RHONE POULENC RORER INC, DEF 14A, 1994-04-14

RHONE POULENC RORER INC
DEF 14A, 1994-04-14
PHARMACEUTICAL PREPARATIONS

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<PAGE>

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

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

RHONE-POULENC RORER INC.
(Name of Registrant as Specified In Its Charter)

RHONE-POULENC RORER INC.
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (check the appropriate box):

[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).

[_] $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:*

(4) Proposed maximum aggregate value of transaction:
- --------
*Set forth the amount on which the filing is calculated and state how it was
determined.

[_] 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:

Notes:

<PAGE>

(LOGO OF RHONE-POULENC RORER APPEARS HERE)

NOTICE OF 1994 ANNUAL MEETING OF
SHAREHOLDERS

PROXY STATEMENT

ANNUAL FINANCIAL STATEMENTS
AND REVIEW OF OPERATIONS
<PAGE>

(LOGO OF RHONE-POULENC RORER APPEARS HERE)

RHONE-POULENC RORER INC.
500 ARCOLA ROAD
COLLEGEVILLE, PA 19426
MARCH 21, 1994

Dear Shareholder:

This year's Notice of Annual Meeting of Shareholders and Proxy Statement
reflect a change in format: in an effort to reduce costs, we have included in
the proxy statement the full text of the 1993 audited financial statements
found in previous years in the Annual Report to Shareholders. We have enclosed
as well a review of 1993 which describes our research efforts and strategies in
the areas of oncology and gene and cell therapy.

We hope you will attend the Annual Meeting which is set for 2:00 p.m. ,
Thursday, April 28, 1994 at the Company's Executive Offices, 500 Arcola Road,
Collegeville, Pennsylvania.

Whether or not you expect to attend the meeting in person, please sign, date
and return the accompanying proxy in the enclosed postage prepaid envelope.

I look forward to welcoming you at the Annual Meeting this year.

Very truly yours,

/s/ Robert E. Cawthorn
Robert E. Cawthorn
Chairman of the Board and
Chief Executive Officer
<PAGE>

RHONE-POULENC RORER INC.
500 ARCOLA ROAD
COLLEGEVILLE, PA 19426

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 28, 1994

To the Shareholders
of Rhone-Poulenc Rorer Inc.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual
Meeting") of Rhone-Poulenc Rorer Inc., a Pennsylvania corporation (the
"Company"), will be held on Thursday, April 28, 1994 at 2:00 p.m., local time,
at the Company's Executive Offices, 500 Arcola Road, Collegeville, Pennsylvania
for the following purposes:

(1) To consider and vote upon the election of four directors to three-
year terms;

(2) To ratify the selection of Coopers & Lybrand as independent
accountants for the Company and its subsidiaries for the fiscal year ending
December 31, 1994; and

(3) To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.

Only the holders of record of Common Shares at the close of business on March
10, 1994 will be entitled to notice of and to vote at the Annual Meeting. Such
holders may vote in person or by proxy.

Whether or not you expect to attend the Annual Meeting in person, please
complete, sign, date and return the accompanying proxy in the enclosed prepaid
envelope to ensure that your vote will be counted. Your proxy may be revoked in
the manner described in the accompanying proxy statement at any time before it
has been voted at the Annual Meeting.

BY ORDER OF THE BOARD OF DIRECTORS.

/s/ John B. Bartlett

John B. Bartlett,
Senior Vice President, Secretary
and General Counsel

Collegeville, Pennsylvania
March 21, 1994
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Notice of Annual Meeting of Shareholders..................................
Proxy Statement........................................................... 1
Voting of Shares........................................................ 1
Ownership of Shares by Directors/Officers............................... 2
Control of the Company.................................................. 3
Election of Directors (Item 1 on Proxy Card)............................ 3
Committees of the Board of Directors.................................... 7
Directors' Compensation................................................. 8
Report of the Executive Personnel & Compensation Committee.............. 9
Compensation of Executive Officers ..................................... 12
Certain Relationships and Related Transactions.......................... 19
Ratification of Appointment of Independent Accountants (Item 2 on Proxy
Card).................................................................. 19
General and Other Matters............................................... 19
Proposals of Shareholders............................................... 20
Annual Financial Statements and Review of Operations...................... 21
Nine-Year Selected Financial Data (Unaudited)........................... 21
Management's Discussion and Analysis of Results of Operations and Finan-
cial Condition......................................................... 22
Consolidated Statements of Income....................................... 31
Consolidated Balance Sheets............................................. 32
Consolidated Statements of Cash Flows................................... 33
Notes to Consolidated Financial Statements.............................. 34
Responsibility for Financial Statements................................. 48
Report of Independent Accountants....................................... 49
Quarterly Data (Unaudited).............................................. 50
</TABLE>
<PAGE>

RHONE-POULENC RORER INC.
500 ARCOLA ROAD
COLLEGEVILLE, PENNSYLVANIA 19426

PROXY STATEMENT

VOTING OF SHARES

This proxy statement and the accompanying proxy card are being mailed on or
about March 21, 1994 to holders of Common Shares of Rhone-Poulenc Rorer Inc.
(the "Company"). These materials are being furnished in connection with the
solicitation by the Board of Directors of the Company of proxies to be voted at
the Annual Meeting of Shareholders of the Company ("Annual Meeting") scheduled
to be held on April 28, 1994 and at any adjournment or postponement thereof.

At the Annual Meeting, holders of Shares will consider and vote upon the
following proposals:

1. The election of four directors of the Company for three-year terms
ending in 1997; and

2. The ratification of the selection of Coopers & Lybrand as independent
accountants for the Company and its subsidiaries for the fiscal year ending
December 31, 1994.

The Board of Directors has fixed the close of business on March 10, 1994 as
the record date ("Record Date") for determining the holders of Shares who will
be entitled to notice of and to vote at the Annual Meeting.

Only the holders of record of Common Shares of the Company ("Shares") on the
Record Date will be entitled to vote at the Annual Meeting. On the Record Date,
138,986,185 Shares, including 2,693,700 in the Company's Employee Benefits
Trust, were outstanding for voting purposes. Shareholders are entitled to one
vote per Share on each matter to be voted upon. The presence, in person or by
properly executed proxy, of the holders of a majority of the Shares outstanding
shall constitute a quorum at the Annual Meeting.

All Shares that are represented at the Annual Meeting by properly executed
proxies received prior to or at the Annual Meeting and not revoked will be
voted at the Annual Meeting in accordance with the instructions indicated on
such proxies. If no instructions are indicated, such proxies will be voted for
the election of the nominees for director and for the ratification of the
selection of Coopers & Lybrand as independent accountants for the Company.

Abstentions and shares held of record by a broker or its nominee which are
voted on any matter are included in determining the number of votes present,
but such shares not voted on any matter will not be included in determining
whether a quorum is present. A nominee for election as a director will be
elected if he receives an affirmative vote of a majority of the votes cast by
shareholders entitled to vote at a meeting of Shareholders.

Proxies representing Shares held of record will also represent Shares held
under the Company's Dividend Reinvestment Plan. Proxies will also be considered
to be voting instructions to the Trustee with respect to Shares held in
accounts under the Rhone-Poulenc Rorer Employee Savings Plan. If participants
in those plans also are shareholders of record with the same account
information, they will receive a single proxy which will represent all Shares.
If the account information is different, then the participants will receive
separate proxies. The number printed on the proxy card reflects the total
number of Shares represented by that proxy.

The Board of Directors does not know of any matters, other than the election
of directors and the ratification of the selection of accountants, that are to
come before the Annual Meeting. If any other matters are properly presented at
the Annual Meeting for consideration, the persons named in the enclosed form of
proxy and acting thereunder will have discretion to vote on such matters in
accordance with their best judgment.

1
<PAGE>

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company, at or before the taking of the vote at the
Annual Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a subsequent proxy relating to the same Shares and
delivering it to the Secretary of the Company before the Annual Meeting or
(iii) attending the Annual Meeting and voting in person (although attendance
at the Annual Meeting will not in and of itself constitute a revocation of a
proxy). Any written notice of revocation or subsequent proxy should be sent so
as to be delivered to: Rhone-Poulenc Rorer Inc., 500 Arcola Road,
Collegeville, Pennsylvania 19426, Attention: John B. Bartlett, Secretary, at
or before the taking of the vote at the Annual Meeting.

On the Record Date, Rhone-Poulenc S.A. ("RP") owned approximately 68.34% of
the Company's Shares. RP has the right to vote sufficient Shares to cause the
proposals to be approved without any other Shares being voted in favor
thereof.

OWNERSHIP OF SHARES

The following table presents information provided to the Company as to the
beneficial ownership of the Company's Shares, as of February 10, 1994, by
persons holding 5% or more of such Shares:

<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS NUMBER OF SHARES NATURE OF OWNERSHIP CLASS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Rhone-Poulenc S.A.
25, Quai Paul Doumer
92408 Courbevoie, FRANCE 94,987,762 Direct 68.34%
- -----------------------------------------------------------------------------
</TABLE>

The following table shows, for each director, for each executive named in
the Summary Compensation Table on page 12 and for all directors and executive
officers of the Company as a group, the total number of Shares beneficially
owned as of March 10, 1994, and the nature of such beneficial ownership.
Beneficial ownership includes, among other things, the right to acquire Shares
within sixty (60) days through the exercise of an option. Total ownership
represents less than one percent of the outstanding Shares.

<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES SUBJECT TO EXERCISABLE
NAME OF BENEFICIAL OWNER OWNED DIRECTLY OPTIONS
- -----------------------------------------------------------------------------
<S> <C> <C>
John B. Bartlett 20,582 31,014
Jean-Jacques Bertrand 3,390 82,759
Jean-Marc Bruel -0- 12,000
Gilles Brisson 4,245 38,843
Robert E. Cawthorn 129,987 316,883
Michel de Rosen -0- -0-
Charles-Henri Filippi -0- 12,000
Prof. Claude Helene -0- 12,000
Michael H. Jordan -0- 12,000
Manfred E. Karobath 2,108 13,406
Igor Landau 200 12,000
Pierre Lapalme -0- -0-
Peter J. Neff -0- 12,000
James S. Riepe 864 10,000
John A. Sedor 3,554 17,310
Edward J. Stemmler, M.D. 144 10,000
Jean-Pierre Tirouflet -0- 12,000
All Executive Officers and Directors
as a Group
(22 in number) 175,669 737,462
</TABLE>

2
<PAGE>

Under the terms of a shareholder-approved plan which was then called the
Rorer Group Inc. Stock Plan and is now known as the Rhone-Poulenc Rorer Amended
and Restated Stock Plan ("Stock Plan"), Messrs. Riepe and Stemmler were each
awarded on April 26, 1988, options to purchase 20,000 Shares at a price of
$16.00 per Share, the market value on that date. Under the terms of the Stock
Plan, these options became fully exercisable upon the change in control of the
Company (described below) on May 5, 1990. Pursuant to the terms of the
Acquisition Agreement between the Company and RP dated as of March 12, 1990
(the "Acquisition Agreement"), each of these directors in August 1990
surrendered one-half of the Shares in the option in exchange for a cash payment
of $230,000 (representing the difference between the Tender Offer price of $39
and the option price) and the Company reduced the option price of the Shares
remaining in the option to reflect the then-current market value of the
Contingent Value Rights issued by RP as provided in the Acquisition Agreement;
to date, [neither of these directors has exercised any of these options.]

Pursuant to terms of the Stock Plan, Mr. Landau and Prof. Helene were each
awarded, on July 31, 1990, options to purchase 20,000 Shares at a price of
$32.3125 per share, the market value on that date. Messrs. Bruel, Filippi,
Jordan, Neff and Tirouflet were each awarded, on May 7, 1991, options to
purchase 20,000 shares at $41.125 per share, the market value on that date.
These options become exercisable during service as director at the rate of 20%
of the Shares on each of the first five anniversaries of the date of grant.

The foregoing description reflects a two-for-one split in the Shares,
effective June 7, 1991.

CONTROL OF THE COMPANY

Pursuant to the terms of the Acquisition Agreement, RP acquired Shares of the
Company in two transactions in 1990: upon expiration on May 5, 1990 of its
March 16, 1990 tender offer for Shares ("Tender Offer"), RP purchased on a pro
rata basis 21,629,061 Shares of the 41,646,844 Shares tendered to it and not
withdrawn (representing approximately 50.1% of Shares then outstanding on a
fully-diluted pre-split basis, excluding Shares subject to outstanding employee
stock options) at a price of $78 per Share; on July 31, 1990, the Company
issued 24,205,670 Shares to RP in consideration of the contribution to the
Company by RP of its Human Pharmaceutical Business. As a result of these
transactions, RP acquired Shares constituting approximately 68% of the Shares
outstanding on a fully-diluted basis. RP now owns approximately 68% of the
Shares and thereby controls the Company.

ELECTION OF DIRECTORS

The Acquisition Agreement provides that for a standstill period extending
until July 31, 1997, during which RP cannot acquire additional Shares except
under certain conditions provided therein, the Board of Directors shall consist
of 13 directors. The parties to the Acquisition Agreement agreed that RP would
vote all Shares owned by it directly or indirectly to elect, and the Company
would use its best efforts to cause to be elected, seven individuals selected
by RP ("RP Designees"), three executive officers of the Company ("Rorer
Designees") and three individuals who are Independent Persons selected by the
Nominating Committee of the Board of Directors of the Company (the "Independent
Directors"). "Independent Person" is defined as a person who (1) is in fact
independent, (2) does not have any direct financial interest or any material
indirect interest in either RP or the Company (other than by reason of
ownership of not more than 1% of any class of securities thereof) and (3) is
not connected with RP, the Company or any of their respective affiliates as an
officer, employee, consultant, agent, advisor, representative, trustee,
partner, director (other than of the Company) or person performing similar
functions.

Jean-Jacques Bertrand resigned as Executive Vice President of the Company,
effective December 31, 1993, to become, effective January 1, 1994, the Vice
Chairman of Pasteur Merieux Serums and Vaccines, an RP subsidiary. As of
January 1, 1994, Mr. Bertrand became an RP Designee, replacing as an RP
Designee John W. Eckman who died December 17, 1993.

3
<PAGE>

Michel de Rosen, President and Chief Operating Officer of the Company, was
elected a director effective September 8th, 1993, by the directors to fill the
unexpired term of Randy H. Thurman, who resigned, effective September 8th,
1993, as Executive Vice President and director.

The Board of Directors has nominated Jean-Marc Bruel, Manfred E. Karobath,
M.D., Peter J. Neff and James S. Riepe as directors of the Company for three-
year terms ending in 1997.

Messrs. Bruel, Neff and Riepe have been previously elected directors of the
Company by the shareholders. Dr. Karobath was elected by the directors of the
Company to fill the unexpired term of Mr. Eckman.

Mr. Riepe is an Independent Director. Dr. Karobath is a Rorer Designee. Mr.
Bruel and Mr. Neff are RP Designees.

All of the nominees have consented to be named and to serve if elected. If
any of the nominees should become unavailable for election, it is intended the
shares represented by proxies will be voted with discretionary authority for a
substitute designated by the Board.

The following table gives the following information for each nominee and each
continuing director: age, all positions with the Company, the first year
elected a director, the year in which his current term of office expires,
principal occupation or employment during the past five years and other
directorships.

NOMINEES FOR ELECTION FOR TERMS ENDING IN 1997

4
<PAGE>

CONTINUING DIRECTORS

<TABLE>
<CAPTION>
NAME (AND AGE) OF
DIRECTORS, POSITIONS TERM OF
AND OFFICES HELD WITH DIRECTOR OFFICE
THE COMPANY SINCE: EXPIRES BUSINESS EXPERIENCE
--------------------- -------- ------- --------------------------------------
<S> <C> <C> <C>
Robert E. Cawthorn/2/ 1984 1995 Chairman (since 1986), President
(58) (1984-1991) and Chief Executive Offi-
Chairman and Chief Ex- cer (since 1985); Executive Vice
ecutive Officer President (1982-1984) of the Company.
Mr. Cawthorn is a member of the Exec-
utive Committee of Rhone-Poulenc S.A.
and is also a director of Applied Im-
mune Sciences, Inc., Sun Company,
Inc., Vanguard Group, Inc. and vari-
ous Vanguard mutual funds.
Charles-Henri Filippi/1/ 1990 1995 Senior Executive Vice President (since
(41) 1993) and Executive Vice President in
Director Charge of Large Enterprises (1989-
1993), Credit Commercial de France.
Claude Helene/1/ (55) 1990 1995 Directeur Scientifique of Rhone-
Director Poulenc since 1990. Professeur at the
Museum National D'Histoire Naturelle
(Paris, France) since 1976; Director
of a Research Center of Institute Na-
tional de la Sante et de la Recherche
Medical (1980-1992).
Michael H. Jordan/3/ 1991 1995 Chairman & Chief Executive Officer,
(57) Westinghouse Electric Corporation
Director (since 1993); Principal of Clayton,
Dubilier and Rice, Inc. 1992-1993.
President and Chief Executive Officer
(1986-1992) of PepsiCo Worldwide
Foods, Inc. Mr. Jordan is a director
of Aetna Life & Casualty Company,
Dell Computer Corporation, Melville
Corporation, VKM, Inc. and Westing-
house Electric Corporation.
Jean-Jacques Bertrand/1/ 1990 1996 Vice Chairman and Chief Executive Of-
(54) ficer of Pasteur Merieux Serums and
Director Vaccines, since January 1, 1994. Ex-
ecutive Vice President of the Company
(1990-1993); President, Worldwide
Pharmaceutical Operations of Rhone-
Poulenc Sante (1987-1990).
Igor Landau/2/ (49) 1990 1996 Group President of Rhone-Poulenc S.A.
Director and Chairman of the Rhone-Poulenc
Health Sector. Mr. Landau is a member
of the Executive Committee of Rhone-
Poulenc S.A. and is also a Director
of Institut Merieux International,
Rhone-Merieux and Rhone-Poulenc Ltd.
</TABLE>
- --------
/1/ RP Designe
/2/ Rorer Designee
/3/ Independent Director

5
<PAGE>

NOMINATIONS BY SHAREHOLDERS

The Company's By-laws provide that nominations for election of directors may
be made by any shareholder entitled to vote for the election of directors if
written notice (the "Notice") of the shareholder's intent to nominate a
director at the meeting is given by the shareholder and received by the
Secretary of the Company in the specified manner and within a specified time
limit. The Notice shall be delivered to the Secretary of the Company not less
than 14 days nor more than 50 days prior to any meeting of the shareholders
called for the election of directors. If less than 21 days' notice of the
meeting is given to shareholders, the notice shall be delivered to the
Secretary of the Company not later than the earlier of the seventh day
following the day on which notice of the meeting was first mailed to
shareholders or the fourth day prior to the meeting. The Notice may be
delivered to the Secretary or mailed to the Secretary by certified mail, return
receipt requested, but shall be deemed to have been given only upon actual
receipt by the Secretary. The Notice shall be in writing and contain (1) the
name and address of the nominating shareholder; (2) a representation that the
shareholder is a shareholder of record and intends to appear in person to
nominate the person or persons specified in the Notice; (3) such information
about such nominee as would be required to be included in the proxy statement
filed pursuant to Section 14A of the rules and regulations established by the
Securities and Exchange Commission under the Securities Exchange Act of 1934;
(4) a description of all arrangements or understandings among the shareholder
and each nominee and any other person pursuant to which the nomination is made
and (5) the consent of each nominee to serve as a director if elected.

6
<PAGE>

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT

Based on an examination of Forms 3, 4, and 5 filed with the Securities and
Exchange Commission, the Company is aware that Mr. Bartlett, Senior Vice
President, filed late a Form 4 reporting a sale of Shares. The Company is
unaware of any failure by an officer or director to file a required form.

COMMITTEES OF THE BOARD OF DIRECTORS

The Company has an Audit Committee appointed by the Board of Directors and
composed of directors who are not employees of the Company. The Audit
Committee's function is to conduct such review as may be necessary or desirable
with respect to: the selection of independent accountants and compensation paid
to them; the scope of audit activities and related work programs of the
Company's independent accountants and internal audit and accounting staffs; the
results and findings of audits, quarterly reviews and other reporting by the
Company's independent accountants and internal audit staff; the policies and
practices of the Company for the proper maintenance of the accounts of the
Company and for insuring reliability and integrity of the financial statements;
the accounting controls, practices and policies of the Company and its
subsidiaries; special investigations and studies to insure adherence to the
Company's policies and procedures relating to accounting, financial control and
audit matters; and the responsibilities, authority and duties of the Company's
chief financial officer, chief accounting officer and director of internal
audit and the performance by each of them of his respective duties. The Audit
Committee held three meetings in 1993. Its members are Messrs. Riepe
(Chairman), Filippi and Stemmler.

The Company has an Executive Personnel and Compensation Committee appointed
by the Board of Directors and composed of directors who are not employees of
the Company. Pursuant to the Acquisition Agreement, one member is an RP
Designee and the balance are Independent Directors. The Executive Personnel and
Compensation Committee reviews the administration of the Company's stock option
and incentive compensation plans and reviews with the Board of Directors, for
approval, the compensation, including the amount of any incentive compensation
or bonus, to be paid to any officer of the Company or Division president and
reviews the compensation, including incentive compensation or bonus, paid to
each other employee of the Company or any of its domestic subsidiaries or
General Manager of an international subsidiary whose annual rate of salary
exceeds $120,000 and any other employee or class or group of employees as the
Committee shall determine. The Committee also reviews the recommendations of
the Company's chief executive officer, including planning for executive
development and management succession, with regard to management personnel of
the Company and its subsidiaries, whose annual rate of salary exceeds $200,000.
The Executive Personnel and Compensation Committee held seven meetings in 1993.
Its members are Messrs. Riepe (Chairman), Jordan and Landau.

The Company has a Nominating Committee appointed by the Board of Directors
and composed of three directors: the Chief Executive Officer of the Company,
one RP Designee and one Independent Director who is the chairman of the
committee. The Nominating Committee proposes to the Board of Directors
candidates for Board membership as Independent Directors to stand for election
or to fill vacancies on the Board as they occur. The Nominating Committee held
one meeting in 1993. Its members are Messrs. Stemmler (Chairman), Cawthorn and
Neff.

The Company has an Executive Committee appointed by the Board of Directors to
act in an advisory capacity to management of the Company in respect of any
event or matter of business where a quorum of the Board of Directors cannot, in
the judgment of the Chairman, be convened in a timely manner and, in addition,
to have and exercise the authority of the Board of Directors in connection with
such event or matter about which the Board of Directors specifically delegates
such authority prior to its exercise. The Board of Directors has specifically
authorized the Executive Committee to approve investments, capital expenditures
and asset dispositions by the Company and its subsidiaries in an amount up to
$25 million. The Executive Committee held no meetings in 1993. Its members are
Messrs. Landau (Chairman), Bruel, Cawthorn, Jordan, Karobeth, de Rosen and
Tirouflet.

7
<PAGE>

The Board of Directors had nine meetings in 1993. Messrs. Filippi, Jordan and
Neff attended fewer than 75% of the aggregate of the number of meetings of the
Board of Directors and the total number of meetings held by all committees of
the Board on which each served. Individual director attendance at meetings of
the Board of Directors and its committees during the year averaged 79%.

DIRECTORS' COMPENSATION

Directors who are not employees of the Company or any of its subsidiaries
were paid an annual retainer of $25,000. An additional annual retainer of
$2,000 was paid for committee participation and an additional $2,000 for
committee chairmanship. Directors also received a fee of $1,000 per Board
meeting attended and $500 per committee meeting. The directors are paid an
additional $500, or a total of $1,000, per committee meeting which is not held
in conjunction with a meeting of the Board of Directors.

Directors who are employees of the Company or any of its subsidiaries do not
receive compensation for service as directors.

In 1987, the Board of Directors adopted a Deferred Compensation Plan for
Directors, by which a non-employee director could defer not less than $10,000
nor more than $15,000 of directors' fees to be paid in any year. The deferred
fees are deemed to be used to purchase a life insurance policy on the life of
the participating director. The Company has no obligation to purchase such life
insurance although it may choose to do so to provide the funding for its
deferred obligation. The deferred benefits are a general unsecured obligation
of the Company payable to the director over a 15 year period upon reaching age
65 or at an earlier time upon termination as a director if permitted by the
Executive Personnel and Compensation Committee. The amount of deferred benefits
will be determined by the Committee at the time of commencement of such
payments and will be an annual amount which can be provided by the Company at
no cost to it on an after-tax basis considering the potential death benefit
which would be payable under the life insurance policy deemed purchased on the
life of the participating director. Currently, only Mr. Riepe defers director's
fees under the terms of the Plan.

This Plan incorporates a prior deferred compensation arrangement which had
been offered in several years prior to 1988 to all incumbent directors pursuant
to which their fees were credited to an account at a rate of interest for each
calendar quarter equal to the rate that would be paid by the Company for
current short-term borrowing.

In 1988, the Company adopted a Retirement Plan for Outside Directors,
effective March 1, 1988 with respect to then-eligible directors, by which a
director with at least five years of service as a director would receive, after
retirement as a director and beginning at age 65, five annual payments equal to
the annual retainer received in the last year of service as a director and an
additional annual payment for each year of service beyond five years, to a
maximum of ten. Mr. Riepe and Dr. Stemmler participate in this Plan.

SUPPLEMENTAL BENEFIT AND DEFERRED COMPENSATION TRUST AGREEMENT

The Company in 1988 entered into a Supplemental Benefit and Deferred
Compensation Trust Agreement ("Trust Agreement") with CoreStates Bank, N.A., as
Trustee, which established an irrevocable grantor trust to which certain
contributions may be made by the Company in its discretion to fund its
obligations with respect to various non-qualified benefit plans. A trust fund
has been established under the Trust Agreement for each participant in the
Company's Deferred Compensation Plan for Directors, Outside Directors'
Retirement Plan and the Supplemental Executive Retirement Plan. The Company may
fund other benefit plans pursuant to the Trust Agreement. The assets of the
trust fund established pursuant to the Agreement will, nevertheless, be subject
to the claims of general creditors of the Company. Upon a change in control of
the Company, the Company was obligated to contribute funds to the trust fund in
an amount sufficient to provide all of the benefits then due. The consummation,
on May 5, 1990, of RP's Tender Offer for Shares of the Company constituted a
change in control for purposes of the Trust Agreement and the Company
consequently contributed $2,525,000 to the Trust fund.

8
<PAGE>

REPORT OF THE EXECUTIVE PERSONNEL AND COMPENSATION COMMITTEE

The Executive Personnel and Compensation Committee of the Board of Directors
generally makes compensation decisions with respect to the Company's executive
officers. Each member of the Committee is a non-employee director. All
decisions of the Committee relating to the compensation of the Company's
executive officers, including those identified in the Summary Compensation
Table, are reviewed by the full Board, except for decisions about awards under
the Company's stock plans, which are made by the Committee. Pursuant to the SEC
rules designed to enhance disclosure of companies' policies about executive
compensation, the Committee here reports to the Company's shareholders about
the Company's policies as they affected, and are reflected in, the compensation
paid for 1993 to the executive officers of the Company (including the named
executive officers) and the factors and criteria used by the Board of Directors
in determining the Chief Executive Officer's compensation for 1993.

EXECUTIVE COMPENSATION

The Company's executive compensation policies are designed to provide
competitive levels of compensation on a global basis and to pay executives for
performance consistent with the Company's annual and long-term goals. The
principal strategy is to link executive compensation to the interests of all
shareholders, particularly by relating a meaningful part of compensation to the
results achieved. The Company pays its executives for results: compensation is
targeted, calculated and paid for achieving objectives in Company earnings per
share, business unit performance and individual performance.

There are three elements of the executive compensation package: (1) base
salary which is targeted at the average salary of the pharmaceutical industry
for a comparable executive's position; (2) an annual variable incentive cash
bonus tied to targeted Company income as well as to individual performance; and
(3) options to purchase shares, the number of which is tied to individual
performance. Company executives have a greater percentage of compensation tied
to results achieved than most other executives in the industry and, by design,
this may result in higher compensation when Company performance warrants it,
but it also carries the potential of reduced or no variable compensation when
Company performance is below targeted levels. The Committee moreover believes
that stock ownership by management and stock-based performance compensation are
beneficial to the Company in that they link executives' and shareholders'
interests and therefore the Committee has increasingly relied on these elements
in program design.

SALARY

Base salaries are targeted for comparable positions and experience in the
pharmaceutical industry. The Committee reviews base salaries of executive
officers and recommends increases to the Board of Directors on the basis of the
Company's and the individual's performance in the previous year, as well as the
movement of salaries for comparable positions in the pharmaceutical industry
and changes in the cost of living.

The Company surveys 15 companies in the pharmaceutical industry which the
Committee believes are appropriate for comparison of salary levels for its
executives and the data gathered through those surveys comprise one of the
major factors considered in the salary management for Company executives. While
these surveyed companies do not precisely reflect the Dow-Jones Pharmaceutical
Index, which is used for the performance graph below, the Committee has
determined that this index is appropriate for comparison of stock value over
time.

As reported in the proxy statement prepared in connection with the 1993
Annual Meeting of Shareholders, certain senior executives of the Company, who
included Messrs. Cawthorn, Karobath, Bartlett and Brisson, did not accept merit
salary increases which would have been effective March 1st. This action was due
to the uncertain environment in the pharmaceutical industry and was part of the
Company's efforts to reduce expenses. As stated at that time, the salaries were
subject to review by the Committee. The Committee reviewed the situation and,
as of September 1st, in light of Company

9
<PAGE>

performance to that point, increased the salary of each of the affected
executives to the level which would have been implemented in March. The
executives did, thereby, forego six months of higher salary.

INCENTIVE BONUS

The Company pays variable incentive compensation to executives in the form
of an annual cash bonus which is based on the attainment of predetermined
objectives for: (1) Company earnings per share; (2) income before income tax
or, if it is not a profit center, another appropriate measure of the
executive's business unit or function; and (3) the individual's performance,
measured against predetermined objectives for the year. Financial objectives
and target awards (expressed as a percentage of salary) are reviewed and
approved by the Committee at the beginning of each fiscal year. The variable
incentive is designed to be a short-term award for specific results and
performance in a given year and to be competitive within the pharmaceutical
industry. The performance against objectives is reviewed by the Committee
which recommends to the Board of Directors for approval bonus awards for
executive officers. Achievement of an acceptable level of Company earnings per
share, against the objectives set annually by the Board of Directors, must be
attained before a significant portion of the bonus can be paid.

LONG-TERM INCENTIVE

Long-term incentives are currently provided to executives in the form of
options for the purchase of Company common stock. As with incentive bonus
payments, annual stock option grants made by the Committee are variable, based
upon achievement of predetermined goals for the previous year. Granting stock
options as an element of total compensation is consistent with the Company's
strategy to link the interest of executives to the interests of all other
shareholders. The compensation package for Company executives is intentionally
heavily weighted in favor of stock options and this makes the executive's
long-term compensation more dependent on the long-term performance of the
Company.

In making its stock option awards, the Committee does not consider either
how many stock options have been granted in prior years or how many remain
unexercised, but rather determines each year's grants on the basis of the
previous year's individual performance. An exception is the Committee's
consideration of the exercise in 1993 of an option granted in 1990 in
connection with CVR performance; exercise of this option by a number of
executives has resulted in reduced subsequent grants and may result in future
reduced grants.

Generally, the option price is the market value of the shares on the date of
grant of the option. However, a premium-priced option was granted in 1993 to
certain executives, which becomes exercisable, if at all, in 1996 at an
exercise price which reflects a 10% annual increase in market value, but only
if that market value is achieved, thereby assuring that there is no benefit to
the executive unless all shareholders recognize a significant increase in the
value of their shares. Options have a term not to exceed ten years and, in the
case of annual grants, the option as to one-third of the grant becomes
exercisable on each of the first three anniversaries of the grant.

THE CHIEF EXECUTIVE OFFICER'S COMPENSATION

The Chief Executive Officer's compensation for 1993 included the same
components of salary and variable compensation in the form of cash bonus and
stock options as apply to other executives of the Company and the methodology
employed by the Committee in setting objective and target performance goals
for the Chief Executive Officer was the same as for other executives. The
Committee, in setting the Chief Executive Officer's compensation, considered
the Company's revenues and earnings per share in light of adverse business
conditions, particularly in Europe. In addition to these factors, the
Committee also considered the continuing performance of the Chief Executive
Officer against objectives in operating income, sales levels and market share
and cash flow. The Committee also considered research and development
activities and individual achievements. It is the opinion of the Committee and
the Board that

10
<PAGE>

Mr. Cawthorn's performance against individual objectives generally exceeded
the target levels established for 1993, but not to the same degree as in 1992.
Accordingly, Mr. Cawthorn's cash incentive payments for 1993 declined by 14.3%
and the total cash paid to him was reduced by 3.4% compared to 1992.

FEDERAL TAX LEGISLATION

Federal tax legislation, enacted in 1993, limits the deductibility of
compensation in excess of $1 million paid in 1994 and subsequent years to the
named executive officers appearing that year in the Summary Compensation
Table. Generally, compensation in excess of $1 million can nonetheless be
deducted if it results from benefit plans which have been approved by the
shareholders and which have only quantitative measures of performance. The
Committee advises that the Company's exposure is not material in 1994 or in
any foreseeable year and that it will continue to follow the situation and
take such measures as it deems appropriate if the loss of deductibility
requires further action.

James S. Riepe, Chairman Michael H. Jordan Igor Landau

PERFORMANCE GRAPH

Set forth below is a line graph comparing on a quarterly basis the
cumulative shareholder return on the Company's Shares for the period 1988
through 1993 with the cumulative total return of companies on the Standard &
Poor's 500 Stock Index and the Dow Jones Pharmaceutical Index, based on the
market price of the Shares, and assuming (1) reinvestment of all dividends,
(2) purchase by Rhone-Poulenc S.A. of 51.9% of the outstanding Shares pursuant
to its tender offer in May 1990, (3) subsequent purchase of Shares with the
proceeds of the tender offer at the then-current market price, and (4)
retention of Contingent Value Rights (CVRs) issued by Rhone-Poulenc in August
1990 on the basis on one CVR for each common share owned and the investment in
Shares of the payment by Rhone-Poulenc of $.12 per CVR upon maturity of the
CVRs in July 1993.

[PERFORMANCE GRAPH]

11
<PAGE>

COMPENSATION OF EXECUTIVE OFFICERS

The following tables and notes show the compensation provided by the Company
to each of the Company's five most highly compensated executive officers,
including the Chief Executive Officer, who served as executive officers of the
Company at the end of 1993, as well as a former executive officer no longer
employed by the Company who except for the termination of his employment would
be among the five most highly compensated executive officers (the "named
executive officers").

SUMMARY COMPENSATION TABLE

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

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS
- ---------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E) (F) (G) (H)
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING
COMPENSATION STOCK OPTIONS/SARS ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)/1/ AWARD(S)/2/$ (#)/3/ COMPENSATION4
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R.E. Cawthorn, 1993 733,430 448,490 - 0 - 124,183 53,553
Chairman of the 1992 699,667 523,093 - 0 - 57,573 14,764
Board and Chief 1991 640,000 635,040 522,595 49,396 14,764
Executive Officer
M.E. Karobath M.D., 1993 332,957 175,656 - 0 - 62,219 3,000
Senior Vice President, 1992 251,250 196,032 - 0 - 30,000 1,950
and President--RPR
Research and
Development*
J.B. Bartlett, Senior 1993 262,100 108,518 - 0 - 39,031 25,209
Vice President, 1992 257,050 129,875 - 0 - 11,395 8,160
Secretary and General 1991 244,833 138,825 91,232 8,098 8,160
Counsel
J.A. Sedor, Presi- 1993 236,583 132,870 - 0 - 36,132 3,000
dent--Armour 1992 224,167 128,505 - 0 - 9,057 3,000
Pharmaceutical Company 1991 195,608 112,014 70,008 7,163 3,000
G. Brisson, Senior 1993 248,004 89,010 39,063/5/ - 0 - 53,877 3,000
Vice President-- 1992 241,276 100,612 - 0 - 14,872 3,000
Business Development 1991 222,000 100,505 79,544 10,656 3,000
P. Lapalme, Senior 1993 247,000 104,999 - 0 - 8,906 556,593/6/
Vice President and 1992 260,417 115,054 - 0 - 10,271 3,000
General Manager-- RPR 1991 241,708 140,232 75,069 8,470 3,000
Pharmaceuti-
cals Inc.
</TABLE>
- --------
* Employment effective April 1, 1992.
/1./If no amount is shown, the aggregate of other annual compensation does not
exceed the lesser of $50,000 or 10% of the combined salary and bonus of the
named executive officer and therefore is not required to be reported.
/2./Restrictions on restricted shares lapse at the rate of one-third of the
grant on each of the first three anniversaries of the date of grant;
dividends are paid on restricted shares at the same rate as paid to

12
<PAGE>

all shareholders. The Company did not issue restricted shares to senior
executives in 1992 or to any employees in 1993 and does not currently intend
to do so in future years.
In 1991, the named executive officers received the following number of shares
in restricted stock awards: Mr. Cawthorn, 12,854 shares; Mr. Bartlett, 2,244
shares; Mr. Sedor, 1,718; and Mr. Brisson, 1,952.
On December 31, 1993, the named executive officers held restricted shares in
the aggregate number and having a then-current market value (at $36.50 per
share) as follows: Mr. Cawthorn, 3,705 shares, $135,232; Dr. Karobath, no
shares; Mr. Bartlett, 582 shares, $21,243; Mr. Sedor, 573 shares, $20,915 and
Mr. Brisson, 466 shares, $17,009. Restrictions on these shares lapsed on
February 27, 1994.
/3./Stock options are granted with option price equal to current market value
and become exercisable as to one-third of the grant on each of the first
three anniversaries of the date of grant, except for the supplemental grant
made in September 1993 which becomes exercisable in 1996 at an option price
of $64.00 representing a 10% annual compound increase over market value at
time of grant. (See table entitled Option/SAR Grants in 1993.) None of the
options granted to Mr. Lapalme in 1993 vested.
/4./Represents (a) employer matching contributions to Rhone-Poulenc Rorer
Employee Savings Plan (401(K)) of up to the first $3,000; (b) for 1991 and
1992, the balance, if any, represents premiums on policies for the
executive's benefit under an executive life insurance program; and (c) for
1993, the balance for Mr. Cawthorn and Mr. Bartlett represents the payment
of 1993 premium and policy cash value to participants in the executive life
insurance program which was terminated in 1993.
/5./Represents personal benefits provided in connection with the Company's
expatriate program. No individual benefit exceeded 25% of the total personal
benefits reported.
/6./Represents separation payment made to Mr. Lapalme upon his termination of
employment, effective December 1, 1993.

- --------------------------------------------------------------------------------
OPTION/SAR GRANTS IN 1993
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM ($)/3/
- ----------------------------------------------------------- --------------------------------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS
OPTIONS/ GRANTED TO
SARS EMPLOYEES EXERCISE OR
GRANTED IN FISCAL BASE PRICE EXPIRATION 0% 5% 10%
NAME/GROUP (#)/1/ YEAR/2/ ($/SH) DATE APPRECIATION APPRECIATION APPRECIATION
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R.E. Cawthorn 42,479 44.125 2/21/03 -0- 1,178,835 2,987,336
21,704 46.375 2/25/02 -0- 517,727 1,258,962
60,000 5.28 64.000 10/03/03 -0- 851,160 3,630,000
M.E. Karobath 22,219 44.125 2/21/03 -0- 616,599 1,562,551
40,000 2.65 64.000 10/03/03 -0- 567,440 2,420,000
J.B. Bartlett 13,031 44.125 2/21/03 -0- 361,623 955,498
26,000 1.66 64.000 10/03/03 -0- 368,836 1,573,000
J.A. Sedor 11,132 44.125 2/21/03 -0- 342,320 816,254
25,000 1.53 64.000 10/03/03 -0- 354,650 1,512,500
G. Brisson 10,241 44.125 2/21/03 -0- 284,197 720,198
3,465 46.375 2/25/02 -0- 82,654 200,990
25,000 1.64 64.000 10/03/03 -0- 354,650 1,512,500
</TABLE>
- --------
/1/Options become exercisable during continued employment at the rate of one-
third of the total grant on each of the first three anniversaries of the date
of grant and remain exercisable during continued

13
<PAGE>

employment until ten years after date of grant, except for special grant
having an exercise price of $64.00 made in September 1993 which vests in 1996
as to 75% of the grant if the average market value of the stock for a 90-day
period is at least $64 and as to 25% of the grant if the average market value
is at least $68; exercise price for both elements is $64.00, representing a
10% annual compound increase over market value at time of grant; if market
value of $64 is not attained, the options expire worthless. Option grant
having an exercise price of $46.375 is a repriced option, issued as of
September 30th to replace option grant made in 1992 at $63.00. (See table
entitled Ten-Year Option/SAR Repricing.)
/2/Figure given is percentage of total options represented by the aggregate of
options granted in the fiscal year to each of the named executive officers.
/3/In accordance with the rules of the Securities and Exchange Commission,
"Potential Realizable Value" has been calculated assuming an aggregate
appreciation of the market value of the Company's common stock from date of
grant to date of expiration at annual compounded rates of 5% and 10%,
respectively (or aggregate ten-year appreciation of approximately 63% and
159%, respectively, for a ten-year option). Option granted at exercise price
of $44.125 expires 8.5 years after date of grant. Option granted at exercise
price of $64.00 has a ten-year term and Potential Realizable Value is
calculated on the basis of the $48 market value at the time of grant. There
can be no assurance that the market value of the Company's common stock will
appreciate in the assumed manner. The column reflecting no appreciation in
market value is included for illustrative purposes only; the market value of
the Company's common stock on March 10, 1994 was $35.375 per share.

- --------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN 1993 & 1993 YEAR-END OPTION/SAR VALUES
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF SECURITIES VALUE OF UNEXERCISED,
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT FY-
FY-END (#) END ($)/2/
------------------------- ----------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED/1/ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE/3/
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
R.E. Cawthorn 0 0 268,688 154,086 3,016,856 0
M.E. Karobath 0 0 6,000 86,219 0 0
J.B. Bartlett 40,184 696,188 20,494 48,686 64,490 0
J.A. Sedor 25,008 408,256 8,331 44,559 17,767 0
G. Brisson 0 0 28,893 67,583 137,256 0
P. Lapalme 44,096 680,366 9,069 0 0 0
</TABLE>
- --------
/1/Represents difference between option price and market value on the date of
exercise of stock options in fiscal year 1993.
/2/Calculated on the difference between the December 31, 1993 market value of
$36.50 and option price.
/3/None of the named executive officers' unexercisable options is in-the-money.

14
<PAGE>

TEN-YEAR OPTION/SAR REPRICING
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF
SECURITIES
UNDERLYING MARKET PRICE OF LENGTH OF ORIGINAL
OPTIONS/SARS STOCK AT TIME EXERCISE PRICE AT OPTION TERM
REPRICED OF REPRICING OR TIME OF REPRICING NEW REMAINING AT
OR AMENDED AMENDMENT OR AMENDMENT EXERCISE DAY OF REPRICING
NAME DATE ($) ($) ($) PRICE OR AMENDMENT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Yves Barou 9/30/93 2,526 $46.375 $63.00 $46.375 8.5 years
Senior Vice President--
Human Resources
Jean-Jacques Bertrand 9/30/93 7,876 $46.375 $63.00 $46.375 8.5 years
Executive Vice
President
Gilles Brisson 9/30/93 3,465 $46.375 $63.00 $46.375 8.5 years
Robert E. Cawthorn 9/30/93 21,704 $46.375 $63.00 $46.375 8.5 years
Jean-Francois Fort 9/30/93 2,748 $46.375 $63.00 $46.375 8.5 years
Vice President &
Treasurer
Patrick Langlois 9/30/93 5,384 $46.375 $63.00 $46.375 8.5 years
Senior Vice President--
Finance
Bernard Reculeau 9/30/93 4,347 $46.375 $63.00 $46.375 8.5 years
Senior Vice President--
Worldwide Industrial
Operations
</TABLE>

The foregoing table gives information about stock options of executive
officers of the Company which were replaced in 1993 with options at a lower
exercise price. The Executive Personnel and Compensation Committee approved,
effective September 30, 1993, the substitution of a currently-valued option at
an exercise price of $46.375 for an option for the same number of shares
granted in 1992 having an exercise price of $63.00. In March 1992, the
Committee, having decided to eliminate restricted stock as a benefit, had
directed the Company to offer to certain of its executives a choice of a
restricted stock grant, which had been an element in the executive compensation
package in 1991 and in previous years, or a stock option having comparable
value. A significant proportion of the executives to whom the offer had been
made chose the stock option. The Committee believes that the value of this one-
time option had eroded to such an extent that the intended incentive for the
optionee had failed, and that it was equitable to replace the option.

<TABLE>
<S> <C> <C>
James S. Riepe, Chairman Michael H. Jordan Igor Landau
</TABLE>

15
<PAGE>

PENSION PLAN TABLE

ESTIMATED ANNUAL RETIREMENT BENEFITS

<TABLE>
<CAPTION>
FINAL AVERAGE YEARS OF CREDITED SERVICE
ANNUAL ----------------------------------------------------------------
COMPENSATION 10 15 20 25 30 35
- ------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $21,246 $31,869 $42,492 $53,115 $63,738 $56,863
$150,000 $25,746 $38,619 $51,492 $64,365 $77,238 $80,988
$175,000 $30,246 $45,369 $60,492 $75,615 $90,738 $95,113
$200,000 $34,746 $52,119 $69,492 $86,865 $104,238 $109,238
$225,000 $39,246 $58,869 $78,492 $98,115 $117,738 $123,363
$250,000 $43,746 $65,619 $87,492 $109,365 $131,238 $137,488
$275,000 $48,246 $72,369 $96,492 $120,615 $144,738 $151,613
$300,000 $52,746 $79,119 $105,492 $131,865 $158,238 $165,738
$350,000 $61,746 $92,619 $123,492 $154,365 $185,238 $193,988
$400,000 $70,746 $106,119 $141,492 $176,865 $212,238 $222,238
$450,000 $79,746 $119,619 $159,492 $199,365 $239,238 $250,488
$500,000 $88,746 $133,119 $177,492 $221,865 $266,238 $278,738
$550,000 $97,746 $146,619 $195,492 $244,365 $293,238 $306,988
$600,000 $106,746 $160,119 $213,492 $266,865 $320,238 $335,238
$650,000 $115,746 $173,619 $231,492 $289,365 $347,238 $363,488
$700,000 $124,746 $187,119 $249,492 $311,865 $374,238 $391,738
$750,000 $133,746 $200,619 $267,492 $334,365 $401,238 $419,988
$800,000 $142,746 $214,119 $285,492 $356,865 $428,238 $448,238
$850,000 $151,746 $227,619 $303,492 $379,365 $455,238 $476,488
$875,000 $156,246 $234,369 $312,492 $390,615 $468,738 $490,613
</TABLE>

The foregoing table shows the estimated annual pension benefits payment to
participants upon retirement, on a single straight life annuity basis in
specified remuneration classes and years of credited service, under the Pension
Plan of Rhone-Poulenc Rorer Inc.:

The Pension Plan of Rhone-Poulenc Rorer Inc. covers substantially all of the
salaried employees of the Company and most of its United States subsidiaries.

Annual retirement benefits under this plan are based upon age, credited
service and final average compensation calculated on the basis of the
participant's highest consecutive five years of base salary (not including any
bonuses earned or paid) earned in the last ten consecutive years of employment.
The plan is indirectly integrated with Social Security and provides benefits
which vary according to salary level. The Company's contribution to the plan in
1993 represented approximately 3% of the aggregate base annual base of
compensation of all plan participants as of January 1, 1993.

The Employee Retirement Income Security Act of 1974 (ERISA), as amended,
limits the annual benefits which may be paid from a tax-qualified pension plan.
As permitted by ERISA, the Board of Directors has approved the payment out of
the Company's general funds of those benefits which a retiring employee would
be entitled to receive under the provisions of the Pension Plan to the extent
such benefits exceed ERISA limits.

Four of the named executive officers are participants in the Plan. The salary
reported in the Summary Compensation Table is the figure used for the years
indicated in calculating the benefit under the Plan. Years of service to the
Company for each executive officer are as follows: Mr. Cawthorn, 12; Dr.
Karobath, 1; Mr. Bartlett, 8; and Mr. Sedor, 22.

Supplemental Executive Retirement Plan. The Company adopted, effective
January 1, 1988, the Rorer Group Inc. Supplemental Executive Retirement Plan
for the benefit of executives designated by the

16
<PAGE>

Board of Directors in recognition of the fact that those individuals may not
have sufficient service upon retirement to entitle them to a substantial
retirement benefit. The plan, whose current participants are Messrs. Cawthorn
and Bartlett who are named executive officers, provides for an annual
supplemental retirement benefit equal to the sum of 3% or 4% of the
participant's average annual compensation including salary and bonus, received
during his final five years of service for each of his first five years of
service, plus 3% or 2% of such compensation for each of his next ten years of
service, reduced by the amount of Social Security retirement benefits and by
the annual retirement benefit payable under the Company's Pension Plan and
under any other defined benefit plan in which the participant participated
prior to his employment with the Company.

AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS

Cawthorn Employment Agreement. On March 12, 1990, the Company and Mr.
Cawthorn entered into the Cawthorn Employment Agreement, which became
effective on May 5, 1990, the date RP acquired Shares pursuant to the Tender
Offer.

The Cawthorn Employment Agreement provides, among other things, for an
initial term ending on May 5, 1994, subject to annual extensions (the
"Employment Term"). On March 18, 1994, the Company and Mr. Cawthorn extended
the Employment Term for an additional year, to May 5, 1995, and made certain
amendments to the Cawthorn Employment Agreement. The Cawthorn Employment
Agreement, as so amended, is subject to automatic renewal on a year-to-year
basis, unless either party gives 90 days' notice of its desire that the
contract not be so extended. Mr. Cawthorn's employment under the Cawthorn
Employment Agreement will automatically terminate upon his resignation as
Chief Executive Officer. It is the Board's expectation that, following service
as Chief Executive Officer, Mr. Cawthorn will be available to serve as
Chairman of the Board.

The Cawthorn Employment Agreement provides guidelines for the determination
of Mr. Cawthorn's annual rate of salary for the Employment Term (the "Base
Salary"). In addition, Mr. Cawthorn has received and will receive annual
bonuses during the Employment Term in accordance with the Company's annual
bonus plan as in effect from time to time, and which currently provides for a
target bonus of 70% of Base Salary from which the actual bonus is determined.

During the Employment Term, Mr. Cawthorn was to receive annual grants of
restricted Shares which he received in 1990 and 1991. In 1992, Mr. Cawthorn
voluntarily took a stock option grant offered to senior executives in lieu of
a restricted stock grant in keeping with the Company's elimination of
restricted stock as a means of compensation. The Company made no restricted
stock grants to executive officers in 1992 and to no employee in 1993 and has
no current intention of making such grants in the future.

During the Employment Term, Mr. Cawthorn is also entitled to annual grants
of options to purchase Shares determined in accordance with the Company's
incentive compensation plan. These options become exercisable to purchase one-
third of the Shares covered by the option on each of the first three
anniversaries of the date of grant. In years of service as Chief Executive
Officer subsequent to 1995, Mr. Cawthorn's stock option grants will be
determined by the Executive Personnel and Compensation Committee.

In addition, Mr. Cawthorn received as of August 21, 1990, a grant (the "One-
Time Grant") of an option to purchase 200,000 Shares at an option price of
$30.175, the market value of the Shares during a ten-day trading period in
August 1990 (all figures restated to reflect a two-for-one split in the Shares
in June 1991), which options would become exercisable upon the fulfillment of
certain conditions, including the maturity of the Contingent Value Rights
("CVRs"), without payment by RP, in 1993 or 1994. In 1991, the One-Time Grant
was amended to make a number of its provisions consistent with the similar
grants

17
<PAGE>

made to certain other executives. These amendments to Mr. Cawthorn's One Time
Grant included providing that 35% of the Shares would become exercisable in the
event of the maturity of the CVRs without payment by RP and 65% of the Shares
would become exercisable if certain income targets were met, provided the CVRs
matured without payment by RP and further that the options would become
exercisable in the year 2000 or earlier, assuming continued employment. The
CVRs matured in July 1993 and pursuant to their terms, RP paid CVR holders for
each CVR the sum of $.12, representing the difference between the average
market value of RPR common shares for a 90-day period prior to maturity
($49.01) and the CVR Target Price of $49.13. In light of the substantial
performance against the CVR Target Price, the terms of the One-Time Grant (and
similar grants to certain other executives) were modified to provide for
immediate vesting of 35% of the grant and cancellation of the remainder of the
option. Mr. Cawthorn may exercise the vested portion at any time prior to its
expiration in the year 2000.

Furthermore, during the Employment Term, Mr. Cawthorn will be entitled to
receive medical, death and disability benefits at least equivalent to current
levels and as provided by the Company to its senior management.

On the day after the last day of the Employment Term, Mr. Cawthorn will
receive a lump sum payment amounting to the aggregate of his 1994 salary and
the bonus paid for 1994. In addition, upon the later of termination of
employment as Chief Executive Officer or May 5, 1995, restrictions on any
restricted stock Mr. Cawthorn then holds will lapse and any options which are
vested on that date will be exercisable for a period of five years following
such date, unless the options by their terms expire earlier.

During the Employment Period and for a one-year period thereafter, Mr.
Cawthorn has agreed not to engage or participate in, directly or indirectly,
and whether in an employment, management or ownership capacity (other than
through the ownership of 5% or less of a company's voting stock), in any
business which competes with the business of the Company or any of its
subsidiaries or affiliates.

The Company has entered into an indemnification agreement with Mr. Cawthorn
dated as of March 12, 1990 (the "Indemnification Agreement"), pursuant to which
Mr. Cawthorn shall be indemnified against any liabilities, penalties, costs and
expenses of any nature arising out of his past, present, or future employment
with the Company and incurred by him in connection with any threatened, pending
or completed action, suit, appeal or other proceeding of any nature. However,
the Company shall not be liable under the Indemnification Agreement to make any
payment to the extent that, among other things, payment is made under an
insurance policy provided by the Company or Mr. Cawthorn is indemnified by the
Company under the Articles or the By-Laws or under the Pennsylvania Business
Corporation Law.

Karobath Employment Agreement. In connection with his employment with the
Company in 1992, Dr. Karobath entered into a contract with the Company which
provides for accelerated pension benefits and for the payment of salary and
target bonus for the remainder of the period in the event the Company
terminates his employment other than for cause during the first three years of
employment.

18
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Following the combination of the Company and HPB, RP and the Company have
continued to provide services and to sell products to each other. In 1993,
sales by the Company to RP and its affiliates amounted to $35 million. The
Company purchased materials from RP in 1993 at a cost of $44 million.

Pursuant to a service contract (the "Service Contract") with the Company, a
subsidiary of RP provides services to the Company in certain areas, including
general administration, finance, human relations, information services and
communications. RP and the Company, acting through their respective
subsidiaries, have also entered into two research contracts (the "Research
Contracts") pursuant to which RP provides the Company with access to research
results likely to be applicable in the field of human pharmaceuticals. The
Service Contract and the Research Contracts were renewed as of August 1, 1991
for additional terms ending on December 31, 1994. The amount of annual fees
payable to RP pursuant to such agreements approximates FF60 million and FF30
million, respectively.

As of December 31, 1993, RP had loans outstanding to the Company of $231
million. In 1993, the maximum principal amount of such loans was $492 million
and net interest payments for such loans amounted to $25 million. RP has
guaranteed certain debt obligations of the Company and certain of its
subsidiaries and received fees in consideration therefor of approximately $.6
million for 1993. As of December 31, 1993, the aggregate principal amount of
loans so guaranteed was $80 million.

In 1992, the Company and RP entered into an agreement which provided for the
payment to RP of an annual fee approximating $450,000 in consideration of the
Support Agreement between the Company and RP dated December 18, 1991 by which
RP undertook certain contingent obligations with respect to the Market Auction
Preferred Shares issued by the Company. The fee was reduced to $337,500 in
August 1993 when the Company redeemed one-quarter of the Market Auction
Preferred Shares.

Pursuant to an agreement reached with respect to activities in 1993, RP paid
certain executives of the Company, for consulting services rendered to RP, fees
totaling $160,000 of which $70,000 was paid to Mr. Bertrand, formerly Executive
Vice President and currently a director of the Company. The Company believes
that, although these services are essentially incidental to the performance of
the executives' ordinary duties and do not present a conflict of interest, it
should be compensated for making its executives available and thus reduces the
executives' compensation by the amount of fees received.

RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS

Upon the recommendation of the Audit Committee, the Board of Directors has
appointed Coopers & Lybrand as independent accountants for the Company for the
year 1994. Although shareholder action on this matter is not required, this
appointment is being recommended to the shareholders for ratification. Coopers
& Lybrand audited the accounts of the Company in 1993 and in prior years.
Representatives of that firm will be present at the Annual Meeting with the
opportunity to make a statement if they so desire, and will be available to
respond to appropriate questions from shareholders.

GENERAL AND OTHER MATTERS

The cost of soliciting proxies will be borne by the Company. Employees of the
Company, personally or by telephone, may solicit the return of proxies. The
Company has retained D.F. King & Co., Inc. to assist in soliciting proxies at a
fee estimated to be $6,000, plus out-of-pocket expenses. In addition,
arrangements have been made with brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy material to their principals
and the Company may reimburse them for their expenses in so doing.

19
<PAGE>

You are urged to sign and return your proxy promptly to make certain your
shares will be voted at the meeting. For your convenience, a return envelope is
enclosed, requiring no additional postage if mailed in the United States.

PROPOSALS OF SHAREHOLDERS

Proposals of shareholders intended to be presented at the 1995 Annual Meeting
must be received in writing no later than November 25, 1994 at the Office of
the Secretary, Rhone-Poulenc Rorer Inc., 500 Arcola Road, Collegeville,
Pennsylvania 19426.

UPON WRITTEN REQUEST, THE COMPANY WILL FURNISH TO EACH HOLDER OF THE
COMPANY'S COMMON SHARES A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1993 AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. REQUESTS SHOULD BE SENT TO RHONE-POULENC RORER INC., 500 ARCOLA
ROAD, COLLEGEVILLE, PENNSYLVANIA 19426, ATTENTION: DIRECTOR OF INVESTOR
RELATIONS.

20
<PAGE>

ANNUAL FINANCIAL STATEMENTS AND
REVIEW OF OPERATIONS

RHONE-POULENC RORER INC. AND SUBSIDIARIES

NINE-YEAR SELECTED FINANCIAL DATA (UNAUDITED)
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985
-------- -------- -------- -------- -------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $4,019.4 $4,095.9 $3,824.3 $2,917.4 $1,182.2 $1,041.6 $ 928.8 $ 844.6 $338.1
Operating income........ 675.3 675.0 558.5 88.9 125.5 144.1 122.7 52.9 59.9
Income from continuing
operations............. 421.1 423.3 326.5 1.0 86.5 61.8 54.3 3.5 36.0
Discontinued operations,
net of tax:
Gain on sale........... -- -- -- -- -- -- -- 122.1 --
Earnings from
operations............ -- -- -- -- -- -- -- -- .8
Cumulative effect of
change in accounting
for income taxes....... -- 15.0 -- -- -- -- (35.5) -- --
Net income available to
common shareholders.... 408.7 428.2 326.1 1.0 85.0 61.8 18.8 125.6 36.8
Primary earnings per
common share:
Continuing operations.. 2.96 2.99 2.37 .01 1.33 .98 .84 .05 .56
Discontinued opera-
tions:
Gain on sale........... -- -- -- -- -- -- -- 1.88 --
Earnings from opera-
tions................. -- -- -- -- -- -- -- -- .01
Cumulative effect of
change in accounting
for income taxes...... -- .11 -- -- -- -- (.55) -- --
Primary earnings per
common share.......... 2.96 3.10 2.37 .01 1.33 .98 .29 1.93 .57
Fully diluted earnings
per common share....... 2.96 3.10 2.37 .01 1.21 .97 .29 1.93 .57
Cash dividends per
common share........... 1.00 .68 .445 .42 .405 .40 .386 .376 .373
Research and development
expenses............... 561.2 521.3 444.5 350.1 121.8 104.0 82.7 69.7 17.9
BALANCE SHEET DATA:
Working capital......... 446.6 667.1 407.0 391.3 436.9 312.4 226.6 155.7 53.9
Property, plant &
equipment, at cost..... 1,958.6 1,855.9 2,027.8 1,930.7 488.2 395.7 363.5 333.0 150.6
Capital expenditures:
U.S. corporate offices,
research center and
site.................. -- 63.1 102.1 92.1 29.3 10.8 -- -- --
Other.................. 250.4 221.2 181.6 124.8 82.1 59.9 45.1 36.7 14.5
Total assets............ 4,050.2 3,858.3 4,115.5 4,085.0 1,791.7 1,388.0 1,240.5 1,110.1 444.4
Long-term debt
(including payable to
RP).................... 432.2 779.7 960.5 1,634.3 882.5 564.6 509.7 444.3 37.3
Shareholders' equity.... 1,821.2 1,568.3 1,298.6 693.5 439.9 414.2 368.8 390.4 265.7
Common shares
outstanding at year-
end.................... 137.0 138.3 137.9 137.4 63.1 63.6 62.9 65.4 64.9
Book value per common
share.................. 10.37 9.17 7.24 5.05 6.97 6.51 5.86 5.97 4.09
OTHER DATA:
Employees............... 22,300 22,900 22,500 23,500 8,500 8,400 7,400 7,500 8,900
Sales per employee
(thousands)............ 180 180 170 150 140 132 124 103 84
</TABLE>
- --------
Results include the accounts of the Human Pharmaceutical Business ("HPB") of
Rhone-Poulenc S.A. from May 5, 1990.

Results include pretax restructuring and other charges of $93.8 million in
1993, $73.6 million in 1991, $289.3 million in 1990, and $10.0 million in
1989. Results for 1993 also include $105.0 million proceeds from litigation
settlement and pretax charges of $29.1 million related to an investment in
AIS, including acquired research and development expense. Pretax gains on
sales of product rights and non-strategic assets totaled $30.2 million in
1993, $23.1 million in 1992, $95.7 million in 1991, $78.8 million in 1990 and
$30.9 million in 1989. Results for 1989 also include a $19.9 million pretax
gain on contract termination fee.

Effective January 1, 1992, the Company adopted SFAS 109, "Accounting for
Income Taxes," and recorded a cumulative effect adjustment increasing 1992
income by $15.0 million ($.11 per share). Prior years reflect the application
of SFAS 96, "Accounting For Income Taxes," effective January 1, 1987.

The year 1985 has been restated to reflect operations discontinued on February
28, 1986.

Employees and sales per employee for the year 1990 have been restated on a pro
forma basis to include HPB as if it were part of the Company from January 1,
1990.

All share and per share data have been adjusted to reflect a two-for-one
common stock split effective June 7, 1991.

21
<PAGE>

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

Rhone-Poulenc Rorer Inc. ("RPR" or "the Company") is one of the largest
research-based pharmaceutical companies in the world. RPR was formed in July
1990 by the combination of Rorer Group Inc. and substantially all of the human
pharmaceutical business of Rhone-Poulenc S.A. ("RP"), based in Paris, France.
RP owns approximately two-thirds of RPR's common stock and controls the
Company.

PHARMACEUTICAL INDUSTRY ENVIRONMENT

As government and private payors seek means to reduce the rate of growth in
health care expenditures in virtually all worldwide markets, the pharmaceutical
industry continues to be affected by initiatives to limit both pharmaceutical
prices and prescriptions written by physicians. As a result, annual
prescription pharmaceutical revenue growth rates in major strategic markets
have slowed from prior year levels. The degree to which pharmaceutical
companies are individually affected will depend upon each company's product
portfolio and its ability to manage in the environment specific to each
country.

In France, where the Company enjoys a leading position, the government is
considering measures which include physician prescribing guidelines which would
limit the volume of prescriptions written. A three-year policy agreement
between pharmaceutical manufacturers and the French government signed in
January 1994 will restrict annual growth of prices for reimbursable
pharmaceuticals to an average inflation rate. Although these steps are not
likely to affect RPR revenues significantly in the near term, future
governmental actions cannot be determined.

In the U.S., prior legislation requiring payment of rebates to state Medicaid
programs reduced the Company's sales by $34 million in 1993, $21 million in
1992 and $12 million in 1991. During 1993, the Clinton Administration proposed
the Health Security Act ("HSA"), which would provide universal health coverage
through standardized benefits for all U.S. citizens and would, by 1998, make
sweeping structural and financial changes to the U.S. health care delivery
system. Elements of HSA and other proposals will be debated by legislators at
various levels in the coming year. The precise form and effect of any final
legislation cannot be predicted; however, most pharmaceutical manufacturers,
including RPR, have reorganized to adapt to an emerging U.S. managed care
environment which dictates that product offerings satisfy payor objectives
aimed at lowering health care costs.

In Germany, physician prescribing guidelines have been established and
selling prices of prescription products remain frozen through December 1994. In
Italy, new legislation affecting health care reimbursement lists was recently
instituted, resulting in the removal of certain products from government
reimbursement lists and price reductions of 2.5% to 4.5%. In October 1993, the
U.K. Pharmaceutical Price Regulation Scheme enacted price reductions of up to
2.5% and will restrict certain more profitable companies from seeking
pharmaceutical price increases in that country. In Japan, a biannual price
reduction will take effect in April 1994, and in Spain, decreases in
pharmaceutical prices averaging 3% took effect in November 1993.

These measures, while indicative of a global trend toward more governmental
control over health care expenditures, are neither new to the industry nor to
RPR. In certain cases, the legislation may allow companies to negotiate other
terms or conditions which can minimize the effect on revenues; however, these
measures tend to restrict future revenue growth derived from existing products
and, as a result, companies in the industry must look increasingly to achieve
profitability objectives through more rapid commercialization of highly
innovative therapies, integrated prescription, OTC and generic product
strategies, aggressive cost reduction, strategic alliances with others and
creative marketing solutions to meet the needs of payors.

22
<PAGE>

RESULTS OF OPERATIONS

Principal Product Sales

In the table and discussion which follows, percentage comparisons of year-to-
year sales by therapeutic area and principal products are presented excluding
the effects of exchange rate fluctuations. Certain reclassifications have been
made from amounts shown in prior periods for therapeutic area totals to conform
to classifications now used by the Company.

<TABLE>
<CAPTION>
THERAPEUTIC AREA/PRINCIPAL PRODUCTS 1993 % CHANGE* 1992 % CHANGE* 1991
----------------------------------- ---- --------- ---- --------- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
TOTAL CARDIOVASCULAR......................... $834 + 1% $878 + 9% $777
Clexane (R)/Lovenox (R)..................... 153 +30% 127 +33% 90
Lozol (R)................................... 104 -13% 119 +14% 104
Dilacor XR (R).............................. 51 N/A 20 N/A --
Selectol (R)/Selecor (R).................... 50 +43% 37 +31% 28
Vasten (R).................................. 48 +11% 46 +49% 29
- --------------------------------------------------------------------------------
TOTAL INFECTIOUS DISEASE/ONCOLOGY............ 542 +11% 530 + 5% 486
Rovamycine (R).............................. 94 +26% 82 +30% 61
Peflacine (R)............................... 76 + 9% 75 + 7% 68
Oroken (R).................................. 55 +23% 47 + 8% 42
- --------------------------------------------------------------------------------
TOTAL HYPERSENSITIVITY....................... 407 + 5% 396 +28% 304
Azmacort (R)................................ 143 +13% 127 +48% 86
Nasacort (R)................................ 79 +37% 58 N/A 13
- --------------------------------------------------------------------------------
TOTAL PLASMA DERIVATIVES..................... 400 +20% 337 +18% 281
Albuminar (R)............................... 154 + 6% 139 +15% 119
Monoclate-P (R)............................. 114 + 7% 112 +15% 97
- --------------------------------------------------------------------------------
TOTAL CENTRAL NERVOUS SYSTEM/ANALGESIA....... 365 + 2% 386 + 6% 354
Doliprane (R)............................... 102 +23% 88 + 2% 81
Imovane (R)/Amoban (R)...................... 85 + 9% 84 +43% 57
- --------------------------------------------------------------------------------
TOTAL GASTROENTEROLOGY....................... 490 +10% 471 -10% 514
Maalox (R).................................. 239 + 4% 240 - 8% 258
- --------------------------------------------------------------------------------
TOTAL BONE METABOLISM/RHEUMATOLOGY........... 465 - 2% 514 + 9% 465
Orudis (R)/Profenid (R)/Oruvail (R)......... 173 + 3% 186 + 2% 180
Calcitonins................................. 163 -10% 198 + 6% 186
DDAVP (R)................................... 73 - 4% 76 +34% 56
- --------------------------------------------------------------------------------
OTHER THERAPEUTIC AREAS...................... 516 - 5% 584 -12% 643
- --------------------------------------------------------------------------------
</TABLE>
* % change excludes currency translation effects.

1993 Compared with 1992

On net sales of $4,019 million in 1993, net income available to common
shareholders was $409 million ($2.96 per share), 5% below $428 million reported
in 1992 ($3.10 per share). Earnings per share benefitted by $.63 in 1993 from
$105 million of proceeds from the settlement of litigation and $30 million of
gains from sale of certain product rights and investments. In addition, 1993
results include an $11 million ($.08 per share) after-tax benefit from the
extension in depreciation lives for certain production machinery and equipment
effective January 1. Earnings in 1993 were reduced by $.59 per share due to $94
million of restructuring and other charges and $29 million of costs related to
the Company's equity investment in Applied Immune Sciences, Inc. ("AIS").
Results for 1992 benefitted by $.12 per share from gains on the sale of assets
and $.11 per share from adoption of Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), "Accounting for Income Taxes."

23
<PAGE>

The Company's 1993 reported net sales of $4,019 million were down 2% from
1992. The 2% decline consists of currency fluctuations (which reduced sales by
6%), divested products (-1%), price increases (less than +1%), and volume
gains (+4%). No single product contributed more than 6% of worldwide sales in
1993, and the ten largest products contributed approximately 36%. Sales of the
Company's key strategic products--to which particular marketing emphasis is
directed and which, as a group, comprised 43% of 1993 sales--increased by 10%,
approximately twice the 5% overall rate of sales growth, on a basis which
excludes the effects of currency fluctuations and divested products.

Sales in France, the Company's largest market, were $1,375 million in 1993
on an as-reported basis. Excluding the effects of fluctuating currency rates
and product divestitures, sales increased 8% in 1993, driven primarily by
demand for anti-infectives and analgesics following a strong influenza season.
In the United States, prescription pharmaceuticals and over-the-counter
products contributed to a 12% increase in sales, to $1,120 million, despite a
fourth quarter decision to curtail year-end trade incentives on certain
prescription pharmaceuticals. Sales in Other Europe of $978 million fell 8%
due principally to the impact of restrictive government programs in Germany
(where prescription product sales were down 26%) and Italy (down 31%). The
sales decline in these countries was partially offset by higher branded
product sales in Eastern and Southern Europe and generic products in Northern
Europe. Sales in the Rest of World area increased 13% to $546 million, led
principally by Japan. If the effects of restructuring charges and gains on
asset sales are excluded from reported geographic area results in the years,
income before income taxes as a percentage of sales ("IBT margin") increased
in 1993 in the U.S., France and Rest of World but fell in Other Europe,
triggered by market conditions in Italy and Germany.

Sales of the Company's cardiovascular products in 1993 were led by
Clexane (R)/Lovenox (R), a global low molecular weight heparin product, which
performed well in France and was launched in the U.S. early in the year. The
FDA exclusivity of Lozol (R), a diuretic sold principally in the U.S., expired
in mid-1993. The Company introduced a half-strength presentation of Lozol (R)
during the year as well as a generic indapamide product through its newly-
established Arcola Labs unit in anticipation of further generic competition,
the overall result of which is expected to be a decline in Lozol (R) sales.
Dilacor XR (R), a once daily calcium channel blocker launched in the U.S. in
mid-1992, attained steady prescription growth throughout 1993. Other
cardiovascular products Frumil (R) (-19%), a leading diuretic facing generic
competition in the U.K., and Biosinax (R) (-66%), a ganglioside sold in Italy,
experienced sales declines as anticipated.

Sales of infectious disease/oncology products were higher in 1993 on
stronger first and fourth quarter demand for upper respiratory disease
products in France.

Sales of plasma derivatives by the Company's Armour Pharmaceutical Company
("Armour") were led by Albuminar (R) human serum albumin in Japan and
Monoclate-P (R) (pasteurized antihemophiliac Factor VIII:C) in Other Europe
markets. In the U.S., Monoclate-P (R) encountered competition from a
recombinant form that entered the market in 1993; the Company launched its own
recombinant version in the U.S. in late 1993 with a worldwide launch
anticipated in 1994. Mononine (TM), launched in the U.S. in late 1992 for
treatment of hemophilia B, also contributed to 1993 plasma derivatives sales
growth.

Hypersensitivity products were led by sales of the inhaled steroids
Azmacort (R) and Nasacort (R) in North America. During the year, the Company
entered into an agreement with U.K.-based Fisons to co-promote Azmacort (R)
and Fisons' Tilade (R) in the U.S., further bolstering the Company's
respiratory product position. Sales of Slo-bid (TM)/Slo-Phyllin (R), a
theophylline bronchodilator sold primarily in the U.S., declined due to a
shift in use to inhaled steroids, although brand market share was maintained.

Sales of central nervous system/analgesia products were headed by the
analgesic Doliprane (R), driven by a higher incidence of influenza in France,
and Imovane (R)/Amoban (R), a non-benzodiazepine sleeping agent, which
performed well in France and Japan.

24
<PAGE>

Sales of gastroenterology products benefitted from higher Maalox (R) antacid
sales in the U.S., Canada and Japan which exceeded declines in Other Europe.
Expansion of the U.S. antacid market contributed to higher factory sales in
the U.S. although the brand's share of the highly competitive antacid market
trailed 1992. In 1993, the Company launched Anti-Gas and Anti-Diarrheal line
extensions of Maalox (R) . Sales of Zoltum (R), a peptic ulcer medication co-
marketed in France, more than doubled in 1993.

A decline in sales of bone metabolism/rheumatology products included lower
sales of calcitonin products for bone disorders and DDAVP (R) for nocturnal
enuresis. Calcitonin products encountered competition and unfavorable
legislation in Italy, their largest market, and further sales declines are
anticipated in 1994 under expected lower levels of government reimbursement.
Calcitonins faced generic competition in the United States, where the
Company's Arcola Labs unit also launched a generic version in the second half
of 1993. Elsewhere, RPR recorded higher calcitonin sales in Spain and Japan in
1993. Sales of Orudis (R)/Profenid (R)/ Oruvail (R), a ketoprofen anti-
inflammatory, were marginally higher, led by sales in Japan.

Sales in other therapeutic categories included sales of prescription skin
care products marketed to dermatologists by Dermik Laboratories ("Dermik"),
which increased 15%.

Gross profit, as a percentage of sales, improved one percentage point in
1993 to 67% due to cost control and product mix-related improvements.
Management will continue to emphasize productivity enhancements to achieve
further gross profit margin improvements in the coming years.

Selling, delivery and administrative expenses were 36.5% of sales compared
to 36.7% sales in 1992. Higher expenses in support of selling and promotion of
U.S. prescription pharmaceuticals and in Japan were more than offset by
expense reductions in Europe, particularly Germany and Italy. Significant
financial resources in support of selling and promotional activities will
continue to be necessary for the Company to maintain its competitive position
in all major markets.

Research and development expenses increased 8% to $561 million, or 14% of
sales, in 1993. The Company's research and development efforts continue to
focus on innovative global products and technologies, particularly those with
potential to prolong significantly and/or improve the quality of life
worldwide. The Company's most important projects are Taxotere (R), for certain
solid malignant tumors; Zagam (TM), a broad spectrum quinolone antibiotic; and
an AIDS immunotherapeutic vaccine being developed in partnership with The
Immune Response Corporation ("IRC"). Certain issues regarding the joint
venture and individual responsibilities of RPR and IRC are currently in
arbitration; such proceedings are not expected to impact the progress of the
project. In addition, the Company's 1993 alliance with AIS represents an
important entry into gene and cell therapy technology which, beyond the
promise of AIS's immediate product line, is likely to affect how
pharmaceutical research is conducted by the industry in the future. The
Company's research and development efforts will also concentrate on bringing
existing products to new markets, developing more effective dosage forms and
drug delivery systems, and maximizing the benefits of new business alliances.
At comparable exchange rates, research and development expenses are expected
to approach $600 million in 1994.

Restructuring and other charges of $94 million recorded in 1993 include the
costs of restructuring marketing and manufacturing operations in the German
and Italian prescription pharmaceutical businesses, the planned divestiture of
a portion of a manufacturing facility in Monts, France, and increased
provisions for certain litigation. In 1994, the Company expects to
aggressively pursue other cost-reduction steps which offer attractive payback
opportunities in the present environment. Such steps may give rise to a
restructuring charge during the year; however, there are no specific plans at
this time and it is not possible to estimate the costs or associated benefits
of any such program which might be pursued.

Excluding restructuring and other charges and litigation proceeds, operating
income was approximately 16.5% of sales in 1993 and 1992. In 1993, the effects
of expense controls in manufacturing and administration exceeded relatively
higher research and development spending and

25
<PAGE>

lower selling price increases. In the current business environment, more
aggressive product cost and administrative expense reduction policies will be
major contributors to maintaining this profitability measure in the near term.

Net interest expense declined by $44 million to $61 million in 1993 as a
result of lower average net debt balances and worldwide interest rates.
Approximately 92% of combined short- and long-term debt was at variable rates
(principally in Europe) at December 31, 1993 and 1992. The remainder at
December 31, 1993 is fixed either by its terms or by interest rate swap
contracts expiring primarily in 1994. In 1994, net interest expense is
anticipated to continue to decline due to lower average net debt.

Other expense, net increased to $54 million from $12 million in 1992 due
primarily to higher losses associated with equity-method investments, including
$29 million of non-cash losses related to AIS including acquired research and
development.

The Company's effective income tax rate for 1993 was 28.7% compared with
27.2% for 1992 as a result of reduced tax benefits from Puerto Rico operations
and reduced utilization of net operating losses outside the United States. In
August 1993, the U.S. Omnibus Budget Reconciliation Act of 1993 (the "Act") was
signed into law. The Act provides, among other things, a limitation on the
Company's use of the Possessions Tax Credit beginning in December 1994, an
increase in the U.S. corporate tax rate from 34% to 35% effective January 1,
1993, and a retroactive reinstatement of the Research and Experimentation
Credit to July 1, 1992. These provisions gave rise to a retroactive rate
adjustment for U.S. deferred taxes but had minimal impact overall on the
Company's effective income tax rate in 1993. Although it is not expected to
significantly change the Company's 1994 effective tax rate, the Act could
increase the Company's effective rate by up to three percentage points in 1995
and thereafter as a result of the reduction in the Possessions Tax Credit
benefit. However, the Company will seek to mitigate this effect through routine
tax planning measures.

In 1993, the Company issued $175 million of money market preferred stock in
the U.S. with initial dividend rates fixed for two to five years and redeemed
$75 million of Market Auction Preferred Shares ("MAPS"). At $12 million,
dividends on preferred shares were higher than in 1992 due to the $100 million
net increase in outstanding preferred shares, partially offset by the effect on
auction rate dividends of lower U.S. short-term interest rates earlier in the
year.

1992 Compared with 1991

On net sales of $4,096 million, net income available to common shareholders
increased 31% to $428 million in 1992 ($3.10 per share). Sales growth, measured
on a basis which excludes the effects of divested products, was just over 11%.
Of such growth, price increases contributed just over two percentage points,
currency fluctuations added three percentage points, and higher volume
accounted for just under six percentage points. Sales of the Company's key
strategic products increased by 17% in 1992, excluding currency fluctuation
effects.

Sales in 1992 were in the following geographic areas: France--$1,388 million
(+5% over 1991, excluding the effects of fluctuating exchange rates and
divested products); U.S.--$1,000 million (+17%); Other Europe--$1,218 million
(+6%); and Rest of World--$490 million (+9%). IBT margin, excluding effects of
restructuring charges and gains on asset sales, improved significantly on
higher sales in the U.S. and, to a lesser degree, in France. IBT margin fell in
Other Europe, triggered by market conditions in Italy and Eastern Europe, and
in the Rest of World area due to higher operating costs in Japan and Mexico.

Sales of cardiovascular products were led by growth of Clexane (R)/Lovenox
(R) in France and other European markets. Dilacor XR (R), launched in the U.S.
in June 1992, also advanced sales growth in the category.

26
<PAGE>

While France contributes most of the infectious disease/oncology sales, 1992
sales growth came principally from other markets in Asia, Africa and Northern
Europe. A lower incidence of influenza in 1992 held sales of anti-infectives
in France approximately level compared to 1991.

Sales of bone metabolism/rheumatology products were led by calcitonin
products and Orudis (R)/Profenid (R)/Oruvail (R). Higher sales of calcitonin
in Japan and in Spain, following introduction of the intranasal spray, more
than offset a 27% decline in Italy stemming from competitive pressures and
legislative effects. Sales of Orudis (R)/Profenid (R)/Oruvail (R) benefitted
from the introduction of new dosage forms to combat generic entries in some
markets.

Sales of central nervous system/analgesia products advanced on the
performance of Doliprane (R) and Imovane (R)/Amoban (R). Sales growth of
Imovane (R)/Amoban (R) was broad-based throughout France, Other Europe, Canada
and Japan.

Sales of hypersensitivity products were led by growth in the U.S. of
Azmacort (R) and Nasacort (R). Following its second half 1991 launch,
Nasacort (R) sales increased by threefold in 1992.

Led by Monoclate-P (R) in Europe and Albuminar (R) in Japan and China,
plasma derivative sales nearly doubled in markets outside the United States.
Mononine (TM) was launched in the U.S. following FDA approval in August 1992.

Sales of gastroenterology products, principally the Maalox (R) brand of
antacid, declined during the year. Maalox (R) U.S. sales and market share
trailed 1991 levels but were supported by launch of Maalox (R) HRF tablets and
Maalox (R) caplets and new promotional initiatives in the second half of 1992.
Elsewhere, Maalox (R) posted sales gains in Europe, Canada and in Japan, where
Maalox (R) Plus entered the over-the-counter market. In France, Zoltum (R)
contributed to 1992 sales growth following its late-1991 launch in a co-
marketing arrangement.

Sales performance of products in all other therapeutic categories was led by
Dermik skin care products (+19%).

Gross profit margin increased one percentage point from 65% of sales in 1991
to 66% in 1992, as selling price increases and productivity improvements
exceeded the effects of unfavorable sales mix. Selling, delivery and
administrative expenses were 36.7% of sales in 1992 compared to 36.8% in 1991.
A lower ratio in the U.S. prescription pharmaceuticals business was offset by
the effects of sales force expansions and higher marketing expenses in France,
Germany and in Armour's U.S. operations. Administrative expenses in 1992 were
limited to growth of 1% excluding currency effects. The Company's investment
in research and development increased 17% from $445 million (11.6% of sales)
in 1991 to $521 million (12.7% of sales) in 1992.

In 1991, the Company recorded $74 million of restructuring charges for
facility divestitures in Germany and the U.K., relocation of U.S. corporate
offices and research facilities, and other costs.

Lower average net debt and a greater concentration of lower cost dollar-
denominated debt reduced net interest expense by $44 million in 1992.

In 1992, the Company recorded gains of $23 million ($.12 per share) related
principally to sales of product rights in the U.S. and France. In 1991, the
Company sold its dietary products business in France and a product line in the
U.S. and recorded a before-tax gain of $96 million.

Other expense, net of $11 million in 1992 included foreign exchange gains of
$8 million, most of which were realized on foreign currency forward contracts
entered into and expiring during the fourth quarter.

27
<PAGE>

The Company's effective income tax rate for 1992 was 27.2% under SFAS 109,
compared to 32.3% in 1991 under Statement of Financial Accounting Standards No.
96. The lower 1992 rate was the result of recognition of deferred tax benefits
on certain non-U.S. net operating losses, an increase in the benefit from
Puerto Rico operations and other adjustments.

Dividends on Market Auction Preferred Shares, issued in December 1991, were
$10 million in 1992.

Inflation

Although its effect has stabilized at historically low levels in most
developed countries in recent years, price inflation continues to increase the
Company's cost of goods and services. As a result, limited ability to raise
selling prices in the current environment exposes companies in the industry to
risk of profit erosion. The Company attempts to mitigate such adverse
inflationary effects through quality initiatives to improve productivity and
control costs.

FINANCIAL CONDITION

Cash Flows

Net cash provided by operating activities was $721 million in 1993, $357
million in 1992, and $468 million in 1991. In 1993, operating cash flows
include $105 million proceeds from the settlement of litigation. Operating cash
flows were substantially higher in 1993 than in 1992 because of lower outlays
for income taxes (lower by $114 million), working capital needs and
restructuring activities. In addition, 1993 earnings included non-cash charges
for rent and AIS research costs totaling $52 million. In 1992, operating cash
flows were lower than in 1991 as higher cash requirements for taxes and working
capital exceeded lower restructuring outlays. 1992 tax payments included
settlement of an examination of the Company's 1986 consolidated U.S. tax return
and substantial payments of 1991 taxes which had been deferred in several
European subsidiaries following legal entity restructurings after the 1990
formation of RPR. Because certain 1993 operating cash flows will not recur,
cash flows from operating activities are expected to be lower in 1994.

Investing activities used cash of $346 million in 1993 and $88 million in
1991 and provided cash of $51 million in 1992. In 1993, the Company acquired a
37% interest in AIS for $117 million, while 1992 and 1991 investing cash flows
benefitted from significantly higher proceeds from the sale of assets. Cash
outlays for capital expenditures were $250 million in 1993, down from $284
million in years 1992 and 1991.

Financing activities used cash of $375 million in 1993, $500 million in 1992
and $409 million in 1991. Net proceeds from issuances of preferred shares were
$97 million in 1993 and $296 million in 1991, while net repayments of third
party and RP borrowings were $265 million in 1993, $403 million in 1992, and
$647 million in 1991. In 1993, the Company repurchased approximately two
million of its common shares ($76 million) for a newly-established Employee
Benefits Trust to fund employee benefits in the United States. Cash dividends
paid to common shareholders were $138 million in 1993 ($1.00 per share), $94
million in 1992 ($.68 per share) and $61 million in 1991 ($.445 per share). In
January 1994, the Board of Directors declared a first quarter cash dividend of
$.28 per share, a 12% increase above the average 1993 quarterly dividend.

Liquidity

As a result of debt repayments, the Company's net debt (short- and long-term
debt including notes payable to RP, less cash and cash equivalents, short-term
investments and time deposits) to net debt plus equity ratio improved to .26 to
1 at December 31, 1993 from .38 to 1 at December 31, 1992.

28
<PAGE>

At December 31, 1993, the ratio of current assets to current liabilities was
1.37 to 1 compared to 1.63 to 1 a year ago. The change is principally due to a
reduction of certain third party bank borrowings classified as long-term at
December 31, 1992 and a higher level of temporary borrowings from RP classified
as short-term at December 31, 1993 even though RPR has a continuing ability to
refinance these borrowings on a long-term basis under committed bank lines.

At December 31, 1993, the Company has committed lines of credit totaling $1.4
billion with no borrowings outstanding under these lines. Of this amount, $700
million relates to a long-term revolving credit facility unconditionally
guaranteed by RP; the amount available under this facility reduces by $200
million per year until expiration of the facility in 1997. In a separate
agreement with RP related to the issuance of MAPS, the Company must maintain as
unused under this facility the smaller of $325 million or the principal amount
of debt outstanding (excluding borrowings from, or guaranteed by, RP). The
Company has an additional $250 million available under revolving credit
agreements due in 1996. During 1993, the Company entered into several new
multicurrency line of credit agreements with various banks totaling $495
million and maturing in one to five years. At December 31, 1993, the Company
has the ability and intent to renew, or to refinance under these facilities,
approximately $255 million of short-term third party borrowings for at least
one year. Accordingly, this amount has been classified as long-term debt.

Pursuant to a $500 million shelf registration filed in 1993, the Company
issued $175 million of money market preferred stock and has the ability to
issue an additional $325 million in debt or equity securities.

In 1993, Moody's Investors Service ("Moody's") and Standard & Poor's ("S&P")
lowered the Company's preferred stock credit ratings, attributing the change to
the privatization of RP. As a result, the Company's preferred stock issues are
now rated BBB by S&P and Baa1 by Moody's. The Company's senior unsecured debt
ratings have been affirmed as BBB+ by S&P and A3 by Moody's.

Other noncurrent assets increased at December 31, 1993 compared to 1992 due
to early adoption of FASB Interpretation No. 39, "Offsetting of Amounts Related
to Certain Contracts" ("FIN 39") with regard to probable insurance recoveries
related to certain litigation liabilities, the equity investment in AIS and
higher deferred tax assets. An increase in other noncurrent liabilities at
December 31, 1993 included the impact of FIN 39 and pension accruals.

Management believes that cash flows from operations, supplemented by
financing expected to be available from external sources, will provide
sufficient liquidity to meet its needs for the foreseeable future. Long-term
liquidity is dependent upon the Company's competitive position, including its
ability to discover, develop and market innovative new therapies.

Insurance and Litigation

The Company maintains significant levels of excess catastrophic general and
products liability insurance obtained from independent third-party insurers. In
light of the risks attendant to the Company's business activities, the limits
and coverage terms of such insurance are believed reasonable in amount and
scope and comparable to the insurance carried by others in the industry.

The Company is involved in litigation incidental to its business including,
but not limited to: (1) approximately 239 lawsuits pending in the United
States, Canada and Ireland against RPR and its Armour subsidiary, in which it
is claimed by individuals infected with the Human Immunodeficiency Virus
("HIV") that their infection with HIV and, in some cases, resulting illnesses,
including Acquired Immune Deficiency Syndrome-related conditions or death
therefrom, may have been caused by administration of antihemophilic factor
("AHF") concentrates processed by Armour in the early and mid-1980's. Armour
has also been named as a defendant in three proposed class action lawsuits
filed on behalf of HIV-infected hemophiliacs and their families. None of these
cases involves Armour's currently distributed AHF

29
<PAGE>

concentrates; (2) legal actions pending against one or more subsidiaries of the
Company and various groupings of more than one hundred pharmaceutical
companies, in which it is generally alleged that certain individuals were
injured as a result of the development of various reproductive tract
abnormalities because of in utero exposure to diethylstilbestrol ("DES")
(typically, two former operating subsidiaries of the Company are named as
defendants, along with numerous other DES manufacturers, when the claimant is
unable to identify the manufacturer); (3) antitrust actions alleging that the
Company engaged in price discrimination practices to the detriment of certain
independent community pharmacists; (4) an alleged infringement by the Company
of a process patent for the manufacture of bulk diltiazem, an ingredient in the
Company's product Dilacor XR (R); these proceedings have been indefinitely
suspended; and (5) potential responsibility relating to past waste disposal
practices, including potential involvement, for which the Company believes its
share of liability, if any, to be negligible, at two sites on the U.S. National
Priority List created by Superfund legislation. In addition, the Company agreed
to settle shareholder litigation for an amount which is fully accrued at
December 31, 1993.

The eventual outcomes of the above matters of pending litigation cannot be
predicted with certainty. The defense of these matters and the defense of
expected additional lawsuits related to these matters may require substantial
legal defense expenditures. The Company follows Statement of Financial
Accounting Standards No. 5 in determining whether to recognize losses and
accrue liabilities relating to such matters. Accordingly, the Company
recognizes a loss if available information indicates that a loss or range of
losses is probable and reasonably estimable. The Company estimates such losses
on the basis of current facts and circumstances, prior experience with similar
matters, the number of claims and the anticipated cost of administering,
defending and, in some cases, settling such claims. The Company has also
recorded as an asset certain insurance recoveries which are determined to be
probable of occurrence on the basis of the status of current discussions with
its insurance carriers. If a contingent loss is not probable, but is reasonably
possible, the Company discloses this contingency in the notes to its
consolidated financial statements if it is material. Based on the information
available, the Company does not believe that reasonably possible uninsured
losses in excess of amounts recorded for the above matters of litigation would
have a material adverse impact on the Company's financial position or results
of operations.

Recently Issued Accounting Standards

In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting No. 112, "Employers' Accounting for Postemployment
Benefits". RPR does not expect this new standard, which will be adopted in
1994, or various other recently issued accounting standards to materially
affect financial position or results of operations.

30
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.................................. $ 4,019.4 $ 4,095.9 $ 3,824.3
Cost of products sold...................... 1,326.3 1,394.6 1,340.1
Selling, delivery and administrative ex-
penses.................................... 1,467.8 1,505.0 1,407.6
Research and development expenses.......... 561.2 521.3 444.5
Restructuring and other charges............ 93.8 -- 73.6
Proceeds from litigation settlement........ 105.0 -- --
---------- ---------- ----------
Operating income.......................... 675.3 675.0 558.5
Interest expense........................... 71.2 125.3 164.9
Interest income............................ (10.4) (20.4) (15.7)
Gain on sale of non-strategic assets....... (30.2) (23.1) (95.7)
Other expense, net......................... 54.2 11.5 23.0
---------- ---------- ----------
Income before income taxes................ 590.5 581.7 482.0
Provision for income taxes................. 169.4 158.4 155.5
---------- ---------- ----------
Net income before accounting change....... 421.1 423.3 326.5
Cumulative effect of accounting change..... -- 15.0 --
---------- ---------- ----------
Net income................................ 421.1 438.3 326.5
Dividends on preferred stock............... 12.4 10.1 .4
---------- ---------- ----------
Net income available to common sharehold-
ers...................................... $ 408.7 $ 428.2 $ 326.1
========== ========== ==========
Primary earnings per common share:
Net income before cumulative effect of ac-
counting change.......................... $ 2.96 $ 2.99 $ 2.37
Cumulative effect of accounting change.... -- .11 --
---------- ---------- ----------
Net income available to common sharehold-
ers...................................... $ 2.96 $ 3.10 $ 2.37
========== ========== ==========
</TABLE>

See Notes to Consolidated Financial Statements.

31
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1992
-------- --------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents.................................. $ 35.4 $ 39.5
Short-term investments, at cost............................ -- 6.6
Trade accounts receivable less reserves of $68.3(1992:
$66.6).................................................... 746.6 736.4
Inventories................................................ 504.1 531.3
Other current assets....................................... 382.7 424.5
-------- --------
Total current assets................................... 1,668.8 1,738.3
Time deposits, at cost..................................... 64.3 43.8
Property, plant and equipment, net......................... 1,032.0 974.5
Goodwill, net.............................................. 676.5 739.2
Intangibles, net........................................... 206.1 205.7
Other assets............................................... 402.5 156.8
-------- --------
Total assets........................................... $4,050.2 $3,858.3
======== ========
LIABILITIES
Current:
Short-term debt............................................ $ 108.6 $ 153.8
Notes payable to Rhone-Poulenc S.A. & affiliates........... 201.3 100.0
Accounts payable........................................... 365.6 358.1
Income taxes payable....................................... 55.8 24.1
Accrued employee compensation.............................. 121.0 112.7
Other current liabilities.................................. 369.9 322.5
-------- --------
Total current liabilities.............................. 1,222.2 1,071.2
Long-term debt............................................. 432.2 779.7
Deferred income taxes...................................... 29.5 29.8
Other liabilities.......................................... 545.1 409.3
-------- --------
Total liabilities...................................... 2,229.0 2,290.0
-------- --------
Contingencies..............................................
SHAREHOLDERS' EQUITY
Market Auction Preferred Shares, without par value
(liquidation preference $1,000 per share); authorized,
issued and outstanding 225,000 shares (1992: 300,000
shares)................................................... 225.0 300.0
Money market preferred stock, without par value
(liquidation preference $100,000 per share); issued and
outstanding 1,750 shares.................................. 175.0 --
Common stock, without par value; stated value $1 per share;
authorized 200,000,000 shares; issued and outstanding
136,996,345 shares (1992: 138,298,771 shares)............. 139.0 138.3
Capital in excess of stated value.......................... 290.0 269.0
Retained earnings.......................................... 1,207.3 936.9
Employee Benefits Trust.................................... (75.8) --
Cumulative translation adjustments......................... (139.3) (75.9)
-------- --------
Total shareholders' equity............................. 1,821.2 1,568.3
-------- --------
Total liabilities and shareholders' equity............. $4,050.2 $3,858.3
======== ========
</TABLE>

See Notes to Consolidated Financial Statements.

32
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 421.1 $ 438.3 $ 326.5
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 167.9 197.7 189.6
Provision for deferred income taxes..... (40.9) (20.9) 44.9
Cumulative effect of accounting change.. -- (15.0) --
Gain on sale of non-strategic assets.... (30.2) (23.1) (95.7)
Increase in trade accounts receivable,
net.................................... (33.0) (66.8) (44.6)
(Increase) decrease in inventories...... 2.5 (22.8) 67.2
Increase in accounts payable............ 39.4 47.5 29.2
Increase (decrease) in income taxes pay-
able................................... 77.3 (67.7) 37.2
Restructuring charges................... 44.6 (64.2) (51.2)
Other items, net........................ 72.1 (45.7) (35.5)
---------- ---------- ----------
Net cash provided by operating activi-
ties................................. 720.8 357.3 467.6
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................... (250.4) (284.3) (283.7)
Equity investment in Applied Immune Sci-
ences, Inc............................... (117.3) -- --
Investment in time deposits, net.......... (13.8) 5.9 5.8
Proceeds from sale of assets.............. 35.9 329.1 189.8
---------- ---------- ----------
Net cash provided by (used in) invest-
ing activities....................... (345.6) 50.7 (88.1)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of money market preferred stock.. 171.9 -- --
Redemption of Market Auction Preferred
Shares................................... (75.0) -- --
Issuance of Market Auction Preferred
Shares................................... -- -- 295.9
Proceeds from issuance of long-term debt.. 108.2 292.6 634.4
Repayment of long-term debt............... (133.0) (993.8) (944.2)
Short-term borrowings, net................ (240.0) 298.3 (337.2)
Issuances of common stock................. 17.8 6.1 3.7
Shares repurchased for Employee Benefits
Trust.................................... (75.8) -- --
Dividends paid............................ (149.2) (103.4) (61.3)
---------- ---------- ----------
Net cash used in financing activities. (375.1) (500.2) (408.7)
---------- ---------- ----------
Effect of exchange rate changes on cash... (4.2) (4.1) (1.4)
---------- ---------- ----------
Net decrease in cash and cash equivalents. (4.1) (96.3) (30.6)
Cash and cash equivalents at beginning of
year..................................... 39.5 135.8 166.4
---------- ---------- ----------
Cash and cash equivalents at end of year.. $ 35.4 $ 39.5 $ 135.8
========== ========== ==========
NONCASH INVESTING AND FINANCING ACTIVI-
TIES:
Issuance of common stock under employee
benefit plans.......................... $ 4.0 $ 5.7 $ 9.2
CASH PAID DURING YEAR FOR:
Interest, net of amounts capitalized.... $ 82.4 $ 128.2 $ 202.7
Income taxes............................ 133.0 247.0 73.4
</TABLE>

See Notes to Consolidated Financial Statements.

33
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Rhone-Poulenc
Rorer Inc. and subsidiaries which are more than 50 percent owned. All
subsidiaries are consolidated on the basis of twelve-month periods ending
December 31. Certain prior year items have been reclassified to conform to
current classifications.

Investments in corporate joint ventures and other companies in which the
Company has a 20 to 50 percent ownership are accounted for by the equity
method. Cost investments, less than 20 percent owned, are carried at their
original cost which approximated $34.7 million at December 31, 1993 (1992:
$47.7 million). The carrying amount of cost investments for which it was
practicable to estimate fair values was $21.2 million at December 31, 1993
(1992: $34.3 million), and the fair value of such investments, as determined by
quoted market prices and pricing models, was $18.8 million (1992: $57.7
million). Equity and cost investments are included in other assets in the
financial statements.

Cash and Cash Equivalents and Time Deposits

The Company considers cash on hand, cash in banks, certificates of deposit,
time deposits and U.S. government and other short-term securities with
maturities of three months or less when purchased as cash and cash equivalents.
Investments with a maturity period of greater than three months but less than
one year are classified as short-term investments. Certain mortgage-backed
certificates, repurchase obligations and certificates of deposit with
maturities of more than one year are classified as long-term time deposits. Due
to the short maturity period of short-term investments and the variable rate
nature of long-term time deposits, the carrying amount of these instruments
approximates their fair values.

Inventories

Inventories are valued at the lower of cost or market, using the first-in,
first-out (FIFO) or average cost methods.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. For financial accounting
purposes, depreciation is computed principally on the straight-line method over
the estimated useful lives of the assets. For income tax purposes, certain
assets are depreciated using accelerated methods. Effective January 1, 1993,
the Company extended the depreciation lives for certain production machinery
and equipment. The change in estimate increased 1993 earnings by $11.1 million
after taxes ($.08 per share).

Goodwill and Intangible Assets

Goodwill represents the excess of cost over the fair market value of net
assets of businesses acquired. Goodwill is amortized on a straight-line basis
over a period not to exceed forty years, and is reported net of accumulated
amortization of $172.1 million in 1993 and $158.3 million in 1992. Intangibles,
which principally represent the cost of acquiring patents and product lines,
are amortized over their estimated useful lives and are reported net of
accumulated amortization of $96.5 million in 1993 and $91.7 million in 1992.

34
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes

The Company and substantially all of its United States subsidiaries file a
consolidated federal income tax return. No provision has been made for United
States income taxes or withholding taxes on the unremitted earnings of non-U.S.
subsidiaries which are intended to be indefinitely reinvested. Effective
January 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," and recorded a
cumulative effect adjustment increasing 1992 net income by $15.0 million ($.11
per share).

Foreign Currency Translation

Financial information relating to the Company's subsidiaries located outside
the United States is translated using the current rate method. Local currencies
are considered the functional currencies except in countries with highly
inflationary economies.

Financial Instruments

The Company enters into foreign exchange contracts to hedge exposures related
to firm foreign currency commitments. Gains or losses from the contracts are
recognized in the basis of the transaction being hedged. Gains and losses
arising from foreign exchange contracts which are designated and effective as
economic hedges of the Company's net foreign investments are recorded as
translation adjustments. Cash flows from hedging contracts are classified in
the same category as the cash flows from the items being hedged.

At December 31, 1993, the Company was party to forward exchange and currency
swap contracts to purchase $105.8 million equivalent in foreign currencies and
to sell $373.7 million in foreign currencies during the first quarter of 1994.
Such contracts totaled $111.9 million and $339.6 million, respectively, at
December 31, 1992. The carrying values of the contracts approximated their fair
values.

The Company utilizes various instruments to hedge interest rate risk. The net
receivable or payable under these arrangements is recognized as an adjustment
to interest expense over the life of the contracts. At December 31, 1993, the
Company was party to $332.5 million notional amount of swap contracts which fix
interest rates over various periods, and $198.9 million notional amount of swap
contracts which give rise to variable interest rate exposure over various
periods. Such contracts totaled $340.8 million and $117.2 million,
respectively, at December 31, 1992. The fair value of all such outstanding
interest rate swap contracts, as determined through bank pricing models, was
approximately equal to their December 31 carrying value.

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of trade receivables, cash investments and
time deposits, and foreign currency and interest rate swap contracts. Credit
risk with respect to trade receivables is limited due to a large customer base
in a wide geographic area. The Company places its cash investments and time
deposits with credit worthy, high quality financial institutions and, by
policy, limits the amount of credit exposure to any one institution. The
Company does not anticipate nonperformance by the counterparties to its
financial instruments.

35
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. RESTRUCTURING AND OTHER CHARGES, PROCEEDS FROM LITIGATION SETTLEMENT,
AND GAIN ON SALE OF NON-STRATEGIC ASSETS

In 1993, the Company recorded charges of $93.8 million for the costs of
certain restructuring and manufacturing streamlining programs and increased
provisions for certain litigation. The programs, principally in Europe, include
restructuring of marketing and manufacturing operations in the Company's German
and Italian prescription pharmaceutical businesses following governmental
actions aimed at limiting prices and prescription volume. The programs also
include a plan to divest a portion of a manufacturing facility in Monts, France
by the end of 1995. In 1991, restructuring charges of $73.6 million were
provided for facility divestitures in Germany and the U.K., relocation of U.S.
corporate offices and research facilities, professional fees and other costs.
At December 31, 1993 and 1992, amounts included in other current liabilities
for restructuring were $37.9 million and $26.0 million, respectively.

In 1993, the Company received $105.0 million cash proceeds from the
settlement of a longstanding patent lawsuit with Baxter International
concerning Factor VIII:C concentrates for the treatment of hemophilia.

Gains from asset sales totaled $30.2 million in 1993 and included sales of
product rights and certain investments. In 1992, the Company recorded gains of
$23.1 million related principally to the sales of product rights in the U.S.
and France.

In 1991, the Company recorded $95.7 million of gains from the sales of non-
strategic assets (principally a dietary products business in France and certain
product rights in the U.S.).

NOTE 3. EQUITY INVESTMENT IN APPLIED IMMUNE SCIENCES, INC.

In 1993, the Company acquired for $117.3 million, including expenses, a 37%
interest in Applied Immune Sciences, Inc. ("AIS") and a right to purchase
majority ownership of approximately 60%. The companies also agreed to establish
joint ventures related to cell therapy products and services. The Company
recorded as other expense $29.1 million ($.14 per share) in 1993 for noncash
equity losses associated with AIS, including acquired research and development
of approximately 60% of the excess of the purchase price over the Company's
share of the fair market value of the tangible net assets of AIS. The Company
may be required by the terms of the acquisition agreement to purchase up to
four million additional shares of AIS common stock at a cost of up to $100.0
million between 1995 and 1997 if AIS achieves certain development milestones
and/or certain sales and earnings targets.

NOTE 4. OTHER EXPENSE, NET

<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Equity losses of affiliates....................... $50.0 $15.8 $19.3
Minority interest................................. 3.8 2.0 3.9
Foreign exchange (gains) losses................... (2.5) (8.1) 3.6
Other (income) expense, net....................... 2.9 1.8 (3.8)
------- ------- -------
$54.2 $11.5 $23.0
======= ======= =======
</TABLE>

NOTE 5. EARNINGS PER SHARE

Earnings per common share were computed by dividing net income available to
common shareholders by the weighted average number of shares of common stock
outstanding. The weighted

36
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

average number of shares used to compute primary earnings per common share were
138,168,739; 138,073,872 and 137,708,866 for the years 1993, 1992 and 1991,
respectively. Common share equivalents in the form of stock options were
excluded from the calculation as their dilutive effect was not material.

NOTE 6. INVENTORIES

<TABLE>
<CAPTION>
1993 1992
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Finished goods......................................... $235.3 $247.2
Work in process........................................ 111.5 128.8
Raw materials and supplies............................. 157.3 155.3
------ ------
$504.1 $531.3
====== ======
</TABLE>

NOTE 7. PROPERTY, PLANT AND EQUIPMENT, NET

<TABLE>
<CAPTION>
1993 1992
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Land.................................................. $ 58.0 $ 57.3
Buildings............................................. 568.7 521.6
Machinery and equipment............................... 1,197.2 1,132.9
Construction in progress.............................. 134.7 144.1
-------- --------
1,958.6 1,855.9
Less accumulated depreciation......................... 926.6 881.4
-------- --------
Property, plant and equipment, net.................... $1,032.0 $ 974.5
======== ========
</TABLE>

The Company incurred $75.5 million and $139.9 million in interest cost in
1993 and 1992, respectively, of which $4.3 million and $14.6 million,
respectively, was capitalized as part of the cost of additions to property,
plant and equipment.

NOTE 8. DEBT

Short-term debt consisted of the following:

<TABLE>
<CAPTION>
1993 1992
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Notes payable to banks................................. $ 86.6 $128.5
Current portion of long-term debt...................... 22.0 25.3
------ ------
$108.6 $153.8
====== ======
Notes payable to Rhone-Poulenc S.A. and affiliates..... $201.3 $100.0
====== ======
</TABLE>

37
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Long-term debt, net of current portion, consisted of the following:

<TABLE>
<CAPTION>
1993 1992
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Notes payable at variable rates (expected to be refi-
nanced long-term).................................... $255.2 $570.7
Revolving credit agreements due 1996 at variable rates
averaging 8.7%....................................... -- 4.3
9.15% Series A Senior Notes due 2004, with interest
payable quarterly (guaranteed by Rhone-Poulenc S.A.). 60.1 63.2
8.95% Series B Senior Notes due 1997, with interest
payable quarterly (guaranteed by Rhone-Poulenc S.A.). 12.9 17.2
Notes, mortgages and capitalized lease obligations at
various rates averaging 9.0% (1992: 9.5%)............ 74.4 90.3
------ ------
$402.6 $745.7
Notes payable to Rhone-Poulenc S.A. and affiliates
principally due in 1997 at rates averaging 6.0%
(1992: 8.2%)......................................... $ 29.6 $ 34.0
------ ------
$432.2 $779.7
====== ======
</TABLE>

The Company has classified $255.2 million of various short-term borrowings
from banks as long-term debt in accordance with the Company's intention and
ability to refinance such obligations on a long-term basis. The $255.2 million
of notes payable classified as long-term consists of borrowings in various
currencies and interest rates as follows: $96.3 million in U.S. dollars at
3.4%, $54.2 million in British pounds at 6.5%, $45.7 million in French francs
at 6.6%, $42.8 million in Japanese yen at 3.6% and $16.2 million in German
marks at 7.0%.

At December 31, 1993, after the effect of interest rate swap contracts,
approximately 92% of the Company's outstanding debt was at variable rates of
interest. The aggregate maturities of all long-term debt, including related
party debt, were: $22.0 million in 1994, $21.7 million in 1995, $36.5 million
in 1996, $78.4 million in 1997, $194.9 million in 1998 and $100.7 million
thereafter.

At December 31, 1993, the Company had committed lines of credit totaling $1.4
billion with no borrowings outstanding under these lines. Of this amount,
$700.0 million related to the Revolving Credit Facility Agreement dated April
30, 1990 ("the Facility"). The Facility is unconditionally guaranteed by Rhone-
Poulenc S.A. ("RP") and expires in $100.0 million installments semi-annually
through April 30, 1997. In connection with the 1991 issuance of Market Auction
Preferred Shares, the Company agreed to maintain as unused a portion of the
Facility of not less than the smaller of $325.0 million or total indebtedness
(excluding amounts owed to or guaranteed by RP). Terms of the Facility contain
certain covenants regarding the financial condition of RP, the most restrictive
of which is the maintenance of minimum stockholders' equity and ratio of total
indebtedness to net worth. The Company has an additional $250.0 million
available under revolving credit agreements due in 1996. During 1993, the
Company entered into several multicurrency credit line agreements with various
banks totaling $495.0 million. These lines mature in one to five years.
Borrowings under the above facilities can be made in various currencies,
principally U.S. dollars, French francs, German marks and British pounds;
interest rates vary with the respective currency's interbank offering rate.
Amounts available under unused uncommitted lines of credit approximated $562.0
million at December 31, 1993.

Pursuant to a $500.0 million shelf registration filed in 1993, the Company
issued $175.0 million of money market preferred stock during the year and has
the ability to issue an additional $325.0 million in debt or equity securities.

38
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. LEASE COMMITMENTS

Rent expense was $49.4 million, $28.2 million and $27.0 million in 1993, 1992
and 1991, respectively. Future minimum lease commitments under all leases with
initial or remaining noncancelable lease terms in excess of one year at
December 31, 1993 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
1994............................................... $ 6.4 $ 53.5
1995............................................... 4.6 48.3
1996............................................... 4.0 40.5
1997............................................... 3.4 45.8
1998............................................... 3.3 33.3
Thereafter......................................... 24.7 585.6
---------- ----------
Minimum lease payments............................. 46.4 $ 807.0
==========
Less imputed interest.............................. (17.6)
----------
Present value of minimum lease payments
(current--$3.8, noncurrent--$25.0)................ $ 28.8
==========
</TABLE>

In December 1992, the Company sold its U.S. corporate offices and research
facility to a third party for $258.0 million and leased it back for an initial
term of thirty years with options to renew for a longer period. The Company
also leased the underlying land to the third party for sixty years and
subleased it back for thirty years with the facility. The Company pays taxes,
insurance and maintenance costs associated with the facility. Average annual
accounting rent is $22.5 million; under terms of the agreement, the first cash
rental payment is in July 1994.

NOTE 10. INCOME TAXES

Effective January 1, 1992, the Company adopted SFAS 109, "Accounting for
Income Taxes," which modifies the liability method prescribed by SFAS 96,
particularly with respect to recognition of deferred tax benefits in certain
circumstances. Upon adoption, the Company recorded a cumulative effect
adjustment increasing 1992 net income by $15.0 million ($.11 per share). The
components of income before income taxes are:

<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
United States........................................ $289.1 $258.9 $161.3
Non-U.S.............................................. 301.4 322.8 320.7
------- ------- -------
$590.5 $581.7 $482.0
======= ======= =======
</TABLE>

39
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The provisions for income taxes are:

<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Current:
United States.................................... $100.2 $ 62.9 $ 37.8
Non-U.S.......................................... 110.0 116.4 72.8
------ ------ ------
210.2 179.3 110.6
------ ------ ------
Deferred:
United States.................................... (31.0) 2.2 1.9
Non-U.S.......................................... (9.8) (23.1) 43.0
------ ------ ------
(40.8) (20.9) 44.9
------ ------ ------
$169.4 $158.4 $155.5
====== ====== ======
</TABLE>

Deferred income taxes are provided for temporary differences between book and
tax bases of the Company's assets and liabilities. Temporary differences giving
rise to a significant portion of the deferred tax assets and liabilities at
December 31 are:

<TABLE>
<CAPTION>
1993 1992
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Assets (liabilities):
Pension............................................ $ 51.8 $ 48.5
Depreciation and amortization...................... (65.0) (36.7)
Intercompany profit in ending inventory............ 30.5 33.8
Distributable non-U.S. earnings.................... (14.7) (14.7)
Net operating loss carryforwards................... 13.2 14.0
Equity investment write-down....................... 10.7 --
Other, including nondeductible accruals............ 68.5 11.8
------ ------
95.0 56.7
Less valuation allowance........................... (8.9) (16.2)
------ ------
Deferred income taxes, net......................... $ 86.1 $ 40.5
====== ======
</TABLE>

The portion of the above net deferred tax asset classified as current was
$60.3 million. At December 31, 1993, total deferred tax assets were $269.2
million and total deferred tax liabilities were $174.2 million before netting.
As of January 1, 1993, similar temporary differences gave rise to total
deferred tax assets of $185.6 million and total deferred tax liabilities of
$128.9 million.

The differences between the U.S. statutory income tax rate and the Company's
effective income tax rate are:

<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
(PERCENT OF INCOME BEFORE INCOME TAXES)
<S> <C> <C> <C>
U.S. statutory income tax rate. 35.0% 34.0% 34.0%
Non-U.S. tax rate differential. (1.7) 1.5 1.4
Puerto Rico operations......... (3.6) (4.9) (2.0)
Research and development tax
credits....................... (1.8) -- (1.2)
Non-U.S. net operating losses.. -- (1.6) --
Other, net..................... 0.8 (1.8) 0.1
---- ---- ----
Effective income tax rate...... 28.7% 27.2% 32.3%
==== ==== ====
</TABLE>

40
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company has subsidiaries in Puerto Rico and Ireland, where earnings are
either exempt or substantially exempt from income taxes under local government
incentive programs, the latest of which expires in the year 2010.

The Company has non-U.S. net operating loss carryforwards of $37.4 million
for tax return purposes which expire principally through the years 1994-1998.

The U.S. tax returns for the years 1987-1989 are currently being examined by
the IRS; the Company's French tax returns have been examined through the year
1990. Neither the IRS nor the French tax authorities have proposed any
adjustments of a material nature.

Unremitted earnings of non-U.S. subsidiaries which are intended to be
indefinitely reinvested were $851.0 million at December 31, 1993. Withholding
taxes payable if the entire amount of these earnings were remitted would be
$54.2 million. U.S. income taxes payable if these earnings were remitted would
be substantially offset by available foreign tax credits.

NOTE 11. PENSIONS AND OTHER POSTRETIREMENT BENEFITS

Pensions

The Company has several defined benefit pension plans which cover a majority
of its employees throughout the world. In the United States, the Company's
funding policy is to contribute funds to a trust as necessary to provide for
current service and for any unfunded projected benefit obligation over a
reasonable period. To the extent that these requirements are fully covered by
assets in the trust, a contribution may not be made in a particular year.
Obligations under non-U.S. plans are systematically provided by depositing
funds with trustees, under insurance policies or through book reserves.

The funded status of the Company's plans at December 31 was as follows:

<TABLE>
<CAPTION>
1993 1992
--------------------------- ---------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Vested benefit
obligations............ $(128.7) $(317.9) $(188.4) $(188.7)
Nonvested benefits...... (4.1) (54.4) (6.2) (52.6)
------- ------- ------- -------
Accumulated benefit
obligation............. (132.8) (372.3) (194.6) (241.3)
------- ------- ------- -------
Projected future salary
increases.............. (9.0) (62.3) (42.5) (31.1)
------- ------- ------- -------
Projected benefit
obligation............. (141.8) (434.6) (237.1) (272.4)
Fair value of plan
assets (invested
primarily in equities
and bonds)............. 158.8 132.2 231.4 30.8
------- ------- ------- -------
Plan assets in excess of
(less than) projected
benefit obligation..... 17.0 (302.4) (5.7) (241.6)
Unrecognized net
transition (asset)
liability.............. (.9) 5.9 (7.7) 12.7
Unrecognized net (gain)
loss................... (4.9) 78.3 11.4 28.3
Unrecognized prior
service cost........... 7.5 3.6 8.9 5.4
Adjustment required to
recognize minimum
liability.............. -- (52.7) -- (36.0)
------- ------- ------- -------
Prepaid (accrued)
pension cost........... $ 18.7 $(267.3) $ 6.9 $(231.2)
======= ======= ======= =======
</TABLE>

41
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The accumulated benefit obligation of U.S. plans included in the above table
was $148.8 million in 1993 and $122.5 million in 1992. U.S. plan assets were
$128.5 million and $121.7 million at December 31, 1993 and 1992, respectively.
Of the net accrued pension cost, $262.6 million and $241.4 million are included
in other noncurrent liabilities in 1993 and 1992, respectively.

The following items are the components of net periodic pension cost for the
years ended December 31:

<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Service cost...................................... $ 16.9 $ 17.0 $ 16.3
Interest cost..................................... 42.7 41.2 39.1
Actual return on plan assets...................... (49.9) (25.5) (40.4)
Amortization and deferral......................... 27.2 2.3 18.7
------- ------- -------
Net periodic pension cost......................... $ 36.9 $ 35.0 $ 33.7
======= ======= =======
</TABLE>

Net periodic pension cost for U.S. plans included in the above amounts are
$8.5 million, $8.2 million and $7.5 million for 1993, 1992 and 1991,
respectively.

The following weighted average assumptions, which are based on the economic
environment of each applicable country, were used to determine the return on
plan assets and benefit obligations:

<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 7.7% 9.0% 8.8%
Expected return on plan assets............................. 10.4% 10.1% 10.4%
Rate of future compensation increases...................... 4.6% 5.4% 5.4%
</TABLE>

For U.S. plans, the discount rate was 7.5% in 1993 and 8.25% in 1992 and
1991. The expected return on plan assets of 9.5% remained constant from 1991
through 1993. The rate of future compensation increases was 5% in 1993 and 6%
in 1992 and 1991.

Savings Plans

The Company sponsors defined contribution savings plans covering
substantially all U.S. employees. Company contributions to the plans may not
exceed the greater of 3% of employee compensation or three thousand dollars per
employee. Amounts charged to expense were $6.2 million, $4.8 million and $3.8
million in 1993, 1992 and 1991, respectively.

Postretirement Benefits Other Than Pensions

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions" and is amortizing the $6.0 million accumulated
postretirement benefit obligation over twenty years. The Company's non-U.S.
affiliates generally contribute to government insurance programs during the
employees' careers and do not sponsor additional postretirement programs. In
the United States, the Company grants retirees access to its medical,
prescription and life insurance programs for a premium targeted to equal the
cost of such benefits.

42
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Postemployment Benefits

In November 1992, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). SFAS 112, which will be adopted in the first quarter of
1994, requires recognition of the obligation to provide benefits to former or
inactive employees after employment but before retirement. Adoption of the new
standard will not materially affect the Company's financial position or results
of operations.

NOTE 12. STOCK PLANS

Stock options and restricted shares have been granted to employees under
plans approved by the shareholders in 1982 and 1985, as amended in 1988 ("Stock
Plan"). The aggregate number of shares originally available for issuance or
transfer to employees under these plans was 7,000,000. Option prices are equal
to the fair market value of the shares on the date of grant. Options are
exercisable during a period determined by the Company, but in no event later
than ten years from the date granted. Shares issued under a restricted grant
may not be sold or otherwise disposed of for a period designated by the
Company. Restricted shares are returned to the Company if the grantee's
employment terminates during the period of restriction. During the restriction
period, the grantee is entitled to vote the shares and receive any dividends
paid. The 1985 Stock Plan, as amended, permits the Company to grant stock
appreciation rights in tandem with stock options. As of December 31, 1993, no
such rights have been granted. The Equity Compensation Plan adopted in 1990
supplements the Stock Plan by providing for an additional 6,000,000 shares that
may be issued to participants after all shares authorized pursuant to the terms
of the Stock Plan have been utilized. The terms of the Equity Compensation Plan
are substantially the same as those of the Stock Plan.

Effective January 1, 1993, the Company substantially curtailed the granting
of restricted shares to employees. In 1992 and 1991, respectively, 90,146 and
217,125 restricted shares were granted to employees under the Stock Plan. Due
to employee terminations 12,312; 23,561 and 22,148 restricted shares were
returned to the Company in 1993, 1992 and 1991, respectively. In connection
with the 1990 transaction with RP, the Company granted to certain executives
options to purchase a total of 1,090,008 shares at a price of $30.18 per share
and 78,872 shares at a price of $49.25 per share. These options vest but are
exercisable according to a schedule based upon the maturity of RP contingent
value rights. In 1993, 375,347 options were exercised and 573,417 options were
canceled. The remaining options expire in the year 2000.

Stock option activity shown below reflects the two-for-one stock split
effective June 7, 1991:

<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Shares under option at beginning of
year............................... 4,999,932 4,165,969 3,098,220
Additions (deductions):
Granted........................... 2,342,582 1,323,120 1,479,268
Exercised......................... (662,711) (336,325) (264,166)
Canceled.......................... (864,169) (152,832) (147,353)
Shares under option at year-end..... 5,815,634 4,999,932 4,165,969
Options exercisable at December 31.. 2,455,205 2,165,050 956,923
Shares reserved for future grants... 4,272,384 5,738,561 6,975,434
Price range of options exercised.... $7.92-41.63 $4.67-45.63 $0.88-32.28
Price range for all options out-
standing........................... $4.67-63.00 $4.67-63.00 $4.67-58.50
Price range for all options exercis-
able............................... $4.67-63.00 $4.67-58.50 $4.67-32.31
</TABLE>

43
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
MARKET MONEY COMMON CAPITAL IN
AUCTION MARKET STOCK AT EXCESS OF EMPLOYEE CUMULATIVE
PREFERRED PREFERRED STATED STATED RETAINED BENEFITS TRANSLATION
SHARES STOCK VALUE VALUE EARNINGS TRUST ADJUSTMENTS
--------- --------- -------- ---------- -------- -------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1991: $ -- $ -- $ 68.7 $318.8 $ 337.8 $ -- $ (31.8)
Net income--1991........ -- -- -- -- 326.5 -- --
Common stock split...... -- -- 68.9 (68.9) -- -- --
Cash dividends, $.445
per common share....... -- -- -- -- (61.3) -- --
Issuance of Market
Auction Preferred
Shares................. 300.0 -- -- (5.1) -- -- --
Dividends on Market
Auction Preferred
Shares................. -- -- -- -- (.4) -- --
Issuance of shares under
employee benefit plans. -- -- .3 12.1 -- -- --
Translation adjustments,
including hedging (net
of $.7 tax effect)..... -- -- -- -- -- -- 33.0
------ ------ ------ ------ -------- ------ -------
Balance, December 31,
1991: 300.0 -- 137.9 256.9 602.6 -- 1.2
Net income--1992........ -- -- -- -- 438.3 -- --
Cash dividends, $.68 per
common share........... -- -- -- -- (93.9) -- --
Dividends on Market
Auction Preferred
Shares................. -- -- -- -- (10.1) -- --
Issuance of shares under
employee benefit plans. -- -- .4 12.1 -- -- --
Translation adjustments,
including hedging (net
of $1.7 tax effect).... -- -- -- -- -- -- (77.1)
------ ------ ------ ------ -------- ------ -------
Balance, December 31,
1992: 300.0 -- 138.3 269.0 936.9 -- (75.9)
Net income--1993........ -- -- -- -- 421.1 -- --
Cash dividends, $1.00
per common share....... -- -- -- -- (138.3) -- --
Dividends on preferred
shares................. -- -- -- -- (12.4) -- --
Issuance of money market
preferred stock........ -- 175.0 -- (3.1) -- -- --
Redemption of Market
Auction Preferred
Shares................. (75.0) -- -- -- -- -- --
Shares repurchased for
Employee Benefits
Trust.................. -- -- -- -- -- (75.8) --
Issuance of shares under
employee benefit plans. -- -- .7 24.1 -- -- --
Translation adjustments,
including hedging
(net of $11.6 tax effect). -- -- -- -- -- -- (63.4)
------ ------ ------ ------ -------- ------ -------
Balance, December 31,
1993................... $225.0 $175.0 $139.0 $290.0 $1,207.3 $(75.8) $(139.3)
====== ====== ====== ====== ======== ====== =======
</TABLE>

In December 1991, the Company issued $300.0 million of Market Auction
Preferred Shares ("MAPS") represented by four series, each consisting of 75,000
shares. Each series of MAPS is sold in units of 100 shares and is identical
except as to dividend terms. Dividend rates, which are determined at separate
auctions for each series, averaged 3.01% during 1993 (1992: 3.14%). Dividends
are paid every 49 days, subject to certain exceptions.

In 1993, the Company issued $175.0 million of money market preferred stock. A
portion of the proceeds was used to redeem $75.0 million MAPS Series B. The
money market preferred stock was issued in three series, consisting of 750
shares, 500 shares and 500 shares, respectively. The initial dividend period
for all series commenced on August 1, 1993 at initial dividend rates of 4.7%
per annum for a two-year period for Series 1; 5.125% per annum for a three-year
period for Series 2; and 5.84% per annum for a five-year period for Series 3.
After the initial dividend periods expire, dividends will be determined at
separate auctions for each series.

44
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The MAPS and money market preferred stock (collectively, "the Preferred
Shares") rank prior to common shares of the Company as to dividends. Holders
of Preferred Shares have no voting rights except in the event that preferred
dividends are in arrears for at least 180 consecutive days. In such event, the
authorized number of the Company's Board of Directors would be increased by
two and the holders of record of the respective Preferred Shares may elect
these additional directors. The Preferred Shares are not convertible into
common stock or other shares of the Company and holders thereof have no
preemptive rights. Upon the liquidation, dissolution, or winding up of the
Company, or upon redemption of the Preferred Shares at the Company's option,
holders would be entitled to a liquidation preference of $1,000 per share for
MAPS or $100,000 per share for money market preferred stock, plus any
accumulated and unpaid dividends thereon.

In connection with the issuance of MAPS, the Company entered into a support
agreement with RP pursuant to which both parties agreed that 1) RP will own a
majority of the outstanding common stock of the Company entitled to elect
directors; 2) RP will make a capital contribution to the Company if certain
debt-to-capitalization or tangible net worth ratios do not meet specified
levels or if the Company fails to pay a declared dividend on MAPS on a timely
basis; and 3) RP, as guarantor of the Revolving Credit Facility Agreement
dated April 30, 1990, will maintain such facility in full force, and the
Company will maintain, as of any date, the unused portion of such facility in
an amount equal to all principal, interest and premium amounts payable in the
next twelve months with respect to short- and long-term debt other than
amounts owed to RP or guaranteed by RP, subject to certain requirements and
exceptions. In connection with the support agreement, the Company pays RP an
annual fee which in 1993 approximated $.4 million ($.5 million in 1992). The
support agreement does not constitute a guarantee by RP of any obligation of
the Company, including MAPS, and is not enforceable by any holder of MAPS. The
units of each series of MAPS must be redeemed in the event of breach of
certain covenants in the support agreement.

At December 31, 1993, there were 2,451,800 preferred shares without par
value authorized and unissued (1992: 2,551,800).

In March 1993, the Company's Board of Directors approved the repurchase from
time to time of up to 5 million of its common shares on the open market. As of
December 31, 1993, 1,873,300 shares had been acquired at a cost of $75.8
million and are being held in an Employee Benefits Trust to fund future
employee benefits in the United States. At December 31, 1993, repurchase
commitments existed for an additional 108,700 shares at a cost of $4.0
million.

NOTE 14. INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREA

The Company's operations are conducted in one industry segment. Operations
involve the production and sale of pharmaceuticals, primarily cardiovascular
products, bone metabolism/rheumatology products, gastroenterology products,
central nervous system/analgesia products, infectious disease/oncology
products, hypersensitivity products, and plasma derivatives. In addition, the
Company manufactures and markets a number of other products, including bulk
pharmaceuticals and chemicals.

Information about the Company's operations for the years 1993, 1992 and 1991
by geographic area is shown below. Inter-area affiliated sales are not
significant. Corporate loss before income taxes includes corporate
administrative expenses incurred in the U.S., worldwide net interest expense,
and worldwide equity losses from unconsolidated affiliates. Corporate loss
before income taxes also includes corporate administrative expenses incurred
in France of $49.2 million in 1993, $54.3 million in 1992 and $40.2 million in
1991.

45
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales:
United States................................ $1,119.9 $ 999.7 $ 853.2
France....................................... 1,374.8 1,388.1 1,318.5
Other Europe................................. 977.8 1,218.4 1,197.3
Rest of World................................ 546.9 489.7 455.3
-------- -------- --------
Total net sales............................ $4,019.4 $4,095.9 $3,824.3
======== ======== ========
Income (loss) before income taxes:
United States................................ $ 385.2 $ 268.0 $ 159.9
France....................................... 280.7 274.6 293.0
Other Europe................................. 64.6 216.5 214.4
Rest of World................................ 62.1 44.2 63.4
Corporate.................................... (202.1) (221.6) (248.7)
-------- -------- --------
Total income (loss) before income taxes.... $ 590.5 $ 581.7 $ 482.0
======== ======== ========
Identifiable assets:
United States................................ $1,205.2 $1,025.2 $1,088.3
France....................................... 1,295.6 1,344.0 1,337.8
Other Europe................................. 882.1 992.3 1,024.0
Rest of World................................ 405.9 362.5 334.6
Corporate.................................... 261.4 134.3 330.8
-------- -------- --------
Total identifiable assets.................. $4,050.2 $3,858.3 $4,115.5
======== ======== ========
</TABLE>

Income before income taxes ("IBT") for the U.S. in 1993 includes income of
$68.0 million from litigation settlement proceeds and gains on asset sales net
of restructuring charges. France IBT includes $19.5 million of restructuring
charges net of gains on asset sales in 1993 and $69.4 million of gains on asset
sales in 1991. Other Europe IBT includes restructuring charges net of gains on
asset sales totaling $30.2 million in 1993 and $50.2 million in 1991.

NOTE 15. RELATED PARTY TRANSACTIONS

The entities comprising the Company manage their cash separately. In the
largest countries such as the U.S., France, the U.K. and Germany, the local
entities have access to RP cash pooling arrangements whereby they can, at their
own request, lend to or borrow from RP at market terms and conditions.

Amounts receivable from RP and affiliates totaled $35.8 million and $55.0
million at December 31, 1993 and 1992, respectively. The 1993 balance includes
$11.3 million of accounts receivable from sales of products and services to RP
(1992: $10.8 million) and $24.6 million classified as other current assets
(1992: $44.2 million).

Accounts payable related to purchase of materials and services from RP and
affiliates were $6.3 million at December 31, 1993 (1992: $6.5 million); accrued
and other liabilities due to RP at December 31, 1993 were $12.9 million (1992:
$11.9 million). In 1993, sales to RP and affiliates were $34.5 million;
materials purchased from RP totaled $44.4 million. In 1992, these amounts were
$37.2 million and $53.1 million, respectively. In 1993, RP also compensated the
Company $1.7 million in cost of products sold related to the transfer of
certain production activities.

46
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
At December 31, 1993, debt with RP and affiliates totaled $230.8 million
(1992: $134.0 million). Related interest expense for 1993 was $24.9 million
(1992: $46.4 million). During 1993, the Company paid $.6 million in debt
guarantee fees to RP (1992: $1.0 million).

RP charges the Company for expenses incurred on its behalf, including
research, data processing, insurance, legal, tax, advertising, public
relations and management fees. Such charges are reflected in the financial
statements and amounted to approximately $20.2 million in 1993 (1992: $19.6
million). Management believes that the expenses so charged are representative
of amounts that the Company would have incurred if it had been operated as an
unaffiliated entity.

NOTE 16. CONTINGENCIES

The Company is involved in litigation incidental to its business including,
but not limited to: (1) approximately 239 pending lawsuits in the United
States, Canada and Ireland against the Company and its Armour Pharmaceutical
Company subsidiary ("Armour"), in which it is claimed by individuals infected
with the Human Immunodeficiency Virus ("HIV") that their infection with HIV
and, in some cases, resulting illnesses, including Acquired Immune Deficiency
Syndrome-related conditions or death therefrom, may have been caused by
administration of antihemophilic factor ("AHF") concentrates processed by
Armour in the early and mid-1980's. Armour has also been named as a defendant
in three proposed class action lawsuits filed on behalf of HIV-infected
hemophiliacs and their families. None of these cases involve Armour's
currently distributed AHF concentrates; (2) legal actions pending against one
or more subsidiaries of the Company and various groupings of more than one
hundred pharmaceutical companies, in which it is generally alleged that
certain individuals were injured as a result of the development of various
reproductive tract abnormalities because of in utero exposure to
diethylstilbestrol ("DES") (typically, two former operating subsidiaries of
the Company are named as defendants, along with numerous other DES
manufacturers, when the claimant is unable to identify the manufacturer); (3)
antitrust actions alleging that the Company engaged in price discrimination
practices to the detriment of certain independent community pharmacists; (4)
an alleged infringement by the Company of a process patent for the manufacture
of bulk diltiazem, an ingredient in the Company's product Dilacor XR (R);
these proceedings have been indefinitely suspended; and (5) potential
responsibility relating to past waste disposal practices, including potential
involvement, for which the Company believes its share of liability, if any, to
be negligible, at two sites on the U.S. National Priority List created by
Superfund legislation. In addition, the Company agreed to settle shareholder
litigation for an amount which is fully accrued at December 31, 1993.

The eventual outcomes of the above matters of pending litigation can not be
predicted with certainty. The defense of these matters and the defense of
expected additional lawsuits related to these matters may require substantial
legal defense expenditures. The Company follows Statement of Financial
Accounting Standards No. 5 in determining whether to recognize losses and
accrue liabilities relating to such matters. Accordingly, the Company
recognizes a loss if available information indicates that a loss or range of
losses is probable and reasonably estimable. The Company estimates such losses
on the basis of current facts and circumstances, prior experience with similar
matters, the number of claims and the anticipated cost of administering,
defending and, in some cases, settling such claims. The Company has also
recorded as an asset certain insurance recoveries which are determined to be
probable of occurrence on the basis of the status of current discussions with
its insurance carriers. If a contingent loss is not probable but is reasonably
possible, the Company discloses this contingency in the notes to its
consolidated financial statements if it is material. Based on the information
available, the Company does not believe that reasonably possible uninsured
losses in excess of amounts recorded for the above matters of litigation would
have a material adverse impact on the Company's financial position or results
of operations.

As of December 31, 1993 the Company had unused standby letters of credit
outstanding of $23.6 million. The letters of credit are issued primarily in
the form of guarantees or performance bonds.

47
<PAGE>

RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of Rhone-Poulenc Rorer Inc. is responsible for the information
and representations contained in this report. Management believes that the
financial statements have been prepared in conformity with generally accepted
accounting principles and that the other information in this annual report is
consistent with those statements. In preparing the financial statements,
management is required to include amounts based on estimates and judgments
which it believes are reasonable under the circumstances.

In fulfilling its responsibilities for the integrity of the data presented
and to safeguard the Company's assets, management employs a system of internal
accounting controls designed to provide reasonable assurance, at appropriate
cost, that the Company's assets are protected and that transactions are
appropriately authorized, recorded and summarized. This system of control is
supported by the selection of qualified personnel, by organizational
assignments that provide appropriate delegation of authority and division of
responsibilities, and by the dissemination of written policies and procedures.
This control structure is further reinforced by a program of internal audits
including a policy that requires responsive action by management.

Coopers & Lybrand, the Company's independent accountants, performs audits in
accordance with generally accepted auditing standards. The independent
accountants conduct a review of internal accounting controls to the extent
required by generally accepted auditing standards and perform such tests and
procedures as they deem necessary to arrive at an opinion on the fairness of
the financial statements presented herein.

The Board of Directors, through the Audit Committee comprised solely of
directors who are not employees of the Company, meets with management, the
internal auditors and the independent accountants to ensure that each is
properly discharging its respective responsibilities. Both the independent
accountants and the internal auditors have free access to the Audit Committee,
without management present, to discuss the results of their work, including
internal accounting controls and the quality of financial reporting. The Audit
Committee met three times in 1993.

/s/ Robert E. Cawthorn
Robert E. Cawthorn
Chairman and
Chief Executive Officer

/s/ Patrick Langlois
Patrick Langlois
Senior Vice President
and Chief Financial Officer

/s/ Daniel J. Pedriani
Daniel J. Pedriani
Vice President and
Corporate Controller

48
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of Rhone-Poulenc Rorer Inc.:

We have audited the accompanying consolidated balance sheets of Rhone-Poulenc
Rorer Inc. and subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of income and cash flows for each of the three years in
the period ended December 31, 1993. 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 consolidated financial position of Rhone-Poulenc
Rorer Inc. and subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.

As discussed in Note 10 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1992.

/s/ Coopers & Lybrand

Coopers & Lybrand
Philadelphia, Pennsylvania
January 26, 1994

49
<PAGE>

RHONE-POULENC RORER INC. AND SUBSIDIARIES
QUARTERLY DATA (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
QUARTER ENDED 1993 QUARTER ENDED 1992
----------------------------------- ----------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $916.3 $1,008.1 $960.1 $1,134.9 $897.8 $971.1 $1,049.2 $1,177.8
Gross profit............ 607.5 681.7 637.5 766.4 585.9 639.1 688.6 787.7
Net income available to
common shareholders.... 94.2 119.6 71.0 123.9 83.7 86.7 90.6 167.2
Earnings per common
share.................. .68 .87 .51 .90 .61 .63 .66 1.21
Market price per common
share:
High................... 48.000 54.000 48.875 48.500 69.375 59.750 59.250 50.750
Low.................... 42.500 46.375 43.000 32.625 55.625 51.500 45.625 44.375
Common dividends paid... .22 .24 .26 .28 .14 .16 .18 .20
</TABLE>
- --------
Results for 1993 include pretax income of $105.0 million proceeds from
litigation settlement in the second quarter. Results also includes $77.2
million and $16.6 million of restructuring and other charges recorded in the
second and fourth quarters, respectively and a $27.0 million pretax charge for
acquired research and development expense in the third quarter. Gains from
sales of product rights and certain investments totaled $10.2 million, $2.5
million, $2.7 million and $14.8 million in each of the four quarters,
respectively.

Results for the first quarter of 1992 include a cumulative effect adjustment
increasing earnings by $15.0 million as a result of adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
effective January 1, 1992. Results also include $6.5 million and $16.6 million
of gains on sales of non-strategic assets in the 1992 third and fourth
quarter, respectively.

Earnings per share amounts for each quarter are required to be computed
independently and, therefore, the sum of the four quarters does not
necessarily equal the amount computed for the total year.

Rhone-Poulenc Rorer Inc. (RPR) common shares are listed and traded on the New
York and Paris Stock Exchanges, and are traded, unlisted, on the Philadelphia,
Boston, Pacific and Midwest Stock Exchanges. On January 31, 1994, there were
7,336 holders of record of RPR common shares.

50
<PAGE>

1. Election of four directors to
three-year terms

[ ] VOTE FOR ALL [ ] WITHHOLD AUTHORITY to [ ] *EXCEPTION(S) (as noted)
NOMINEES vote for all nominees below)
listed

NOMINEES FOR THREE-YEAR TERMS: Jean-Marc Bruel, Manfred E. Karobalh, MD,
Peter J. Neff, James S. Riepe

INSTRUCTION: To withhold authority to vote for any individual nominee, mark
the "EXCEPTION(S)" box and write that nominee's name in the
space provided.

*Exception(s)...................................................................

2. Proposal to ratify the selection of
Coopers & Lybrand as independent
certified public accountants for [ ] FOR [ ] AGAINST [ ] ABSTAIN
Rhone-Poulenc Rorer Inc. and its
subsidiaries for the fiscal year
ending December 31, 1994.

In their discretion, the attorneys are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.

Address Change and/or [ ]
Comments Mark Here

PROXY DEPARTMENT
NEW YORK, N.Y. 10203-0494

Your signature should appear exactly as
your name appears in the space at the
left. When signing in a fiduciary or
representative capacity, please sign your
full title as such. If shares are held in
more than one capacity, the proxy will be
deemed to vote all shares held in all
capacities. If your imprinted name is
incorrect, please print your correct name
in the space below.

Dated: , 1994
--------------------------------

-------------------------------------------
Signature

-------------------------------------------
Title

Votes MUST be indicated
(X) in Black or Blue ink.

(Please sign, date and return this proxy in the enclosed postage
prepaid envelope.)

<PAGE>

RHONE-POULENC RORER INC.
500 Arcola Road
Collegeville, PA 19426-0107

This Proxy is Solicited on Behalf of the Board of Directors of
Rhone-Poulenc Rorer Inc.

The undersigned hereby appoints Robert E. Cawthorn, John B. Bartlett and
Patrick Langlois and each of them, with the power of substitution, attorneys
to vote the number of shares the undersigned would be entitled to vote if
personally present at the Annual Meeting of Shareholders of Rhone-Poulenc
Rorer Inc., in Collegeville, Pennsylvania, at 2:00 p.m. on April 28, 1994 and
any adjournment or postponement thereof, for the transaction of such business
as may come before the meeting.

This proxy when properly executed will be voted in the manner directed
herein by the undersigned. If no direction is given, this proxy will be voted
FOR the election of the nominees for director and FOR proposal 2.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF
THE NOMINEES FOR DIRECTOR AND FOR PROPOSAL 2.

(Continued, and to be dated and signed, on the other side.)