as a
Director of The Upjohn Company since 1986 and is a member of the Audit;
the Compensation and Incentive; the Executive; and the Nominating
Committees of the Board of Directors.
[PHOTO] LEY S. SMITH, AGE 60, PRESIDENT AND CHIEF OPERATING OFFICER OF THE
COMPANY. Mr. Smith was elected President, Chief Operating Officer and
Acting Chief Executive Officer in 1993; he became Vice Chairman of the
Board in 1991; and was elected Executive Vice President in January 1989.
He is currently a member of the Borgess Medical Center Board of Trustees
and board member for the Biopure Corporation. Mr. Smith is active in a
wide variety of business, community, and medical- and
pharmaceutical-related activities, including the Pharmaceutical Research
and Manufacturers of America; the Virginia Neurological Institute; the
Health, Welfare and Retirement Income Task Force of the Business
Roundtable; and the Greater Kalamazoo United Way. He has served as a
Director of The Upjohn Company since 1989.
</TABLE>
5
<PAGE> 8
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING IN 1997
<TABLE>
<S> <C>
[PHOTO] FRANK C. CARLUCCI, AGE 64, CHAIRMAN, THE CARLYLE GROUP, A MERCHANT BANK IN
WASHINGTON, D.C. Mr. Carlucci was vice chairman of The Carlyle Group from
1989 to 1993. He served as U.S. Secretary of Defense from 1987 to 1989.
Mr. Carlucci is currently on the board of directors of Ashland Oil, Inc.;
Bell Atlantic Corporation; Connecticut Mutual Life Insurance Company;
General Dynamics Corporation; Kaman Corporation; Neurogen Corporation;
Northern Telecom Limited; The Quaker Oats Company; SunResorts, Ltd., N.V.;
Texas Biotechnological Corporation; Westinghouse Electric Corporation; and
serves on the board of trustees for the nonprofit Rand Corporation. Mr.
Carlucci has served as a Director of The Upjohn Company since 1990 and is
a member of the Audit; the Compensation and Incentive; the Finance; and
the Nominating Committees of the Board of Directors.
[PHOTO] WILLIAM D. MULHOLLAND, AGE 68, FORMER CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER OF THE BANK OF MONTREAL. Mr. Mulholland is currently a
director of the Bank of Montreal; and Canadian Pacific Ltd. He is a
trustee of Queen's University and a member of the Advisory Committee on
Canadian Studies at the School of Advanced International Studies, Johns
Hopkins University. Mr. Mulholland has received honorary Doctor of Laws
degrees from Memorial University and Queen's University. He has served as
a Director of The Upjohn Company since 1977 and is a member of the
Compensation and Incentive; the Executive; the Finance; and the Nominating
Committees of the Board of Directors.
[PHOTO] JOHN L. ZABRISKIE, AGE 55, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER OF THE COMPANY. Prior to joining the Company in 1994, Dr.
Zabriskie had spent his entire career with Merck & Co., Inc. During his
last five years with Merck, he held several officer positions in sales,
marketing, public affairs and manufacturing, serving most recently as
executive vice president of Merck & Co., Inc., and president, Merck
Manufacturing Division. He is active in the debate over U. S. health care
reform as a member of the Healthcare Leadership Council and past member of
the Jackson Hole Group for Healthcare Reform. He is also active in the
Pharmaceutical Research and Manufacturers of America. Dr. Zabriskie has
served on the boards of Penjerdel Corporation; Pennsylvania Biotechnology
Association; the National Pharmaceutical Council, Inc.; Morristown
Memorial Hospital and Wells College. He is currently a director of First
of America Bank Corporation, Kellogg Company and Southwest Michigan
Healthcare Coalition. He began serving as a Director of The Upjohn Company
in January 1994 and is a member of the Executive and the Finance
Committees of the Board of Directors.
</TABLE>
------------------------------------------
(1)W. U. Parfet and D. R. Parfet, Executive Vice President for
Administration of the Company, are brothers.
6
<PAGE> 9
INFORMATION CONCERNING SECURITY OWNERSHIP
Under regulations of the Securities and Exchange Commission, persons who have
power to vote or dispose of shares of the Company, either alone or jointly with
others, are deemed to be beneficial owners of such shares. Because the voting or
dispositive power of certain shares listed in the following table is shared, the
same securities in such cases are listed opposite more than one name in the
table. The total number of shares of Common Stock of the Company listed below
for directors and executive officers as a group eliminates such duplication.
Pursuant to a Schedule 13G filed with the Securities and Exchange Commission
by State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as Trustee of The Upjohn Employee Savings Plan, the Bank
indicated beneficial ownership equivalent to 7.4% of the Company's outstanding
Common Stock as of December 31, 1994.
Pursuant to a Schedule 13G filed with the Securities and Exchange Commission
by The Capital Group Companies, Inc., 333 South Hope Street, Los Angeles,
California 90071, Capital Research and Management Company, a registered
investment adviser and an operating subsidiary of The Capital Group Companies,
Inc., exercised, as of December 31, 1994, investment discretion, but not voting
power, with respect to 11,435,000 shares, or 6.6% of outstanding shares, of the
Company's Common Stock, which were owned by various institutional investors.
Set forth in the following table are the beneficial holdings as of the close
of business on January 31, 1995 of individual directors and nominees, the five
most highly compensated executive officers for 1994 and all directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK BENEFICIALLY OWNED(1)
-----------------------------------------------------------------
SOLE
VOTING SHARED VOTING OPTIONS
AND/OR AND/OR EXERCISABLE
DISPOSITIVE DISPOSITIVE WITHIN 60 % OF
POWER POWER DAYS CLASS
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard H. Brown(2)............ 2,238(3) -- -- *
Frank C. Carlucci.............. 8,203(3) -- -- *
M. Kathryn Eickhoff............ 1,500 -- -- *
Antonio M. Gotto............... 810(3) -- -- *
Daryl F. Grisham............... 9,216(3) -- -- *
Lawrence C. Hoff(2)............ 38,417 -- -- *
Geraldine A. Kenney-Wallace.... 1,384(3) -- -- *
William E. LaMothe(2).......... 12,544(3) -- -- *
Jerry R. Mitchell.............. 8,830(4) -- 148,000 *
William D. Mulholland.......... 3,007 -- -- *
Donald R. Parfet(2)............ 545,610(4) 1,390,166(5)(6) 160,350 1.1
William U. Parfet.............. 501,864(4) 1,308,500(6) 151,176 1.0
Robert C. Salisbury............ 17,503(4) -- 132,497 *
Ley S. Smith(2)................ 12,927(4) -- 217,250 *
John L. Zabriskie(2)........... 36,109 -- 250,000 *
Directors and Executive
Officers as a Group (16
persons)(2).................. 1,221,436(3)(4) 2,414,666(5)(6) 1,180,508 2.7
</TABLE>
-------------------------
*Less Than 1%
(notes continued on following page)
7
<PAGE> 10
(continued from previous page)
(1) Excludes the following share units which were awarded under the Company's
Incentive Compensation Plans but payment of which is deferred: L. C. Hoff,
5,220; J. R. Mitchell, 4,102; D. R. Parfet, 3,391; W. U. Parfet, 648; R. C.
Salisbury, 7,511; L. S. Smith, 6,009; and directors and executive officers
as a group, 42,234.
(2) Excludes 350 shares held by the spouse of R. H. Brown; 10,000 shares held by
the spouse of L. C. Hoff; 770 shares held by the spouse of W. E. LaMothe;
13,219 shares held by the spouse of D. R. Parfet; 2,200 shares held by the
spouse of L. S. Smith; 100 shares held by the spouse of J. L. Zabriskie; and
26,639 shares held by the spouses of directors and executive officers as a
group.
(3) Includes the following number of shares representing deferred directors'
fees payable in stock which are held in trust with respect to which the
individual has sole voting power: R. H. Brown, 1,919; F. C. Carlucci, 7,703;
A. M. Gotto, 810; D. F. Grisham, 9,116; G. A. Kenney-Wallace, 1,134; and W.
E. LaMothe, 10,344.
(4) Includes the following number of shares or share equivalents credited under
The Upjohn Employee Savings Plan with respect to which the individual has
sole voting power: J. R. Mitchell, 830; D. R. Parfet, 2,740; W. U. Parfet,
4,288; R. C. Salisbury, 4,198; L. S. Smith, 1,727; and directors and
executive officers as a group, 19,179.
(5) Includes shares over which D. R. Parfet has sole or shared voting or
dispositive power as a member of the Board of Trustees of The W. E. Upjohn
Unemployment Trustee Corporation, a non-profit corporation which supports
research on economic and social problems related to unemployment.
(6) Includes shares held in trust over which voting and/or dispositive power is
shared in his capacity as trustee under various trusts.
8
<PAGE> 11
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held fourteen meetings during 1994. Ten non-employee
directors and one employee director serve on one or more committees of the
Board.
The Compensation and Incentive Committee of the Board of Directors met six
times during 1994 to administer awards under the Company's Management Incentive
Program, take certain other actions relating to compensation matters and benefit
plans and recommend to the Board the salaries of all corporate officers. The
Committee also reviewed, relative to compensation, the financial and operational
performance of the Company and its major business segments and the performance
of each corporate officer; reviewed plans for management succession and
monitored the development of executive officers. The current members of the
Compensation and Incentive Committee are R. H. Brown, F. C. Carlucci, D. F.
Grisham, W. E. LaMothe and W. D. Mulholland, none of whom is an employee nor
eligible for incentive compensation or stock option awards.
The Audit Committee met four times during 1994. The Committee recommended to
the Board of Directors the selection of Coopers & Lybrand as the Company's
independent accountants; reviewed the annual financial statements and discussed
them with the auditors and financial staff of the Company prior to their
submission to the Board of Directors; reviewed the independence of the
independent accountants conducting the audit; reviewed the services provided by
the independent accountants; reviewed the scope of the Company's internal audit
program; discussed with management and the auditors the Company's accounting
system and related systems of internal control; reviewed the Company's
information security program; reviewed analyses of officers' expenses and use of
Company assets; and consulted as it deemed necessary with the independent
accountants, internal auditors and the Company's internal financial staff.
Current members of the Audit Committee are F. C. Carlucci, M. K. Eickhoff, A. M.
Gotto, L. C. Hoff, G. A. Kenney-Wallace and W. E. LaMothe.
The Nominating Committee met four times during the year. The Committee makes
recommendations to the full Board regarding nominees to fill Board vacancies,
nominees for membership on Board committees, policies on Board composition,
criteria for Board membership, criteria for continuation on the Board, and
removal of directors, if and when required. The Committee also reviews and
recommends to the Board appropriate corporate governance policies and practices.
The Committee will consider director nominees recommended by shareholders. Any
such recommendations should be made in writing to the Secretary of the Company
at 7000 Portage Road, Kalamazoo, Michigan 49001. Current members of the
Nominating Committee are R. H. Brown, F C. Carlucci, M. K. Eickhoff, D. F.
Grisham, W. E. LaMothe and W. D. Mulholland.
BOARD OF DIRECTORS COMPENSATION
Compensation for non-employee members of the Board of Directors consists of an
annual retainer fee of $25,000 plus a $1,000 fee for each Board meeting
attended; a $1,000 fee for attending the first committee meeting held on any day
and a $750 fee for attending subsequent committee meetings held on the same day.
In addition, the chairperson for each committee receives a quarterly retainer
fee of $1,000. Employee directors do not receive compensation for serving on the
Board or on the Board's committees. The Company maintains a retirement plan for
outside directors which provides that a director will receive retirement
benefits for a period of time equal to the length of his non-employee Board
service in an amount equal to 50% of his last annual retainer after 5 years of
non-employee service plus 5% for each additional year of non-employee Board
service up to a total of 100% of his last annual retainer. The Company also
maintains a deferred compensation plan for outside directors, which enables a
director to defer payment of his fees in cash or stock until he leaves the
Board.
9
<PAGE> 12
REPORT OF THE COMPENSATION AND INCENTIVE
COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation and Incentive Committee, consisting of five independent
directors, none of whom has ever served as an officer or employee of the Company
or has any known conflicts, is responsible for the establishment and oversight
of executive compensation policies and practices.
COMPENSATION POLICIES
In general, the Company seeks to encourage and reward executive efforts which
create shareholder value through achievement of corporate objectives, business
strategies and performance goals, by blending annual and long-term cash and
equity compensation and, in so doing, to align the interests of executives with
those of shareholders. More specifically, the Committee's compensation policies
can be summarized as:
(a) total executive compensation should be targeted at or near the mean
competitive level of comparable companies (the companies included in the
Combined Standard & Poor's Drug Group Index listed under the caption
Comparison of Cumulative Total Shareholder Return) for competitive
performance, and, similarly, superior performance should be recognized;
(b) incentive-based (at-risk) compensation should range from 30% to 50% of total
compensation, with the higher-ranking executives having a greater
proportion of incentive-based compensation;
(c) with respect to incentive-based (at-risk) compensation, at least 50% should
be based upon external standards of competitive performance rather than
internally established goals; and
(d) equity-based compensation (stock options, restricted stock, performance
shares and deferred incentive compensation) should be used to further link
executive performance to shareholder interests, promote and encourage stock
ownership in the Company and provide an incentive to create long-term
shareholder value.
It is the Committee's belief that a compensation program designed around these
policies will enhance relative to the group of comparable companies the returns
to the Company's shareholders over time. Each component of compensation (base
salary, annual incentive bonus, and long-term equity-based compensation) is
outlined below.
BASE SALARIES
Executive salaries are based on several factors: competitive labor market
position determined from market surveys, level of job responsibility, and
individual performance. Our objective is to ensure our base salary component is
competitive (at a level near the mean/median of comparable companies) and allows
for attracting and retaining key talent. Officer performance ratings and salary
increases are reviewed by the Committee annually.
INCENTIVE-BASED COMPENSATION
Payments under the Company's Incentive Compensation Plan are the "at-risk" or
variable component of annual executive compensation, ranging from 30% to 50% of
total compensation, with senior executives having the highest proportion of
incentive-based compensation.
In 1994, 50% of targeted incentive compensation was based upon the extent to
which actual corporate earnings before tax ("EBT") met the targeted corporate
EBT levels, and the remaining 50% was determined by the Total Market Return of
the Company's Common Stock relative to the average Total Market Return of
comparable companies which is measured over a 2-year period. Based on these
measurements, executive officers received 101.6% of their 1994 incentive
10
<PAGE> 13
compensation target awards, reflecting 100.7% achievement of the EBT measure and
102.4% achievement of the Total Market Return measure.
In 1995, 50% of targeted incentive compensation will continue to be dependent
upon external standards of competitive performance. However, in addition to the
use of Total Market Return, the relative growth in Earnings Before Taxes was
added as an external measurement, each factor weighted equally and measured
against the group of comparable companies. The remaining 50% of targeted
incentive compensation will be determined by the extent that internal
performance measurements established for the Company's core processes (R&D,
Sales & Marketing and Supply) meet their defined 1995 objectives.
LONG-TERM EQUITY-BASED COMPENSATION
The Company's principal equity-based compensation includes voluntary and
mandatory deferred incentive compensation, stock options, performance shares and
restricted stock. In addition, executive officers, like all employees, are
eligible for employer matching contributions paid in stock under the Company's
Employee Savings Plan.
Under the terms of the Incentive Compensation Plan, 20% of the incentive
compensation earned each year must be deferred in shares of Company stock to be
generally paid following the executive's retirement. Premature termination of
employment results in forfeiture of the deferred amounts. In addition, the
remainder of an executive's incentive compensation may be voluntarily deferred
in shares of Company stock.
The Committee grants annual ten-year stock options, having a value based on
the level of stock price appreciation over the market price on the date of
grant. The Committee considers the level of stock options granted by the group
of comparable companies and the number of Upjohn stock options previously
granted in reaching its decision to make additional grants of stock options, but
does not have a specific weighting formula for each factor. The Committee also
makes periodic grants of performance stock options that become exercisable if
the Company's stock price appreciates by certain thresholds over the market
price on the date of the grant.
Performance Shares (which represent a contingent right to receive shares of
the Company's Common Stock if specific long-term performance objectives are
achieved) were first granted in 1994 (with the first payout scheduled for 1996)
as a tool to increase executive equity compensation and to enhance the
executive's focus on the long-term performance of the Company. Performance
Shares will be earned based upon the Company's relative achievement of Total
Market Return, Return on Net Assets and Net Earnings Growth, as compared to the
group of comparable companies.
Restricted stock, which cannot be sold or transferred until earned in future
years and will generally be forfeited if the executive terminates employment
before the shares are earned, is issued on a periodic basis according to the
Committee's assessment of appropriate recognition and retention factors.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code limits to $1 million the corporate
tax deduction for compensation paid to any of the executive officers listed in
the Summary Compensation Table under the caption Executive Compensation unless
certain requirements are met. This provision requires adherence to
non-discretionary, pre-established performance goals. The Committee believes
that the stock options granted to these executive officers meet the requirements
for fully deductible compensation. However, the Committee believes that it is in
the best interests of shareholders and management to retain some level of
discretion in determining awards under the Incentive Compensation Plan and the
Performance Share Plan. The Committee believes that the benefit derived from
11
<PAGE> 14
the tax deduction is not in proportion to the Committee's responsible
stewardship of the Company's incentive and performance-based compensation plans.
As in the past, the Committee believes that it is important to be able to review
any extraordinary or non-recurring events affecting the Company's results of
operations before determining final incentive payouts in order to ensure that
the efforts of the incentive group are compensated fairly and appropriately. The
result of this decision is the inability of the Company to deduct executive
compensation (except for stock options) in excess of $1 million. Currently, only
J. L. Zabriskie, the Company's Chief Executive Officer, has compensation in
excess of $1 million that will not be fully deductible.
CHANGE-IN-CONTROL COMPENSATION
The Committee considers the ability to recruit and maintain an outstanding
management team essential to protecting and enhancing the best interests of the
Company and the shareholders. In this connection, and to assure the continued
services and dedication of executive officers in the event of any threatened or
actual change-in-control of the Company, the Committee modified the Company's
existing change-in-control provisions to be competitive with other companies.
The Company has entered into a new severance agreement with each executive
officer providing for the payment of severance benefits sufficient to provide a
cash benefit equal to 2.5 times the officer's annualized salary and incentive
compensation (whether or not deferred) plus the amount of any excise taxes
payable by the officer on such amount in the event his/her employment is
terminated other than for cause, disability or retirement within two years
following a change-in-control of the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
The annual compensation initially paid to J. L. Zabriskie, who became Chief
Executive Officer of the Company in 1994, was fixed by his employment agreement
and was determined by the Committee to be competitive with the compensation paid
to CEO's of comparable companies and necessary to attract J. L. Zabriskie to the
Company. Under his employment agreement, J. L. Zabriskie's 1994 base salary was
set at $800,000. He also received a bonus of $731,272 (his target award of
$720,000 was applied to the Company's overall performance payout factor of
101.6%) in February 1995 for services rendered in 1994, approximately $530,000
of which will not be deductible by the Company under the new Internal Revenue
Code limits. In addition, pursuant to his employment agreement, J. L. Zabriskie
received 15,000 shares of restricted stock to be earned in equal amounts in
January 1995 and January 1996, which amount was later reduced by the value of a
performance share award received from his prior employer to 10,202 shares and
which may be subject to further reduction if additional performance share awards
are received from his prior employer. Under his employment agreement, J. L.
Zabriskie was also granted a stock option for 250,000 shares that became
exercisable on January 3, 1995; a stock option for 50,000 shares that will
become exercisable after January 3, 1996 when the stock price exceeds $34.06;
and a stock option for 50,000 shares that will become exercisable after January
3, 1997 when the stock price exceeds $39.06. All of the stock options have a
ten-year term and an exercise price of $29.06 per share.
Beginning with 1995 compensation, J. L. Zabriskie's salary, incentive
compensation, stock options and performance share awards were determined by the
Committee on the basis of the compensation policies described above. The
Committee evaluates the performance of the CEO at least annually based upon both
the Company's financial performance and the extent to which strategic and
business plan goals are met. The Committee does not assign relative weights or
rankings to each of such factors but instead makes a subjective determination
based upon a consideration of all such factors.
12
<PAGE> 15
In reviewing the CEO's 1994 performance, the Committee noted J. L. Zabriskie's
significant leadership in creating a vision for growth of the Company and
redefining the Company's core processes. In addition, the Company's 1994
financial performance met internal goals and exceeded external expectations in
the face of intense generic competition and changing market conditions. Under
the leadership of J. L. Zabriskie, the Company's 1994 accomplishments included
further concentration of R&D efforts on high potential products, restructuring
U.S. pharmaceutical sales and marketing operations, implementation of a specific
generic strategy to reduce the impact of key patent expirations, streamlining of
certain manufacturing processes, further cost reductions throughout the Company,
the sale of the agricultural seed business, acquisition of several product
candidates and technology and expansion of operations in China, Eastern Europe
and other promising international markets.
COMPENSATION AND INCENTIVE COMMITTEE
R. H. Brown F. C. Carlucci D. F. Grisham W. E. LaMothe W. D. Mulholland
13
<PAGE> 16
EXECUTIVE COMPENSATION
The following table shows the total compensation received for the last three
calendar years by the Chief Executive Officer and by the next four most highly
compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------- -------------------------------------------------------
SECURITIES
RESTRICTED PERFORMANCE UNDER- ALL
STOCK SHARE LYING OTHER
BASE BONUS AWARDS AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY (1) (2) (3) (# OF SHARES) (4)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. L. Zabriskie, 1994 $800,000 $731,272 $300,321 $ 286,250 350,000 N/A
Chairman of the Board and
Chief Executive Officer
L. S. Smith, 1994 $480,000 $431,262 $ 0 $ 152,686 32,000 $4,575
President and Chief 1993 $415,417 $462,408 $ 0 0 40,000 $5,494
Operating Officer 1992 $380,000 $276,115 $166,250 0 40,000 $5,726
J. R. Mitchell, 1994 $414,830 $304,697 $ 0 $ 152,686 32,000 $4,616
Vice President of the Board 1993 $366,875 $302,830 $ 0 0 40,000 $6,368
and President, Upjohn 1992 $335,000 $203,267 $403,750 0 30,000 $6,621
Laboratories
R. C. Salisbury, 1994 $300,042 $205,514 $ 0 $ 114,500 24,000 $4,596
Executive Vice President and 1993 $275,000 $206,876 $ 0 0 45,000 $6,368
Chief Financial Officer 1992 $272,083 $159,638 $132,250 0 25,000 $6,621
D. R. Parfet, 1994 $277,084 $189,928 $ 0 $ 114,500 24,000 $4,575
Executive Vice President for 1993 $266,000 $215,847 $ 0 0 30,000 $6,368
Administration 1992 $266,000 $169,130 $ 0 0 30,000 $6,621
</TABLE>
-------------------------
(1) Bonus represents Incentive Compensation Plan awards (20% of which is
deferred and subject to forfeiture if employment is terminated other than
for retirement, death or disability) and any other annual bonuses.
(2) The restricted stock included in the table represents the fair market value
of the entire restricted stock award on the date of grant, including the
value of any supplemental payment in cash or stock that vests ratably as the
restricted stock vests. The restricted stock included in the table for J. L.
Zabriskie is subject to reduction by the value of any future performance
share target awards received by him from his prior employer. During 1994,
4,798 restricted shares granted to J. L. Zabriskie were canceled due to his
receipt of performance share awards from his prior employer. The restricted
stock granted to J. L. Zabriskie will remain restricted until May 1996 or
such earlier time (but not before January 1996) that it is determined that
no further performance shares will be received by him from his prior
employer. Dividends are paid on the restricted stock at the same time and at
the same rate as paid to all shareholders. As of December 31, 1994, based on
the market price of the Company's Common Stock on that date of $30.9375, J.
L. Zabriskie held 10,202 shares of restricted stock valued at $315,624; L.
S. Smith held 2,000 shares of restricted stock valued at $61,875 which will
be earned in 1995; J. R. Mitchell held 6,800 shares of restricted stock
valued at $210,375, which will be earned at the rate of 18% in 1995 and
1996, 24% in 1997 and 40% in 1998; and R. C. Salisbury held 1,600 shares of
restricted stock valued at $49,500 which will be earned in 1995.
(3) The Performance Shares included in the table represent the fair market value
of the number of shares of the Company's Common Stock on the date of grant
that will be earned by the recipient over two-year and three-year
performance cycles. Dividend equivalents are credited on the Performance
Shares at the same time and at the same rate as regular dividends are paid
14
<PAGE> 17
to shareholders. As of December 31, 1994, based on the market price of the
Company's Common Stock on that date of $30.9375, J. L. Zabriskie held 10,000
performance shares valued at $309,375; L. S. Smith held 5,334 performance
shares valued at $165,020; J. R. Mitchell held 5,334 performance shares
valued at $165,020; R. C. Salisbury held 4,000 performance shares valued at
$123,750; and D. R. Parfet held 4,000 performance shares valued at $123,750.
(4) All other compensation represents the Company match under The Upjohn
Employee Savings Plan.
STOCK OPTION GRANTS
The following table shows the number and percentage of stock options granted
to the named executive officers during 1994, the exercise price and expiration
date of the options and the potential realizable value of each grant assuming
that the market price of the stock appreciates in value from the date of grant
to the expiration date at assumed annualized 5% and 10% rates. The Company is
unable to predict or estimate the Company's actual future stock price or place a
reasonably accurate present value on the options granted.
ORIGINAL STOCK OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
---------------------------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5%($) 10%($)
----------------------- ---------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. L. Zabriskie........ 350,000 18.2% 29.0625 1/3/04 6,397,000 16,211,300
L. S. Smith............ 32,000 1.66% 28.625 2/15/04 576,100 1,459,900
J. R. Mitchell......... 32,000 1.66% 28.625 2/15/04 576,100 1,459,900
D. R. Parfet........... 24,000 1.24% 28.625 2/15/04 432,100 1,094,900
R. C. Salisbury(2)..... 24,000 1.24% 28.625 2/15/04 432,100 1,094,900
</TABLE>
-------------------------
(1) Options can be exercised in full after one year of employment from the date
of grant with payment in either cash or shares of the Company's Common
Stock. Upon a stock-for-stock exercise, the optionee will receive a new,
non-qualified reloaded stock option at the then current market price for
the number of shares tendered to exercise the option. The reloaded stock
option will have an exercise term equal to the remaining term of the
exercised option. Options may only be exercised during employment or within
three months after employment ceases, except that following retirement at
or after age 65 or other approved termination of employment, stock options
may be exercised for periods up to five years (but not beyond the original
expiration date of the option).
(2) In addition to the original stock option grant shown above, R. C. Salisbury
received a "reloaded" stock option in 1994 at the then current market price
of $35.31 for the 7,544 shares tendered by him in a stock-for-stock option
exercise during the year. The "reloaded" stock option for 7,544 shares will
have an expiration date of February 16, 2003 and a potential realizable
value of $146,852 assuming that the market price of the stock appreciates
in value from the date of receipt to the expiration date at an assumed
annualized 5% rate and $361,697 at an assumed annualized 10% rate.
15
<PAGE> 18
STOCK OPTION EXERCISES
The following table shows the number of stock options exercised and the value
realized by the named executive officers during 1994 and the number of
unexercised stock options remaining at year end and the potential value thereof
based on the year-end market price of the Company's Common Stock of $30.9375:
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)
SHARES -------------- ---------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
-------------------------------- ------------ ------------ -------------- ---------------
<S> <C> <C> <C> <C>
J. L. Zabriskie................. 0 0 0/350,000 $ 0/656,250
L. S. Smith..................... 0 0 185,250/32,000 $110,656/74,000
J. R. Mitchell.................. 0 0 116,000/32,000 $111,562/74,000
D. R. Parfet.................... 1,950 $ 37,376 136,350/24,000 $ 96,150/55,500
R. C. Salisbury................. 10,401 $ 89,169 100,953/31,544 $ 69,086/55,500
</TABLE>
PERFORMANCE SHARE AWARDS
The following table shows the number of Performance Shares granted to the
named executive officers during 1994, the performance period over which the
Performance Shares will be earned and minimum, target and maximum payouts of the
Performance Share grants. Performance Shares represent a contingent right to
receive shares of the Company's Common Stock if specific long-term performance
objectives are achieved. Performance Shares will be earned based upon the
Company's relative achievement of Total Market Return, Return on Net Assets and
Net Earnings Growth, as compared to the group of comparable companies. If
minimum objectives are not met, there will be no distributions.
LONG-TERM INCENTIVE PLAN -- PERFORMANCE SHARE AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NUMBER OF ------------------------------
PERFORMANCE PERFORMANCE THRESHOLD TARGET MAXIMUM
NAME SHARES PERIOD (#)(1) (#)(2) (#)(3)
------------------------------------ ----------- ------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
J. L. Zabriskie..................... 5,000 1994 and 1995 683.5 5,000 10,000
5,000 1994-1996 1000.0 5,000 10,000
L. S. Smith......................... 2,667 1994 and 1995 364.5 2,667 5,334
2,667 1994-1996 533.4 2,667 5,334
J. R. Mitchell...................... 2,667 1994 and 1995 364.5 2,667 5,334
2,667 1994-1996 533.4 2,667 5,334
D. R. Parfet........................ 2,000 1994 and 1995 273.4 2,000 4,000
2,000 1994-1996 400.0 2,000 4,000
R. C. Salisbury..................... 2,000 1994 and 1995 273.4 2,000 4,000
2,000 1994-1996 400.0 2,000 4,000
</TABLE>
-------------------------
(1) Threshold represents the minimum amount payable if any payout is achieved.
(2) Target represents the amount payable if the specified performance criteria
are exactly achieved.
(3) Maximum represents the maximum amount payable under the terms of the
Performance Share Plan.
16
<PAGE> 19
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN
The following graphs compare the yearly change over the last five years and,
for a longer-term perspective, over the last ten years, in the Company's
cumulative total shareholder return (stock price appreciation plus the
cumulative value of reinvested dividends) compared to the Standard & Poor's 500
Stock Index and a Combined Standard & Poor's Drug Group Index consisting of
Abbott Laboratories; American Home Products Corporation; Bristol-Myers Squibb
Company; Johnson & Johnson; Eli Lilly and Company; Merck & Co., Inc.; Pfizer
Inc.; Schering-Plough Corporation; The Upjohn Company and Warner Lambert
Company. Under this peer group index, the returns of each component company are
weighted according to their respective stock market capitalization as of the
beginning of each period for which a return is indicated. For 1994, total
shareholder return performance by The Upjohn Company was 111.4% as compared to
113.4% for the Peer Group Index. The graphs assume $100 was invested on December
31, 1989 (for five-year graph) and December 31, 1984 (for ten-year graph) and
that all dividends were reinvested. The stock performance as shown on the
Performance Graph should not be interpreted as a prediction of future stock
performance.
5 YEAR TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD UPJOHN S&P 500 IN-
(FISCAL YEAR COVERED) COMPANY DEX PEER GROUP
<S> <C> <C> <C>
1989 100 100 100
1990 101.35 96.89 117.70
1991 112.51 126.42 184.01
1992 93.08 136.05 154.69
1993 86.84 149.76 145.19
1994 96.73 151.74 164.69
</TABLE>
10 YEAR TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD UPJOHN S&P 500 IN-
(FISCAL YEAR COVERED) COMPANY DEX PEER GROUP
<S> <C> <C> <C>
1984 100 100 100
1985 195.94 131.64 147.05
1986 278.72 156.08 202.72
1987 272.76 164.04 219.75
1988 267.79 191.28 250.90
1989 369.03 251.89 353.20
1990 374.02 244.07 415.73
1991 415.20 318.43 649.94
1992 343.51 342.69 546.36
1993 320.48 377.23 512.81
1994 356.96 382.21 581.70
</TABLE>
17
<PAGE> 20
RETIREMENT BENEFITS
The following table illustrates the estimated annual benefits payable under
the Company's pension plan upon retirement to persons in the specified
remuneration and years-of-service classifications, assuming retirement at the
normal Social Security retirement age and assuming the participant's
remuneration is equivalent to his Final Average Salary under the plan and is
equal to or greater than 150% of his Social Security Covered Compensation. The
amounts shown include additional non-qualified pension benefits, represent
straight-life annuity amounts notwithstanding the availability of joint
survivorship provisions and are not subject to any offset or reduction for
Social Security benefits.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE*
--------------------------------------------------------------------------------
REMUNERATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS*
------------------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 500,000......... $ 147,000 $ 196,000 $ 245,000 $ 295,000 $ 307,000 $ 320,000
$ 700,000......... $ 207,000 $ 276,000 $ 345,000 $ 415,000 $ 432,000 $ 450,000
$ 900,000......... $ 267,000 $ 356,000 $ 445,000 $ 535,000 $ 557,000 $ 580,000
$1,100,000......... $ 327,000 $ 436,000 $ 545,000 $ 655,000 $ 682,000 $ 710,000
$1,300,000......... $ 387,000 $ 517,000 $ 646,000 $ 775,000 $ 805,000 $ 840,000
$1,500,000......... $ 447,000 $ 573,000 $ 716,000 $ 859,000 $ 931,000 $ 969,000
$1,700,000......... $ 507,000 $ 679,000 $ 849,125 $ 1,019,000 $ 1,057,000 $ 1,104,000
--------- --------- --------- ----------- ----------- -----------
</TABLE>
-------------------------
* Service in excess of 40 years is not counted under the Company's pension plan.
The compensation included as remuneration are the amounts listed under "Annual
Compensation" in the Summary Compensation Table shown above. The current number
of years of service credited for the following individuals at December 31, 1994,
were: J. L. Zabriskie, 29 years; L. S. Smith, 36 years; J. R. Mitchell, 9 years;
D. R. Parfet, 17 years; and R. C. Salisbury, 20 years. As noted below, J. L.
Zabriskie's retirement benefit under the Company's plans will be reduced by the
value of his pension from former employment.
EMPLOYMENT AGREEMENTS
Under an agreement made with J. L. Zabriskie when he joined the Company, he
will receive a retirement benefit under the Company's pension plans as if he had
been employed by Upjohn for 28 years plus his actual years of service with the
Company less the value of his pension from former employment.
Under an agreement made with J. R. Mitchell when he joined the Company, he
will receive a retirement benefit equal to that which he would receive if he
were granted 1.67 years of service for each actual year of service under the
Company's pension plans, reduced by the value of the pension to be received by
him from his former employment.
TERMINATION OF EMPLOYMENT ARRANGEMENTS
AND CHANGE-IN-CONTROL
The Company has a separation payment plan for eligible individual employee
non-performance terminations, including executive officers, ranging from one
week's base pay for employees with three months' service to 31 weeks' base pay
for 30 or more years of service.
18
<PAGE> 21
The Company has entered into a severance agreement with each executive officer
providing for the payment of severance benefits sufficient to provide a cash
benefit equal to 2.5 times the officer's annualized salary and incentive
compensation (whether or not deferred) plus the value of any excise taxes
payable by the officer on such amount in the event his or her employment is
terminated other than for cause, disability or retirement within two years
following a change-in-control of the Company. A change-in-control is defined
generally as the acquisition of 33% or more of the Company's Common Stock or a
majority change in the incumbent Board of Directors.
19
<PAGE> 22
SHAREHOLDER PROPOSALS
For approval, each of the following proposals must receive the affirmative
vote of a majority of the total number of shares voting on such matter at the
Annual Meeting of Shareholders. The names and addresses of the proponents of the
following proposals and the number of shares of the Common Stock of the Company
owned by them will be furnished, orally or in writing as requested, by the
Secretary of the Company promptly upon receipt of any written or oral request.
SHAREHOLDER PROPOSAL NO. 1 AND SHAREHOLDERS' STATEMENT IN SUPPORT
WHEREAS, we believe all U.S. citizens and corporate entities are being called
to sacrifice and to do their part in bringing about a more just and equitable
health care system.
During the 1980s, prescription drug prices increased at almost three times the
rate of general inflation in the United States.
The burden of these cost increases has been borne by individual consumers such
as the elderly and the underinsured in the retail market as well as increased
costs for the institutional health care facilities.
The drug companies have been criticized by citizens, organizations, and U.S.
government agencies as being unjust in the reaping of "excessive profits at the
expense of millions of U.S. citizens."
The price of drugs is consistently higher in the U.S. retail market than in
other industrialized countries.
The drug companies have argued that the higher prices in the U.S. are
necessary to recoup research and development costs. While all persons who
receive these drugs benefit from the research and development, U.S. consumers
bear the burden of these costs.
Pharmaceutical companies' recent efforts to limit overall price increases to
inflation have failed to significantly benefit retail consumers due to
discounted prices offered to volume purchasers such as HMOs and large purchasing
groups.
We believe U.S. citizens want reasonable limits on pharmaceutical prices.
RESOLVED, the shareholders request the Board to create and implement a policy
of price restraint of pharmaceutical products for both the average individual
consumer and the institutional purchasers utilizing a combination of approaches
to keep drug prices to a reasonable level.
The Board will report to shareholders on positive changes in policies and
pricing procedures for our pharmaceutical products by September, 1995.
In creating this policy, the Board should consider a formula whereby the
individual price on each of the top five prescription drugs for the retail
market based on dollar volume in the U.S. for our Company be no higher than 10%
of the average price for each of the five drugs in the top five markets of these
same drugs in the industrialized world, and if the price differential is more
than 10% for any one of the drugs, that a voluntary cap be immediately placed on
the price of said drug in the U.S. until the differential is within the 10%.
Drug pricing has been a controversial topic for the last few years. Now that
we are facing major reforms in our health care system in the U.S., it seems most
appropriate that all pharmaceutical companies take their share of the
responsibility in this reform effort.
20
<PAGE> 23
BOARD OF DIRECTORS' STATEMENT AGAINST SHAREHOLDER PROPOSAL NO. 1
The Board shares the shareholders' concern with increasing healthcare costs
and supports healthcare reform. However, prescription drugs are part of the
solution, offering a cost-effective alternative to more expensive health care
services. Prescription drugs in the U.S. are reasonably priced and are a good
value to consumers. The 1994 catalog price per day of therapy for Upjohn's
leading prescription drugs was $1.56 for XANAX, $0.53 for MICRONASE, $0.52 for
GLYNASE, $0.26 for PROVERA, $1.66 for ANSAID, $0.67 for MOTRIN and $1.46 for
ROGAINE. Each of these products treats serious medical problems and offers
superior value to consumers, especially when compared with other products
society buys for the same or higher prices. Further, the Board notes that for
the last two years, the Company has had a net price decrease for its total U.S.
prescription product line. Adherence to strict pricing formulas may put the
Company at a competitive disadvantage in both the U.S. and foreign markets and
precludes the flexibility necessary to meet particular market circumstances.
Shareholders should also be aware that U.S. prescription drug prices are not
uniformly higher than in other industrialized countries. 1992 survey data showed
that of the 20 most prescribed drugs in 45 countries, 65% were priced higher
outside the United States. Price comparisons between countries are affected by
many variables, including currency fluctuations, standards of living, patent
protection, government price controls, clinical practices and consumer
preference. Accordingly, the Board recommends a vote AGAINST Shareholder
Proposal No. 1.
SHAREHOLDER PROPOSAL NO. 2 AND SHAREHOLDER'S STATEMENT IN SUPPORT
On May 24, 1994, South Africa's newly elected President Nelson Mandela invited
his country and its supporters to eradicate apartheid's economic and social
legacy, stating:
My government's commitment to create a people-centered society of liberty
binds us to the pursuit of the goals of freedom from want, freedom from
hunger, freedom from deprivation, freedom from ignorance, freedom from fear.
These freedoms are fundamental to the guarantee of human dignity. They will
therefore constitute part of the centerpiece of what this government will seek
to achieve...
South Africa's apartheid policies left its economy unjust and unproductive:
- One out of four children is physically and/or mentally stunted as a result
of malnutrition,
- More than seven million people are homeless or inhabit makeshift shanties,
- The black community's illiteracy and unemployment rates exceed 50%,
- Black South Africans' average income is one-tenth that of whites,
- National economic growth declined between 1986 and 1993 to an annual average
less than 1%.
We believe business can play a major role in building a productive, democratic
South African economy. In 1993, the South African Council of Churches issued its
Code of Conduct for Business Operating in South Africa, inviting companies to
help "reverse this crippling legacy and to improve the economic well-being of
all South African" by reshaping investments "in the image of an equitable,
democratic and life-enhancing society."
This ethical framework grew out of work with the African National Congress
(ANC), Coalition of South African Trade Unions (COSATU), and numerous other
political, community, business and international organizations.
The SACC Code encourages business to play a constructive and creative role in
partnership with employees, communities and other members of society to lay the
economic foundations for a stable and prosperous South Africa. Its planks call
for equal opportunity, training and education to increase productive capacities,
protection of workers' rights, a safe and healthy work place, job creation,
social responsibility programs developed in consultation with communities
affected, disclosure of
21
<PAGE> 24
product hazards to consumers, environmentally sound products and practices,
support for black-owned businesses, and disclosure of information needed to
monitor Code implementation.
Many U.S. companies have pledged to do their South African business in the
spirit of this code, stating that their current practices and commitment to good
corporate citizenship are already consistent with it.
We believe it is in our company's best interest to invest responsibly in South
Africa, whose gross domestic product of approximately $100 billion is 80% that
of Southern Africa and half that of the African continent.
In our view adherence to the SACC Code will help stabilize our company's
investment environment, improve its standing in its South African communities
and markets, and prepare it to meet requirements the new government may
legislate.
THEREFORE, shareholders request the Board of Directors:
1. to commit to uphold the Code of Conduct for Business Operating in South
Africa as it does business in that country, and
2. report to shareholders on its implementation.
BOARD OF DIRECTORS' STATEMENT AGAINST SHAREHOLDER PROPOSAL NO. 2
The Board of Directors shares the proponent's commitment to advancing social
justice and economic growth in South Africa. The Board also recognizes that
social responsibility remains as important in post-apartheid South Africa as
before the 1994 democratic elections. Upjohn has for many years been actively
engaged in efforts to improve the health and quality of life for all South
Africans in the broader community, while also addressing equal employment
opportunity, job training, occupational health and safety, and contracting
opportunities in the workplace. Upjohn has won broad community respect for its
accomplishments in black advancement, including recognition by the Black
Management Forum in South Africa. Currently, the Company is participating with
other corporate, non-profit and community interests in the development of the
new government's program to address critical community development needs. The
Board believes that this government effort is the best vehicle existing at this
stage for continuing the Company's social responsibility efforts. Accordingly,
the Board recommends a vote AGAINST Shareholder Proposal No. 2.
SHAREHOLDER PROPOSAL NO. 3 AND SHAREHOLDER'S STATEMENT IN SUPPORT
(NO OTHER SHAREHOLDER'S STATEMENT IN SUPPORT SUBMITTED)
WHEREAS, in human fertilization, the uniting of the sperm and ovum, a cellular
process with unique genetic characteristics, different than the mother and
father, begins.
WHEREAS, many scientists and individuals believe a distinct human life is
formed after fertilization occurs.
WHEREAS, cellular evidence of personhood is admissible in a court of law.
WHEREAS, some of the Company's products have effects that inhibit the
development of this genetically distinct human life after fertilization.
WHEREAS, any product that inhibits the development of unborn human life may be
considered an abortifacient.
WHEREAS, considering the sensitive nature of the subject of abortion, women
should have as much information as possible in making informed decisions.
RESOLVED, the shareholders request the board of directors to form a committee.
The purpose of this committee would be to formulate an educational plan that
would inform literate and non-literate women of the possible abortifacient
action of any of the Company's products. The committee would
22
<PAGE> 25
report to the board by November 1, 1995, with their specific recommendations.
This report, excluding any proprietary information, should be made available to
all shareholders at that time.
BOARD OF DIRECTORS' STATEMENT AGAINST SHAREHOLDER PROPOSAL NO. 3
The Board believes that women should have all appropriate information
regarding all potential effects of the Company's products, including any
possible abortifacient effects. However, the Company believes that a woman's
physician is in the best position to provide education about possible
abortifacient and other effects of our products. The Company provides detailed
information regarding the reproductive consequences of its products to
physicians and pharmacists as part of the product labeling. In addition, much of
this information is published in the Physician's Desk Reference, which is
publicly available in many libraries and bookstores. Accordingly, the Board
recommends a vote AGAINST Shareholder Proposal No. 3.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, who have been the Company's independent accountants for a
number of years, have been selected by the Board of Directors to be its
independent accountants for the current year. A representative of this firm will
be present at the Annual Meeting of Shareholders and will have an opportunity to
make a statement if desired to do so and will be available to respond to
shareholder questions.
RECEIPT OF SHAREHOLDER PROPOSALS
For inclusion in the Company's 1996 proxy statement, all shareholder proposals
for consideration at the Annual Meeting of Shareholders of the Company to be
held in 1996 must be received at the Company's executive offices by November 25,
1995. Such proposals must also comply with all other regulations of the
Securities and Exchange Commission.
OTHER BUSINESS
The Company knows of no other business to come before the meeting. If,
however, other matters properly come before the meeting, it is the intention of
the persons named in the enclosed proxy to vote the shares represented thereby
in accordance with their best judgment.
By order of the Board of Directors,
Kenneth M. Cyrus
Secretary
Dated: March 23, 1995
23
<PAGE> 26
(UPJOHN LOGO)
(logo for recycled paper) 97-178 3/95
<PAGE> 27
<TABLE>
<S><C>
THE UPJOHN COMPANY
[UPJOHN LOGO] ANNUAL MEETING, APRIL 18, 1995 PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints K. M. Cyrus and J. L. Zabriskie, and each of them, as proxies with power of substitution, to vote
all the stock of THE UPJOHN COMPANY, which the undersigned has the power to vote at its Annual Meeting or at any adjournment
thereof, as specified on the reverse side, and in their discretion upon such other matters as may properly come before the meeting.
If applicable, this proxy shall also govern the voting of stock held for the account of the undersigned in the Company's Dividend
Reinvestment and Stock Purchase Plan and The Upjohn Employee Savings Plan.
[ ] CHECK HERE FOR ADDRESS CHANGE.
NEW ADDRESS: ____________________________________
_________________________________________________
_________________________________________________
[ ] CHECK HERE IF YOU PLAN TO ATTEND THE MEETING.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
97-177 2/95
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
[ ]
If you sign this proxy without checking any boxes, this proxy shall be voted FOR all nominees and AGAINST all shareholder proposals.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES
WITHHELD
1. NOMINEES: M. Kathryn Eickhoff, Daryl F. Grisham, FOR all from all FOR all nominees, except vote
Lawrence C. Hoff, Jerry R. Mitchell, M.D. and nominees nominees withheld from the following nominees:
William U. Parfet for three-year terms and [ ] [ ] [ ]
Antonio M. Gotto, Jr., M.D. for a two-year term ______________________________________________
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ALL SHAREHOLDERS PROPOSALS
For Against Abstain For Against Abstain
2. SHAREHOLDER PROPOSAL No. 1 [ ] [ ] [ ] 4. SHAREHOLDER PROPOSAL No. 3 [ ] [ ] [ ]
For Against Abstain
3. SHAREHOLDER PROPOSAL No. 2 [ ] [ ] [ ]
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS. IF ACTING AS
ATTORNEY, EXECUTOR, TRUSTEE, OR IN REPRESENTATIVE
CAPACITY, SIGN NAME AND INDICATE TITLE.
___________________________________ ____________________
Signature Date
___________________________________ ____________________
Signature Date
PLEASE VOTE, SIGN, DATE, AND RETURN THIS PROXY CARD
PROMPTLY TO: HARRIS TRUST AND SAVINGS BANK, PO BOX A3800,
CHICAGO, ILLINOIS 60690-9972.
</TABLE>
