<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
/ / Confidential, for Use of the Commission Only (as permitted by Rule 14
a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
AMERICAN HOME PRODUCTS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
AMERICAN HOME PRODUCTS CORPORATION
FIVE GIRALDA FARMS
MADISON, N.J. 07940
John R. Stafford
Chairman, President and
Chief Executive Officer
March 25, 1998
Dear Fellow Stockholder:
It is my pleasure to invite you to attend the American Home Products Corporation
1998 Annual Meeting of Stockholders. The meeting will be held on Thursday, April
23, 1998 at 9:30 a.m. local time at The Governor Morris Hotel and Conference
Center, Two Whippany Road, Morristown, New Jersey.
The Notice of Annual Meeting and Proxy Statement accompanying this letter
describe the business to be dealt with at the meeting. At the conclusion of the
formal part of the meeting, we will present a brief report on the Company's
business and respond to your questions.
Whether or not you plan to attend the meeting, your vote is very important.
Please cast your vote regardless of the number of shares you hold. This year,
for the first time, many of you will have the option to cast your proxy vote by
telephone if your proxy card includes instructions and a toll-free telephone
number to do so. This is a quick and easy way for you to submit your proxy. I
urge you to take a moment to use the toll-free telephone number, or sign, date,
and promptly return the enclosed proxy card in the envelope, in order to be
certain your shares are represented at the meeting.
I look forward to seeing you on April 23rd.
Sincerely,
/s/ John R. Stafford
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION
FIVE GIRALDA FARMS
MADISON, NEW JERSEY 07940
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
The Annual Meeting of the Stockholders of AMERICAN HOME PRODUCTS CORPORATION
will be held in the Ballroom of The Governor Morris Hotel and Conference Center,
Two Whippany Road, Morristown, New Jersey, on Thursday, April 23, 1998 at 9:30
a.m., local time, for the following purposes:
1. to elect a Board of twelve directors;
2. to consider and act upon the ratification of the appointment of Arthur
Andersen LLP as the Corporation's principal independent public
accountants for 1998;
3. to consider and act upon amendments to the Corporation's Restated
Certificate of Incorporation to increase to 2,400,000,000 the number of
authorized shares of Common Stock and a related matter; and
4. to act upon such other matters, including a stockholder proposal as
stated in the proxy statement, which may properly come before the
meeting.
Under the provisions of the By-laws, the Board of Directors has fixed the
close of business on March 16, 1998 as the record date for the determination of
stockholders entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
EILEEN M. LACH
SECRETARY
March 25, 1998
YOUR VOTE IS IMPORTANT
IF YOU ARE UNABLE TO ATTEND THE MEETING, PLEASE DATE, SIGN AND RETURN THE
ACCOMPANYING
PROXY CARD PROMPTLY OR, IF YOUR PROXY CARD INCLUDES INSTRUCTIONS TO DO SO, USE
THE
TOLL-FREE TELEPHONE NUMBER ON THE PROXY CARD TO SUBMIT YOUR PROXY BY TELEPHONE.
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION
FIVE GIRALDA FARMS
MADISON, NEW JERSEY 07940
------------------------
PROXY STATEMENT
Your proxy in the form enclosed is solicited by the Board of Directors and
Management of American Home Products Corporation (the "Corporation") to be used
at the Annual Meeting of Stockholders to be held on April 23, 1998 and at any
adjournment or adjournments thereof. Properly executed proxies received prior to
the meeting or proxies submitted prior to the meeting by telephone in accordance
with the instructions set forth on the proxy card if included on your proxy card
(using a personal control number to identify each stockholder) will be voted at
the meeting. Stockholders may have their votes kept secret until after the
Annual Meeting by so indicating in the designated place on the proxy card or
following the instructions when submitting a proxy by telephone. If a
stockholder specifies how the proxy is to be voted on any business to come
before the meeting, it will be voted in accordance with such specifications. If
no specification is made, it will be voted in accordance with the
recommendations of the Board of Directors and Management which are FOR the
election of the directors named in this Proxy Statement, FOR ratification of the
appointment of Arthur Andersen LLP as the Corporation's principal independent
public accountants for 1998, FOR adoption of the amendments to the Restated
Certificate of Incorporation and AGAINST the stockholder proposal on directors
accepting consulting fees from the Corporation. The proxy may be revoked by you
at any time before it is voted at the meeting.
Attendance at the meeting will be limited to stockholders of record on March
16, 1998 or their proxies, beneficial owners having evidence of ownership on
that date, and invited guests of the Corporation. No cameras or recording
equipment will be permitted in the meeting room.
This Proxy Statement and accompanying form of proxy are first being sent or
given to stockholders on or about March 25, 1998.
If a stockholder participates in the Corporation's Master Investment Plan, a
proxy to vote shares registered in his or her own name will serve as
instructions on how to vote shares held in custody for the stockholder pursuant
to the Plan. No further action from the stockholder is required to vote the
shares in the Master Investment Plan. Accordingly, as Transfer Agent for shares
of the Corporation's common stock, par value $.33 1/3 per share (the "Common
Stock"), ChaseMellon Shareholder Services will cause shares held in the name of
its nominee for the account of stockholders participating in the Master
Investment Plan to be voted in the same way as such stockholders vote shares
registered in their names. If the stockholder does not submit a proxy to vote
the shares registered in his or her own name, the shares held for his or her
account in the Master Investment Plan will not be voted.
Stockholders of record at the close of business on March 16, 1998 are
entitled to notice of and to vote at the meeting. On March 2, 1998, there were
outstanding and entitled to vote 654,924,364 shares of Common Stock (each of
which is entitled to one vote) and 28,277 shares of $2 Convertible Preferred
Stock (each of which is entitled to eighteen votes). A plurality of the votes
cast by the holders of Common Stock and $2 Convertible Preferred Stock, voting
as a single class, is required for election of directors, a majority of the
votes cast by such holders, voting as a single class, is required for
ratification of the appointment of the principal independent public accountants,
a majority of the outstanding Common Stock and $2 Convertible Preferred Stock,
voting as a single class, is required for the adoption of the amendments to the
Restated Certificate of Incorporation and a majority of votes cast by the
holders of Common Stock and $2 Convertible Preferred Stock, voting as a single
class, is required for adoption of the stockholder proposal on directors
accepting consulting fees. The aggregate number of votes cast by all
stockholders present in person or by proxy at the meeting will be used to
determine whether a motion (other than the proposal to amend the Restated
Certificate of Incorporation) will carry. Thus, an abstention from voting on a
matter
<PAGE>
by a stockholder present in person or by proxy at the meeting has no effect on
the item on which the stockholder abstained from voting except that, for the
proposal to amend the Restated Certificate of Incorporation, abstentions will
have the same effect as a vote against such proposal. In addition, although
broker "non-votes" will be counted for purposes of obtaining a quorum, they will
have no effect on the vote on matters at the Annual Meeting of Stockholders
except that, for the proposal to amend the Restated Certificate of
Incorporation, they will have the same effect as a vote against such proposal.
ITEM 1.
ELECTION OF DIRECTORS
Twelve directors are to be elected to hold office until the next Annual
Meeting of Stockholders and until their successors have been duly elected and
qualified. If the proxy is executed or submitted by telephone in such a manner
as not to withhold authority for the election of any or all of the nominees for
directors, then the persons named in the proxy will vote the shares represented
by the proxy for the election of the following twelve nominees. If the proxy
indicates that the stockholder wishes to withhold a vote from one or more
nominees for directors, such instructions will be followed by the persons named
in the proxy. All of the nominees now are members of the Board of Directors and
all except Mr. Essner were elected by the stockholders at the last Annual
Meeting. Management has no reason to believe that any of the nominees will not
serve. In the event that any nominee should not be available, and if the Board
has designated a substitute nominee, the persons named in the proxy will vote
for the substitute nominee designated by the Board of Directors.
NOMINEES FOR ELECTION AS DIRECTORS
<TABLE>
<S> <C>
Director since 1993; age 64; President, Alexander & Associates,
Inc. (consulting firm specializing in Workforce Inclusiveness);
Director, Dreyfus General Family of Funds, Dreyfus Third Century
Fund, Dreyfus Premier Family of Funds, Dun & Bradstreet
Corporation, MCI Communications Corporation, Cognizant
Corporation, TLC Beatrice International Holding, Inc. and Mutual
of America Life Insurance Company; Chairman of the Corporate
Issues Committee and member of the Audit and Nominating
[PHOTO] Committees
Clifford L. Alexander,
Jr.
Director since 1988; age 65; President and Chief Executive
Officer, The Hearst Corporation (owns and operates communications
media); Director, The Chase Manhattan Corporation, Hearst-Argyle
Television, Inc. and Polo Ralph Lauren Corporation; Chairman of
the Compensation and Benefits Committee and member of the
Executive and Nominating Committees
[PHOTO]
Frank A. Bennack, Jr.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Director since 1990; age 59; Senior Executive Vice President of
the Corporation since October 1995; previously Executive Vice
President from 1987; member of the Executive Committee of the
Board and of the Finance, Operations and Retirement Committees of
the Corporation
[PHOTO]
Robert G. Blount
Director since 1975; age 74; National Chair, Population Action
International; Director, International Flavors & Fragrances Inc.;
member of the Compensation and Benefits and Nominating Committees
[PHOTO]
Robin Chandler Duke
Director since 1997; age 50; Executive Vice President of the
Corporation since September 1997; previously President of
Wyeth-Ayerst Global Pharmaceuticals from March 1997; President of
Wyeth-Ayerst Laboratories, 1993 to March 1997; Member of the
Finance, Operations and Retirement Committees of the Corporation
[PHOTO]
Robert Essner
Director since 1987; age 61; Dean, Fordham University School of
Law since 1982; Director, Sentinel Group Funds, Inc. and Sentinel
Pennsylvania Tax Free Trust; Chairman of the Audit Committee and
member of the Compensation and Benefits and Nominating Committees
[PHOTO]
John D. Feerick
Director since 1995; age 58; President and Chief Executive
Officer, Blue Cross Blue Shield of Kansas City, Inc.; former
Chairman, Johnson & Higgins of Missouri, Inc., former Chairman
and Chief Executive Officer, The Continental Corporation;
Director, Blue Cross Blue Shield of Kansas City, Blue Cross Blue
Shield Association, AMC Entertainment Inc., Businessmen's
Assurance Company, Hallmark Cards, Inc. and Hallmark
Entertainment, Inc.; member of the Compensation and Benefits and
Nominating Committees
[PHOTO]
John P. Mascotte
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Director since 1995; age 54; Chairman and Professor, Department
of Obstetrics and Gynecology, Stanford University School of
Medicine since 1990; Director, Conception Technology, Inc., Metra
Biosystems, Inc. and Quidel Corporation; member of the Corporate
Issues and Nominating Committees
[PHOTO]
Mary Lake Polan, M.D.,
Ph.D.
Director since 1996; age 51; Vice Chairman, President and Chief
Operating Officer, Bell Atlantic Corporation (telecommunications
company); Director, AlliedSignal Inc., CVS Corporation, Boston
Properties, Inc. and Viacom Inc.; member of the Audit and
Nominating Committees
[PHOTO]
Ivan G. Seidenberg
Director since 1980; age 60; Chairman of the Board, President and
Chief Executive Officer of the Corporation since 1986 (except for
period between May 1990 and January 31, 1994 when he did not have
additional title of President); Director, AlliedSignal Inc., The
Chase Manhattan Corporation, Deere & Company and Bell Atlantic
Corporation; Chairman of the Executive and Nominating Committees
of the Board and Chairman of the Finance, Operations and
Retirement Committees of the Corporation
[PHOTO]
John R. Stafford
Director since 1982; age 58; Chairman, Torell Management Inc.
(financial advisory company); former Chairman and CEO, Fortune
Bancorp; former Chairman of the Board, President and Chief
Executive Officer, CalFed Inc.; former President, Manufacturers
Hanover Corporation and Manufacturers Hanover Trust Company;
Director, Volt Information Sciences, Inc., PaineWebber Group,
Inc. and Heartland Technology, Inc.; member of the Corporate
Issues and Nominating Committees
[PHOTO]
John R. Torell III
Director since 1981; age 65; President, Chief Executive Officer
and member of the Board, Wm. Wrigley Jr. Company (international
manufacturer of chewing gum products); Director, Texaco, Inc.;
member of the Audit and Nominating Committees
[PHOTO]
William Wrigley
</TABLE>
4
<PAGE>
COMMITTEES
The Board of Directors has, as standing committees, an Audit Committee, a
Compensation and Benefits Committee, a Nominating Committee and a Corporate
Issues Committee. Each such committee consists solely of non-employee members of
the Board except for the Nominating Committee, of which Mr. Stafford is
Chairman.
The Audit Committee, whose current members are Dean Feerick, Chairman, and
Messrs. Alexander, Seidenberg and Wrigley, held two meetings in 1997. This
Committee recommends the firm of independent public accountants engaged each
year as the Corporation's principal independent public accountants, subject to
the approval of the Board of Directors and ratification by the stockholders, and
undertakes such reviews of the Corporation's financial affairs as the Committee
deems appropriate.
The Compensation and Benefits Committee, whose current members are Mr.
Bennack, Chairman, Mrs. Duke, Dean Feerick and Mr. Mascotte, held four meetings
in 1997. This Committee recommends to the Board the salaries of the officers of
the Corporation and administers the Corporation's Management Incentive Plan,
Stock Incentive and Stock Option Plans and oversees other benefit plans.
The Nominating Committee, whose membership is composed of all of the
non-employee directors and Mr. Stafford as its Chairman, held one meeting in
1997. This Committee recommends the director-nominees contained in the proxy
statement, considers candidates for director vacancies and such other management
matters as may be presented to it by the Chairman. Stockholders may submit names
of qualified candidates along with detailed information on their backgrounds to
the Corporate Secretary for referral to the Committee.
The Corporate Issues Committee, whose current members are Mr. Alexander,
Chairman, Dr. Polan and Mr. Torell, reviews the policies and programs of the
Corporation and makes recommendations to the Board as appropriate on public
issues that affect the Corporation. It held three meetings in 1997.
The Board also has an Executive Committee which is authorized, during the
intervals between Board meetings, to perform all duties and exercise all powers
of the Board except those that are required by law or the Corporation's Restated
Certificate of Incorporation or By-laws to be performed or exercised by the
Board acting as a whole. Its current members are Mr. Stafford, Chairman, and
Messrs. Bennack and Blount. It held two meetings in 1997.
DIRECTORS' FEES; ATTENDANCE
Messrs. Stafford, Blount and Essner were employees of the Corporation for
all of 1997 and therefore received no remuneration for serving on the Board of
Directors. The other directors received an annual retainer of $42,500 paid
monthly, a fee of $9,000 for Committee service and a meeting fee of $1,050 for
each Board or Committee meeting attended in 1997. In 1997, the Chairman of a
Committee received an additional fee of $3,000. There were eleven Board meetings
in 1997. The total fees paid in 1997 to the current nine non-employee directors
(including amounts deferred) was $614,250.
In addition, each director who is not an employee or former employee of the
Corporation is entitled to receive an initial grant of 400 shares of restricted
stock and subsequent grants of 400 shares of restricted stock up to a total of
2,000 shares of restricted stock over a period of five years, subject to the
terms and conditions of the 1994 Restricted Stock Plan for Non-Employee
Directors.
During 1997, each member of the Corporation's Board of Directors attended at
least 75% of the total meetings of the Board and the Committees of which such
director was a member.
Effective May 1, 1997, the Corporation no longer grants benefits under its
retirement plan for non-employee directors. Under the terminated plan,
non-employee directors with 10 years of Board service who retired at or after 65
years of age, or before age 65 in case of disability, would have been entitled
to receive an annual lifetime benefit in the amount equal to the annual Board
retainer in effect for the year for which the payment was made. Directors who
retired before age 65 with 10 years of Board service were entitled to receive
the benefit upon attaining age 65. If the director died before receiving at
least five annual benefit payments, a lump sum amount equal to the difference
between five annual benefit payments and the amount the director already had
received would have been paid to the director's beneficiary. In lieu of this,
each non-employee director serving on the board as of May 1, 1997 was credited
with phantom stock units under a new Directors' Deferral Plan in an amount equal
to the actuarial equivalent of the amount that would have been due to such
director at his or her earliest retirement date, assuming the director had
completed the vesting period. Directors with 10 years of Board service upon the
later of retirement or age 65 will be entitled to receive cash (in a lump sum or
annual installments) in an amount equal to the then current value of such units.
Pursuant to the Directors' Deferral Plan, which became effective May 1,
1997, directors' fees otherwise payable in the year earned may be deferred in
amounts specified by such directors. The deferred
5
<PAGE>
amounts accrue interest at a deemed rate or may be allocated to phantom stock
units under the new Plan. Phantom Stock units accrue deemed dividends which are
computed quarterly and credited in additional units to each director's account
under the Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and directors, and persons who own more than ten percent
of a registered class of the Corporation's equity securities, to file reports of
ownership and changes in ownership of such securities with the Securities and
Exchange Commission and the New York Stock Exchange. Officers, directors and
greater than ten percent beneficial owners are required by applicable
regulations to furnish the Corporation with copies of all Section 16(a) forms
they file. (The Corporation is not aware of any beneficial owner of more than
ten percent of its Common Stock.)
Based solely upon a review of the copies of the forms furnished to the
Corporation, or written representations from certain reporting persons that no
Forms 5 were required, the Corporation believes that all filing requirements
applicable to its officers and directors were complied with during the 1997
fiscal year except that (i) two transactions which should have been reported on
separate forms and which occurred in a discretionary account maintained by the
wife of John R. Torell III, a director of the Corporation, were reported late on
Form 5, (ii) due to a clerical error, one transaction by Rene R. Lewin, an
officer of the Corporation, was reported late on Form 5 and (iii) due to a
clerical error, two related transactions by Louis L. Hoynes, Jr., an officer of
the Corporation, were reported late on an amended Form 5.
6
<PAGE>
SECURITIES OWNED BY MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The table below reflects the numbers of shares of American Home Products
Corporation Common Stock beneficially owned as of February 2, 1998 by each
director of the Corporation and each named executive listed in the Summary
Compensation Table and the number of shares beneficially owned by all directors
and executive officers of the Corporation as a group.
All directors and named executives disclaim beneficial ownership of shares
owned solely by their spouses. No director or officer owns shares of the
Corporation's Preferred Stock.
<TABLE>
<CAPTION>
PHANTOM PERCENT
COMMON EXERCISABLE STOCK OF
NAME OF BENEFICIAL OWNER STOCK OPTIONS UNITS(1) CLASS
- --------------------------------------------------------------------------------------- ------- ----------- ------- -------
<S> <C> <C> <C> <C>
Directors
Clifford L. Alexander, Jr.............................................................. 4,000(2) 6,315(10) *
Frank A. Bennack, Jr................................................................... 7,800(2) 8,108 *
Robert G. Blount....................................................................... 39,158(4) 177,600 *
Robin Chandler Duke.................................................................... 25,600(2) 6,584 *
Robert Essner.......................................................................... 23,471(5) 123,400 *
John D. Feerick........................................................................ 2,000(2) 7,832(11) *
John P. Mascotte....................................................................... 3,600(2) 7,159 *
Mary Lake Polan, M.D., Ph.D............................................................ 2,010(2) 6,678 *
Ivan G. Seidenberg..................................................................... 1,300(3) 7,791(12) *
John R. Stafford....................................................................... 297,060(6) 783,066 *
John R. Torell III..................................................................... 5,306(2) 7,254 *
William Wrigley........................................................................ 58,508(2)(7) 8,774(10) *
Named Executives
David M. Olivier....................................................................... 43,937(8) 71,200 *
Louis L. Hoynes, Jr.................................................................... 28,183(9) 90,000 *
All executive officers and directors as a group
(21 persons)......................................................................... 623,583 1,630,757 0.35%
</TABLE>
- ------------------------
* Less than one percent (1%); including exercisable options of employees.
(1) Effective May 1, 1997, the former AHPC Retirement Plan for Outside Directors
was terminated and participants therein were credited with phantom stock
units under the new AHPC Directors' Deferral Plan in an amount that is the
actuarial equivalent of the amount that would have been due to such director
under the prior plan at his/her earliest retirement date assuming
satisfaction of vesting requirements thereunder. Directors with 10 years of
board service upon the later of retirement or age 65 will be entitled to
receive in cash (lump sum or annual installments) an amount equal to the
then current value of such units. The total number of units set forth
includes additional units allocated through the deemed reinvestment of
dividends. Certain directors have also elected to defer directors' fees into
phantom stock units and such accruals have been included in the totals set
forth in the table.
(2) Includes 1,600 shares of restricted stock awarded under the 1994 Restricted
Stock Plan for Non-Employee Directors.
(3) Includes 800 shares of restricted stock awarded under the 1994 Restricted
Stock Plan for Non-Employee Directors.
(4) Includes 1,077 shares owned by Mrs. Blount. Also includes 4,200 shares of
Common Stock subject to certain restrictions ("Restricted Stock") and 17,188
additional shares held by a trust for the benefit of certain executive
officers of the Corporation under which such officers have sole voting power
but do not have dispositive power except in certain limited circumstances
(the "Restricted Stock Trust").
(5) Includes 7,361 shares owned jointly with Mrs. Essner, and 1,650 shares of
Restricted Stock and 5,969 additional shares held by the Restricted Stock
Trust.
(6) Includes 16,320 shares owned by Mrs. Stafford, and 7,425 shares of
Restricted Stock and 29,847 additional shares held by the Restricted Stock
Trust. Also includes 14,873 shares (beneficial ownership of which is
disclaimed by Mr. Stafford) owned by a charitable foundation of which Mr.
and Mrs. Stafford are trustees.
(7) Includes 31,600 shares held in joint tenancy with Mrs. Wrigley. Also
includes the following shares (beneficial ownership of which is disclaimed
by Mr. Wrigley): 5,944 shares owned by a trust of which Mr. Wrigley and Mrs.
Wrigley are co-trustees for the benefit of Mrs. Wrigley; 2,624 shares owned
by two trusts of which Mrs. Wrigley is co-trustee; 4,000 shares owned by a
foundation of which Mrs. Wrigley is an officer; and 8,740 shares owned by
Mrs. Wrigley.
7
<PAGE>
(8) Includes 10,478 shares owned by Mrs. Olivier, and 1,650 shares of Restricted
Stock and 4,992 additional shares held by the Restricted Stock Trust.
(9) Includes 1,050 shares of Restricted Stock and 4,322 additional shares held
by the Restricted Stock Trust.
(10) Includes 155.5 fully vested phantom stock units (equivalent to one share of
Common Stock per unit) under the Directors' Deferral Plan which were
acquired pursuant to deferral of fees.
(11) Includes 77.7 fully vested phantom stock units (equivalent to one share of
Common Stock per unit) under the Directors' Deferral Plan which were
acquired pursuant to deferral of fees.
(12) Includes 1,397.9 fully vested phantom stock units (equivalent to one share
of Common Stock per unit) under the Directors' Deferral Plan which were
acquired pursuant to deferral of fees.
BENEFICIAL OWNERSHIP OF 5% STOCKHOLDER
The following table reports beneficial ownership of Common Stock of the only
persons known by the Corporation to beneficially own more than 5% of its Common
Stock based upon statements on Schedule 13G filed with the Securities and
Exchange Commission.
<TABLE>
<CAPTION>
PERCENT
OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK CLASS
- ---------------------------------------------------------------------------------- ------------------ -------------
<S> <C> <C>
FMR Corp.......................................................................... 51,140,203(a) 7.87%
Edward C. Johnson 3d
Abigail P. Johnson
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- ------------------------
(a) In a Schedule 13G filing made by FMR Corp. ("FMR") on February 9, 1998, FMR,
Edward C. Johnson 3d and Abigail P. Johnson reported that, as of December
31, 1997: (i) Fidelity Management & Research Company ("Fidelity"), a
wholly-owned subsidiary of FMR and an investment advisor under the
Investment Advisors Act of 1940, is the beneficial owner of 46,746,276
shares of the Common Stock of the Corporation and Edward C. Johnson 3d and
FMR through its control of Fidelity and the funds controlled by Fidelity
each has the sole power to dispose of these shares but does not vote the
shares (which are voted by each applicable fund's Board of Trustees), (ii)
Fidelity Management Trust Company ("Fidelity Trust"), a wholly-owned
subsidiary of FMR, and a bank as defined in the Securities Exchange Act of
1934 is the beneficial owner of 3,944,377 shares of the Common Stock of the
Corporation as a result of serving as investment manager of institutional
accounts; Edward C. Johnson 3d and FMR, through its control of Fidelity
Trust, each has sole dispositive power over 3,944,377 shares and sole power
to vote or to direct the voting of 2,637,357 shares, and shared power to
vote or direct the voting over 1,040 shares of Common Stock and no power to
vote or to direct the voting of 1,305,980 shares of Common Stock owned by
the institutional accounts, and (iii) Fidelity International Limited
("FIL"), representing various foreign-based subsidiaries which provide
investment advisory and management services to a number of non-U.S.
investment companies (the "International Funds") and certain institutional
investors, is the beneficial owner of 449,550 shares of the Common Stock of
the Corporation and, although FIL is partially owned by Edward C. Johnson 3d
and members of his family, FIL has the sole power to vote and dispose of
these shares.
8
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid for the years 1995-1997
to the Corporation's Chairman, President and Chief Executive Officer and the
four other most highly paid executive officers.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
--------------------------------------------------------- COMPENSATION
FORM OF BONUS ---------------------
PAYMENT SECURITIES
---------------------- UNDERLYING
BASE TOTAL CONTINGENT OPTIONS LTIP ALL OTHER
SALARY BONUS CASH SHARES GRANTED PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(1) (#) (#) ($)(3) ($)(4)
- ----------------------------- --------- ---------- ---------- --------- ----------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John R. Stafford............. 1997 1,350,000 1,350,000 675,000 9,028 269,000 621,169 393,789
Chairman of the Board, 1996 1,230,000 1,230,000 615,000 10,292 316,400 465,780 76,063
President and Chief 1995 1,185,000 1,185,000 592,500 12,350 1,016,400 341,935 35,550
Executive Officer
Robert G. Blount............. 1997 710,000 710,000 355,000 4,748 151,200 357,744 80,386
Senior Executive Vice 1996 650,000 650,000 325,000 5,439 177,600 268,212 19,500
President 1995 628,250 628,250 314,125 6,546 457,600 196,897 18,848
Robert Essner (5)............ 1997 510,908 510,908 255,454 3,416 88,800 124,131 15,329
Executive Vice President
David M. Olivier............. 1997 495,000 495,000 247,500 3,310 35,600 107,169 14,850
Senior Vice President 1996 457,083 457,083 228,542 3,824 71,200 80,280 13,733
1995 414,650 414,650 207,325 4,320 151,200 58,935 12,440
Louis L. Hoynes, Jr.......... 1997 440,000 440,000 220,000 2,942 44,400 89,950 43,580
Senior Vice President 1996 415,000 375,000 187,500 3,138 44,400 67,463 12,450
and General Counsel 1995 407,000 407,000 203,500 4,240 94,400 49,525 12,210
</TABLE>
- ------------------------
(1) Mr. Stafford deferred until after retirement portions of his 1997, 1996 and
1995 base salaries and the entire cash portion of his 1996 and 1995 bonus;
Mr. Blount deferred a portion of his 1997 base salary and a portion of his
1996 cash bonus; and Mr. Hoynes deferred the entire cash portion of his 1996
bonus, each pursuant to the AHPC Deferred Compensation Plan.
(2) The total bonus and form of bonus payment in cash and contingent shares
under the Corporation's Management Incentive Plan are shown for services
rendered in the corresponding year. Under current policy of the Compensation
and Benefits Committee (the "Committee"), participants in the Plan who are
corporate vice presidents and above, and all U.S. employees with a base
salary of $175,000 or more may request that up to 50% of the award for any
year be paid as a cash award. All others may request that up to 100% of the
award be paid as a cash award. The remainder of the award for each year is
made as a contingent stock award which may be delivered either in the third
year following the year in respect of which the award was granted, or after
retirement or termination of employment. Deliveries of contingent stock
awards following retirement or termination of employment will generally be
made in up to ten substantially equal annual installments. Shares of Common
Stock which are contingently awarded to an employee are credited to a
contingent award account for the employee. No shares of Common Stock are
issued or earmarked for the employee's account at the time of award, nor
does he or she have any rights of a stockholder with respect to the shares
credited to the account before actual issuance and delivery of such shares.
The dividends which would have been paid during a calendar year with respect
to shares credited to an employee's contingent award account, had the shares
then been outstanding, are calculated at the end of each year, and the
employee's account is then credited with the largest full number of shares
of Common Stock which such an amount of dividends could have purchased at
the average closing market price of the Common Stock for the last five
business days of the year. Any amounts remaining are carried forward in the
employee's account and applied to the calculation of shares for that account
at the end of the next year.
(3) Amounts shown represent the value (based on the closing market price of the
Common Stock) on the date of conversion of the portion of the Restricted
Stock Performance Awards made in 1994 under the Corporation's 1993 Stock
Incentive Plan (the "1994 Awards") which, based on 1996 performance, was
converted on February 6, 1997 to shares of Restricted Stock. The 1994 Awards
were composed of units subject to conversion to shares of Restricted Stock
based on the Corporation's performance during the years 1994-1996. For 1996,
each named executive officer was entitled to be credited with shares of
Restricted Stock in an amount equal to 0%-125% of one-third of the target
number of units subject to the 1994 Awards based upon the Corporation's
achievement of a target level of earnings per
9
<PAGE>
share ("EPS") for such year. (The target number of units covered by the 1994
Awards for each of the named executive officers was 29,000 for Mr. Stafford,
16,700 for Mr. Blount, 5,800 for Mr. Essner, 5,000 for Mr. Olivier and 4,200
for Mr. Hoynes.) The amounts in the table above represent 100% of one-third
of the target numbers of units which were converted to Restricted Stock
based on 1996 performance. The restrictions on the Restricted Stock earned
pursuant to the 1994 Awards ended in May 1997 and, under the terms of such
awards, all of the shares were contributed by the Corporation to the
Restricted Stock Trust, pursuant to which actual delivery of such shares to
the named executive officers is deferred until after termination of
employment. In addition, similar Restricted Stock Performance Awards were
made to the named executive officers in 1995 and 1996 composed of the
following respective target numbers of units, which units are subject to
conversion to shares of Restricted Stock based upon the achievement of
target levels of EPS for 1997 and 1998, respectively: 9,900 and 9,900 for
Mr. Stafford, 5,600 and 5,600 for Mr. Blount, 2,200 and 2,500 for Mr.
Essner, 2,200 and 2,200 for Mr. Olivier and 1,400 and 1,400 for Mr. Hoynes.
Based upon the Corporation's EPS for 1997, 75% of the target amount of the
1995 Awards was converted to Restricted Stock in January 1998 and will be
reported under the caption "LTIP Payouts" in the Summary Compensation table
in the 1999 proxy statement. See the Long-Term Incentive Plan Awards Table
in this Proxy Statement for similar awards made in 1997.
(4) Represents contributions made by the Corporation under its Savings Plan and
Supplemental Employee Savings Plan (the Corporation matches up to 50% of the
first 6% of compensation contributed by the employee). The amounts shown for
Messrs. Stafford and Blount and Hoynes also include $353,289, $59,086, and
$30,380, respectively, for above-market interest earned during 1997 (equal
to 1.96%) on deferred compensation but not paid in 1997, including amounts
deferred on the exercise of Stock Appreciation Rights and/or options
disclosed in the Option/SAR Exercise and Year-End Value Table in this Proxy
Statement.
(5) Mr. Essner became an executive officer and director of the Corporation on
September 25, 1997.
10
<PAGE>
OPTION GRANTS TABLE
The following table provides information on Option grants in 1997 to the
named executive officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS IN 1997
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE GRANT DATE
UNDERLYING GRANTED TO PRICE PER PRESENT
OPTIONS EMPLOYEES IN SHARE ($) EXPIRATION VALUE
NAME GRANTED (1) 1997 (2) DATE ($) (3)
- --------------------------------------------- ----------- ----------------- ------------ ----------- ----------
John R. Stafford............................. 269,000 1.9% 72.4375 May 2007 3,084,990
Robert G. Blount............................. 151,200 1.1% 72.4375 May 2007 1,734,017
Robert Essner................................ 88,800 .6% 72,4375 May 2007 1,018,391
David M. Olivier............................. 35,600 .3% 72.4375 May 2007 408,274
Louis L. Hoynes, Jr.......................... 44,400 .3% 72.4375 May 2007 509,195
</TABLE>
- ------------------------
(1) These options become exercisable in one-third increments on the first,
second and third anniversaries of the date of grant (May 22, 1997) (except
that such options may be exercised earlier in the case of the optionee's
retirement, disability or death). The options are transferable at the
election of each named executive officer to members of the executive's
family or to a trust or other entity solely for the benefit of such family
members.
(2) The exercise price is the mean price on the date of grant.
(3) These estimates of value were developed solely for the purposes of
comparative disclosure in accordance with the rules and regulations of the
Securities and Exchange Commission and are not intended to predict future
prices of the Corporation's Common Stock. The estimates were developed using
a variant of the Black-Scholes option pricing model incorporating the
following assumptions: Expected volatility of 18.2% and dividend yield of
3.7%, both based on the historical three-year monthly average for the
underlying Common Stock; risk-free rate of return of 6.5% based on a four-
year zero coupon rate; and time of exercise of four years, being the
expected duration of the option. In addition, the model assumed a 3.0%
discount for forfeiture since the options are not currently exercisable.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
The following table provides information on Restricted Stock Performance
Awards granted in 1997, under the Corporation's 1996 Stock Incentive Plan, to
the named executive officers.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
PRICE-BASED PLANS
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NUMBER OF
SHARES, UNITS OR PERFORMANCE OR OTHER BELOW
OTHER RIGHTS PERIOD UNTIL THRESHOLD THRESHOLD TARGET
NAME (#)(1) MATURATION OR PAYOUT (#) (#) (#)
- ---------------------------------------- ----------------- ----------------------- --------------- ----------- ---------
John R. Stafford........................ 8,400 2000 -- 6,300 8,400
Robert G. Blount........................ 4,700 2000 -- 3,525 4,700
Robert Essner........................... 2,800 2000 -- 2,100 2,800
David M. Olivier........................ 1,100 2000 -- 825 1,100
Louis L. Hoynes, Jr..................... 1,400 2000 -- 1,050 1,400
<CAPTION>
<S> <C>
MAXIMUM
NAME (#)
- ---------------------------------------- -----------
John R. Stafford........................ 10,500
Robert G. Blount........................ 5,875
Robert Essner........................... 3,500
David M. Olivier........................ 1,375
Louis L. Hoynes, Jr..................... 1,750
</TABLE>
- ------------------------
(1) Amounts shown represent Restricted Stock Performance Awards (the "1997
Awards") made in 1997 under the Corporation's 1996 Stock Incentive Plan.
These 1997 Awards are composed of units which may be converted to a number
of shares of Restricted Stock equal to 0%-125% of the Target amounts of the
1997 Award based upon the Corporation's performance in 1999. The Target
amount will be
11
<PAGE>
earned if 96%-105% of the target EPS is achieved; the Threshold amount will
be earned if 90%-95% of the target EPS is achieved; and the Maximum amount
will be earned if over 105% of the target EPS is achieved. During the
three-year restricted period ending May 22, 2000, all of the units and
Restricted Stock will be forfeited upon termination of employment for any
reason other than death, disability or retirement (in which cases the
Restricted Stock will vest immediately and the units will be converted based
upon satisfaction of the performance criteria) unless otherwise determined
by the Committee.
OPTION/SAR EXERCISE AND YEAR-END VALUE TABLE
The following table discloses the options/SARs that were exercised by the
named executive officers during 1997 and sets forth the number and value of
their unexercised options at year-end.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND YEAR-END OPTION VALUES (1)
--------------------------------------------------------------------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES DEC. 31, 1997(#) AT DEC. 31, 1997($)
ACQUIRED ON VALUE EXERCISABLE* EXERCISABLE*
NAME EXERCISE REALIZED($) UNEXERCISABLE** UNEXERCISABLE**(2)
- -------------------------------------------------- ----------- ------------ ---------------------- --------------------
<S> <C> <C> <C> <C>
John R. Stafford.................................. 556,400(3)(8) 17,622,588 783,066* 25,323,933*
502,334**(9) 10,047,005**(9)
Robert G. Blount.................................. 186,666(4)(8) 6,398,276 177,600* 4,162,500*
244,534** 4,195,942**
Robert Essner..................................... 81,900(5) 3,188,134 123,400* 3,613,400*
168,800** 3,430,750**
David M. Olivier.................................. 111,200(6) 3,974,448 71,200* 1,668,750*
115,600** 3,214,625**
Louis L. Hoynes, Jr............................... 75,000(7)(8) 3,067,222 90,000* 2,819,619*
94,400** 2,099,125**
</TABLE>
- ------------------------
(1) Stock Appreciation Rights (SARs) were not granted to any employees of the
Corporation during 1997 and, during 1997, all unexercised SARs were
surrendered to the Corporation without additional compensation and were
cancelled.
(2) The amounts given are based on the closing market price of the Corporation's
Common Stock at December 31, 1997 which was $76.500. The closing market
price on March 2, 1998 was $93.75.
(3) Represents exercises of options/SARs (i) granted in 1994 and covering
240,000 shares at an exercise price of $29.0313 per share and (ii) granted
in 1995 and covering 316,400 shares at an exercise price of $38.1250 per
share (in each case, market value on date of grant).
(4) Represents exercises of options/SARs granted in 1995 and covering 186,666
shares at an exercise price of $38.1250 per share (market value on date of
grant).
(5) Represents exercises of options/SARs (i) granted in 1992 and covering 33,400
shares at an exercise price of $37.8125 per share, (ii) granted in 1993 and
covering 13,500 shares at an exercise price of $32.5938 per share and (iii)
granted in 1995 covering 35,000 at an exercise price of $38.1250 per share
(in each case, market value on date of grant).
(6) Represents exercises of options/SARs (i) granted in 1992 and covering 40,000
shares at an exercise price of $37.8125 per share and (ii) granted in 1995
and covering 71,200 shares at an exercise price of $38.1250 per share (in
each case, market value on date of grant).
12
<PAGE>
(7) Represents exercises of the options/SARs (i) granted in 1994 and covering
33,200 shares at an exercise price of $29.0313 per share and (ii) granted in
1995 and covering 41,800 shares at an exercise price of $38.1250 per share
(in each case, market value on date of grant).
(8) Portions of the proceeds of such exercises have been deferred at the
election of the named executive officer.
(9) Includes options covering 267,700 shares of Common Stock which were
transferred to an irrevocable trust for the benefit of members of Mr.
Stafford's family.
PENSION PLAN TABLE
The Corporation has three non-contributory defined benefit retirement plans
in which the named executives participate. One of these plans (the "Qualified
Plan") is qualified under the applicable provisions of the Internal Revenue Code
of 1986, as amended (the "Code"). The other two plans are non-qualified
supplemental retirement plans. The Supplemental Executive Retirement Plan
("SERP") provides the amount of retirement benefit which cannot be paid from the
Qualified Plan due to certain Code restrictions. The aggregate benefits payable
under the Qualified Plan and SERP are determined based upon average final
compensation (the total amount of an employee's compensation for the five
calendar years during which such employee's compensation was the highest out of
the ten year period of service ending with such employee's early or normal
retirement date, divided by five). The Executive Retirement Plan provides to
certain highly compensated employees and corporate officers an additional
retirement benefit based upon average final compensation (the total amount of an
employee's compensation for the three calendar years during which such
employee's compensation was the highest out of the ten year period of service
ending with such employee's early or normal retirement date, divided by three)
with three additional years of service added (reduced by one year for each year
the employee works beyond age 62). The retirement benefit provided by the
Executive Retirement Plan is an unreduced benefit at the retirement age of 60
and is offset by benefits provided in the Qualified Plan and SERP.
13
<PAGE>
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL 3-YEAR AVERAGE ---------------------------------------------
EARNINGS 15 20 25 30*
---------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$ 700,000....................................................... 210,000 280,000 350,000 420,000
800,000....................................................... 240,000 320,000 400,000 480,000
900,000....................................................... 270,000 360,000 450,000 540,000
1,000,000...................................................... 300,000 400,000 500,000 600,000
1,100,000...................................................... 330,000 440,000 550,000 660,000
1,200,000...................................................... 360,000 480,000 600,000 720,000
1,300,000...................................................... 390,000 520,000 650,000 780,000
1,400,000...................................................... 420,000 560,000 700,000 840,000
1,500,000...................................................... 450,000 600,000 750,000 900,000
1,600,000...................................................... 480,000 640,000 800,000 960,000
1,700,000...................................................... 510,000 680,000 850,000 1,020,000
1,800,000...................................................... 540,000 720,000 900,000 1,080,000
1,900,000...................................................... 570,000 760,000 950,000 1,140,000
2,000,000...................................................... 600,000 800,000 1,000,000 1,200,000
2,100,000...................................................... 630,000 840,000 1,050,000 1,260,000
2,200,000...................................................... 660,000 880,000 1,100,000 1,320,000
2,300,000...................................................... 690,000 920,000 1,150,000 1,380,000
2,400,000...................................................... 720,000 960,000 1,200,000 1,440,000
2,500,000...................................................... 750,000 1,000,000 1,250,000 1,500,000
2,600,000...................................................... 780,000 1,040,000 1,300,000 1,560,000
2,700,000...................................................... 810,000 1,080,000 1,350,000 1,620,000
2,800,000...................................................... 840,000 1,120,000 1,400,000 1,680,000
2,900,000...................................................... 870,000 1,160,000 1,450,000 1,740,000
3,000,000...................................................... 900,000 1,200,000 1,500,000 1,800,000
3,100,000...................................................... 930,000 1,240,000 1,550,000 1,860,000
</TABLE>
- ------------------------
* Plans recognize up to 30 years of credited service only.
The compensation covered by the retirement plans for each of the named
executives is the base salary rate at January 1, 1997 ($1,350,000 for Mr.
Stafford, $710,000 for Mr. Blount, $425,000 for Mr. Essner, $495,000 for Mr.
Olivier and $440,000 for Mr. Hoynes) plus the amount in the bonus column of the
Summary Compensation Table for 1996 for a total of $2,580,000 for Mr. Stafford,
$1,360,000 for Mr. Blount, $795,000 for Mr. Essner, $952,083 for Mr. Olivier and
$815,000 for Mr. Hoynes.
The years of service (in nearest years) as of December 31, 1997 for the
named executives are as follows: Mr. Stafford, 28 years; Mr. Blount, 23 years;
Mr. Essner, 8 years; Mr. Olivier, 31 years of which only 16 years are recognized
under the benefit formula illustrated in the table above; and Mr. Hoynes, 7
years.
The table shows the combined annual pension under the current provisions of
all retirement plans assuming retirement of an employee who has continued
employment to age 60 and assuming payment as a single life annuity. (No
reduction has been made for the Social Security offset.)
14
<PAGE>
PERFORMANCE GRAPH
The following graph shows the value as of December 31, 1997 of a $1,000
investment in the Corporation's Common Stock made on December 31, 1992 (with
dividends reinvested), as compared with similar investments based on (i) the
value of the S&P 500 Index (with dividends reinvested) and (ii) the value of a
market-weighted Peer Group Index composed of the common stock of Abbott
Laboratories, American Home Products Corporation, Bristol-Myers Squibb Company,
Johnson & Johnson, Eli Lilly and Company, Merck & Co., Inc., Pfizer Inc.,
Schering-Plough Corporation, and Warner-Lambert Company, in each case on a
"total return" basis assuming reinvestment of dividends. The market-weighted
Peer Group Index values were calculated from the beginning of the performance
period. The stock performance shown below is not necessarily indicative of
future performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AHPC COMMON STOCK S&P 500 INDEX PEER GROUP INDEX
<S> <C> <C> <C>
12/31/92 $1,000.00 $1,000.00 $1,000.00
12/31/93 $1,002.80 $1,100.10 $938.74
12/31/94 $1,020.90 $1,115.10 $1,069.82
12/31/95 $1,637.40 $1,532.60 $1,761.99
12/31/96 $2,032.20 $1,883.60 $2,172.32
12/31/97 $2,714.50 $2,511.20 $3,447.89
</TABLE>
15
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENTS AND OTHER ARRANGEMENTS
The Corporation has entered into severance agreements with certain executive
officers (including the named executive officers other than Messrs. Stafford and
Blount), which are intended to provide for continuity of management in the event
of a change in control of the Corporation. The agreements continue through
December 31, 2000 and provide that they are to be automatically extended in one
year increments, unless, not later than September 30 in any year, the
Corporation has given prior notice of termination. In such event, each of the
agreements will continue to be effective until the end of its then remaining
term. However, if a "change in control" (as defined in the agreements) occurs,
the agreements will continue in effect for a period of thirty-six (36) months
beyond such change in control. A change in control as so defined would include
any of the following events: (i) any "person", as defined in the Securities
Exchange Act of 1934, as amended, acquires 20 percent or more of the
Corporation's voting securities; (ii) the consummation of any merger or business
combination of the Corporation, sale or lease of the Corporation's assets or any
similar transaction, unless in any case the stockholders of the Corporation
retain at least 65% of the resulting entity; or (iii) a majority of the
Corporation's directors are replaced during a two-year period.
If, following a change in control, the covered executive officer is
terminated by the Corporation for any reason, other than for disability or for
cause (as defined in the agreements), or if such executive officer terminates
his or her employment for good reason (as defined in the agreements), then the
executive officer is entitled to a lump sum severance payment equal to 3 times
the sum of (a) the executive's then base salary, (b) the highest bonus awarded
to the executive under the Corporation's Management Incentive Plan in any of the
three years immediately prior to the termination year ("Bonus"), and (c) an
amount equal to the highest Black-Scholes value (determined as of the date of
grant, in accordance with the agreements), of any option grant made to such
executive in the year prior to the change in control or, if higher, thereafter.
In addition, the executive would also receive a pro-rated Bonus, calculated
through the date of termination. During the 90 day period following the
anniversary of the change in control, a voluntary termination of employment by
any of the covered executive officers will be deemed to constitute Good Reason.
In the event that any payments made in connection with a change in control
would be subjected to the excise tax imposed on excess parachute payments by the
Internal Revenue Code, the Corporation will "gross-up" the executive officer's
compensation for all such excise taxes and any federal, state and local income
tax applicable to such excise tax, penalties and interest thereon. In addition,
upon the date of termination, the executive (or the spouse or applicable
beneficiary in the event of such executive's death) will receive three
additional years of credit for age and service purposes in calculating
supplemental pension benefits using the benefit calculation provisions of the
Corporation's Retirement Plan and, to the extent such executives participate
therein, the Corporation's Supplemental Executive Retirement Plan and the
Corporation's Executive Retirement Plan. Such benefit would be further
determined without any reduction for the receipt of benefits prior to age 65 or
60, as the case may be, with respect to each plan.
For three years from the date of a covered termination, the Corporation
would either continue the executive's coverage under the Corporation's welfare
and fringe benefit plans (but excluding the Corporation's disability, pension
and 401(k) plans), perquisites and other programs in which the executive is
participating immediately prior to such termination or provide substantially
similar benefits. If, at the time of termination, such executive has already
attained age 45, the executive would also become vested in all retiree medical
coverage, life insurance and other retiree benefits; provided, however, that the
retiree medical coverage provided by the Corporation will be secondary to any
other medical coverage the executive may then have.
In addition, if any restricted stock awards or options terminate or are
forfeited upon or following the termination of the executive's employment under
the terms of any plan, the executive will receive in respect of such terminated
or forfeited stock awards or options, an amount equal to the sum of (i) the
16
<PAGE>
Cashout Value (as defined in the agreements) of all the shares covered by the
restricted stock awards so forfeited (with units converted to shares based on
the target awards), and (ii) the excess of (a) the Cashout Value of all the
shares subject to options which were so forfeited over (b) the aggregate
exercise price of the shares subject to such forfeited options. Under the terms
of the 1996 Stock Incentive Plan, outstanding options become exercisable and
restricted stock target awards vest upon a Change in Control, as defined in such
Plan.
CERTAIN LEGAL PROCEEDINGS
On January 14, 1998, the directors (other than Mr. Essner), certain officers
of the Corporation, a former director and officer of the Corporation and the
Corporation itself (as a nominal defendant) were named in a shareholder
derivative action filed in New Jersey Superior Court, Morris County (No. MRS-
L-164-98). The suit seeks to recover any losses or damages sustained by the
Corporation, as well as profits from the sale of stock by certain present and
former officers and directors, as a result of alleged intentional, reckless or
negligent breaches of fiduciary duty by the defendants. The suit alleges that
the defendants made material misstatements or omissions regarding alleged
adverse events associated with REDUX and/or PONDIMIN (and in particular an
alleged association between those two products and valvular heart disease),
exposing the Corporation to liability for personal injury lawsuits and
securities claims. In addition, in a securities fraud putative class action
filed against the Corporation and certain officers and directors on September
18, 1997 in U.S. District Court (No. 97-CV-4513 (NHP) (D.N.J.)) on behalf of
purchasers of the Corporation's Common Stock during the period from March 1,
1997 through September 16, 1997, the defendants are alleged to have made similar
misstatements and omissions. The putative class action also includes claims for
negligent misrepresentation and common law fraud and deceit. Plaintiffs seek
compensatory and punitive damages for themselves and for the class. While the
shareholder lawsuits are at a very early stage, defendants believe that the
suits are without merit and intend to defend the litigation vigorously.
REPORT OF THE COMPENSATION AND BENEFITS COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Corporation's compensation policies applicable to its executive officers
are administered by the Compensation and Benefits Committee (the "Committee") of
the Board of Directors. All members of the Committee are non-employee directors.
These compensation policies are designed to enhance the overall strength and
financial performance of the Corporation by aligning the financial interests of
the Corporation's executive officers with those of its stockholders. The three
primary components of executive compensation are base salary, awards under the
Corporation's Management Incentive Plan and annual grants of stock options and
Restricted Stock awards. The Committee recommends to the Board of Directors the
salaries of the executive officers and administers the Management Incentive Plan
and the Stock Option and Stock Incentive Plans under which employee stock
options are granted and Restricted Stock awards are made. All of these primary
components of executive compensation are reviewed for competitiveness in
relation to a group of companies in the pharmaceutical industry by an
independent consulting firm specializing in executive compensation. In certain
instances, compensation data related to consumer health care products and
chemical industry companies also are considered.
BASE SALARY
Base salaries for executive officers for 1997 were recommended by the
Committee and approved by the Board of Directors in November 1996. In
recommending these base salaries, the Committee considered, among other factors,
the financial performance of the Corporation as a whole, the successful
completion of the integration of the American Cyanamid business and the
introduction of new pharmaceutical products in 1996. The Committee also
considered the contribution of each of the executive officers. In
17
<PAGE>
addition, the Committee reviewed base salaries recommended by Mr. John R.
Stafford for executive officers other than himself and determined the base
salary recommendation for Mr. Stafford out of his presence. The Committee had
also reviewed a report of the independent compensation consulting firm (the
"Consultant's Report") with respect to its survey of compensation information,
which survey included information for all of the companies comprising the Peer
Group Index appearing on the Performance Graph in this Proxy Statement as well
as, for certain executive officers, compensation data related to consumer health
care products and chemical industry companies. The report indicated that,
overall, the proposed base salaries fall within a competitive range.
MANAGEMENT INCENTIVE PLAN AWARDS
The stockholder-approved Management Incentive Plan (the "Plan") is designed
to provide current and deferred incentive compensation to selected key employees
who contribute in a substantial degree to the success of the Corporation, thus
affording to them a means of participating in that success and an incentive to
contribute further to that success.
The Committee determines the awards to be made under the Plan to executive
officers, including Mr. Stafford, and determines and recommends to the Board the
award fund. The award fund under the Plan may not exceed 12% of the excess of
net income (as defined in the Plan) for any year over the greater of either 12%
of average net capital (as defined in the Plan) or an amount equal to $.375
multiplied by the average number of shares of Common Stock outstanding for the
year, assuming full conversion of the Corporation's Preferred Stock.
Plan participants, including executive officers, are eligible to receive an
award of up to 100% of salary. Under current Committee policy, at least 50% of
each award to executive officers who are corporate vice presidents and above and
to U.S. executives whose base salary is $175,000 or above is made in the form of
a contingent stock award to be delivered in shares of the Corporation's Common
Stock either in the third year following the year in respect of which the award
was granted or after retirement or termination of employment at the election of
each participant or as the Committee otherwise determines. The value of each
deferred contingent stock award together with its associated dividend equivalent
rights is tied to future performance because it will rise and fall with the
market price of the Corporation's Common Stock and will reflect the payment of
dividends during the deferral period. Accordingly, an important component of
executive compensation is weighted to current and deferred "bonus awards" based
on the Corporation's financial performance.
In determining amounts to be awarded to executive officers under the Plan,
the Committee takes into account a number of factors, including the
performance-related factors described below under "Relationship of Corporate
Performance to Executive Compensation," as well as individual performance and
achievement. The awards for 1997 were granted by the Committee in January 1998.
In addition, the Committee considered the amounts of previous awards in deciding
upon the awards for 1997. The Committee also reviewed the Consultant's Report
which indicated that, overall, the Management Incentive Plan awards together
with base salaries were within the competitive range.
STOCK OPTION AND INCENTIVE PLANS GRANTS
In contrast to salary and the cash portion of Management Incentive Plan
awards, the value to each executive officer of the stock option grants is tied
directly to stock price performance. The Committee grants options under the
stockholder-approved option/incentive plans with an exercise price equal to the
market price on the date of grant. If there is no appreciation in the market
price for the Corporation's Common Stock, the options are valueless.
Annual grants are made to executive officers based on salary, responsibility
and performance of the individual officer. Grants in 1997 are exercisable in
one-third increments on the first, second and third anniversary date of the date
of grant except in cases of the death, retirement or disability of the optionee.
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<PAGE>
The grants for the named executives were made by the Committee in May 1997 each
with an exercise price equal to the mean market price on the date of grant of
$72.4375.
In furtherance of the goal of aligning the interests of management with
those of the stockholders, in May 1997 the Committee also made Restricted Stock
Performance Awards to certain executives including the Chairman, President and
Chief Executive Officer. The Restricted Stock awards were granted in lieu of a
portion of the stock option award that would have been granted at a ratio of one
unit representing one share of Restricted Stock replacing options covering four
shares of Common Stock. These awards represent units which will be converted to
shares of Restricted Stock based on 1999 performance, with the maximum number of
units that may be converted equal to 125% of the total award. During the
three-year restricted period ending in May 2000, all of the units and shares of
Restricted Stock are forfeited upon termination of employment for any reason
other than death, disability or retirement (in which case the units will
continue to be converted based upon satisfaction by the Corporation of the
performance criteria), unless the Committee makes a partial or complete
exception to this requirement. Otherwise, all shares of Restricted Stock will be
free of any restrictions when the restricted period lapses. The shares are
valued at the mean between the high and low prices of the Corporation's Common
Stock on the Consolidated Transaction Reporting System on the designated date of
delivery.
In deciding to award Restricted Stock and make the annual grant of options,
the Committee considered the amounts of options and Restricted Stock awards
previously granted. The Committee also reviewed the Consultant's Report which
indicated that, taken together, the grants and awards, in most cases, were an
overall reduction by 15% over the prior year in number of option grants and
restricted stock awards and were within a competitive range.
Conversion of units to Restricted Stock for a portion of the units covered
by a Restricted Stock Performance Award made in 1995 was based on a formula
related to the relative achievement of the 1997 targeted earnings per share set
by the Committee in February 1997. As a result, 75% of the award was converted
to Restricted Stock in January 1998 based on 1997 performance.
RELATIONSHIP OF CORPORATE PERFORMANCE TO EXECUTIVE COMPENSATION
While all of the Corporation's executive officer compensation is related to
corporate performance, the awards under the Management Incentive Plan are most
closely tied to corporate performance. The maximum aggregate amount of the award
fund is based on corporate performance in the manner described under "Management
Incentive Plan Awards," above. In determining the amounts that were awarded to
the Chairman, President and Chief Executive Officer and executive officers
generally, the Committee viewed being of greatest significance the financial
performance of the Corporation. Pro forma worldwide net sales increased 5% for
1997 after adjusting for the acquisition of the worldwide animal health business
of Solvay, S.A. in 1997 and the divestitures of the American Home Foods majority
interest and the Symbiosis business in 1996. Excluding the 1997 special charges
relating to the voluntary market withdrawal of the Corporation's anti-obesity
products, the Corporation's net income and basic earnings per share for the 1997
full year of $2.16 billion and $3.34, respectively, represented increases of 15%
and 13%, respectively, over 1996 results excluding the gain on the sale of the
American Home Foods majority interest and special charges related to the
purchase of the remaining interest in Genetics Institute, Inc. The next most
significant factor considered by the Committee was the increase in shareholder
value. The Corporation's shareholder return, including dividends reinvested, for
1997 was 34%, continuing the positive trend that occurred in 1996 and 1995. The
next most significant factor considered by the Committee was the product
development activity of the Corporation, including regulatory approval to market
Neumega-Registered Trademark-, and the advisory committee recommendation to
approve Wyeth-Ayerst's vaccine against rotavirus gastroenteritis. The Committee
also viewed as significant the implementation of the Corporation's strategic
plan as evidenced by the execution of an agreement to sell the Sherwood-Davis &
Geck business for $1.77 billion and the sale of Storz Instrument Company which
was completed in December 1997 for $380 million.
19
<PAGE>
With respect to Mr. Stafford, it was the Committee's view that his vigorous
leadership was instrumental in the planning and execution of the programs and
policies that resulted in the favorable outcome of the factors considered above.
The Committee also viewed favorably his leadership activities in the worldwide
health care industry.
STOCK OWNERSHIP GUIDELINES FOR EXECUTIVE OFFICERS
Stock Ownership Guidelines ("Guidelines") have been adopted for executive
officers and other U.S. employees with annual base salaries of $175,000 or more.
Authority to administer the Guidelines was delegated to the Chairman, President
and Chief Executive Officer, who reports periodically to the Committee on the
status of compliance with the Guidelines. The Guidelines state that the Chief
Executive Officer must own shares of the Corporation's stock with a value of at
least eight times his base salary. Officers who report directly to the Chief
Executive Officer shall own shares with a value of at least six times base
salary; other employees who are members of the Finance and Operations Committees
must own shares with a value of at least four times base salary; and all other
U.S. employees with annual base salaries of $175,000 or more must own shares
with a value of at least twice base salary. As currently administered, stock
options are not counted toward compliance with the Guidelines. Full compliance
with the Guidelines by each covered person must be achieved by the later of May
1999 or five years from the date on which an individual becomes subject to the
Guidelines.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation of more than $1 million paid in
any year (not including amounts deferred) to a corporation's Chief Executive
Officer and to the four other most highly compensated executive officers.
Qualifying performance-based compensation will not be subject to the deduction
limit if certain requirements are met. The Corporation believes that all
compensation paid in 1997 will be deductible under Section 162(m).
COMPENSATION AND BENEFITS COMMITTEE
Frank A. Bennack, Jr., Chairman
Robin Chandler Duke
John D. Feerick
John P. Mascotte
ITEM 2.
APPOINTMENT OF PRINCIPAL INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee of the Board of Directors,
the Board of Directors has, subject to ratification by the stockholders,
appointed Arthur Andersen LLP as the Corporation's principal independent public
accountants for the year 1998. This firm served in such capacity in 1997 and
previously. A representative of Arthur Andersen LLP will be present at the
Annual Meeting and will be available to make such comments as may be appropriate
and to answer proper questions.
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE FOR RATIFICATION OF
THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE CORPORATION'S PRINCIPAL
INDEPENDENT PUBLIC ACCOUNTANTS FOR 1998.
20
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ITEM 3.
PROPOSED AMENDMENTS TO THE RESTATED CERTIFICATE OF INCORPORATION
On March 5, 1998, the Board of Directors of the Corporation unanimously
approved the proposed amendments to the Corporation's Restated Certificate of
Incorporation to increase the number of authorized shares of the Corporation's
Common Stock from 1,200,000,000 to 2,400,000,000 shares subject to approval by
the stockholders. On March 5, 1998, the Board of Directors also unanimously
approved a two-for-one stock split in the form of a stock dividend of the Common
Stock subject to the approval by the stockholders of the proposed amendments to
the Corporation's Restated Certificate of Incorporation (the "Stock Split"). An
increase in the number of authorized shares of Common Stock is necessary for the
Stock Split to be effected. If the proposed amendments are not approved by the
stockholders of the Corporation, the stock split will not be effected.
In addition, the Board also unanimously approved an amendment to increase
the number of votes per share of the Corporation's $2 Convertible Preferred
Stock (the "Preferred Stock") from eighteen to thirty-six votes per share of
Common Stock when voting with the Common Stock. This will prevent dilution of
the voting rights of the Preferred Stock when the Stock Split is effected.
The Board of Directors believes that the Stock Split and the related
amendment to the Corporation's Restated Certificate of Incorporation to increase
the Corporation's authorized shares of Common Stock are in the best interests of
the Corporation and its stockholders because it will place the market price of
the Common Stock in a range more attractive to investors, particularly
individuals, and may broaden the market for, and increase the liquidity of, the
Corporation's Common Stock. The amendments will permit the Corporation to effect
the Stock Split, and will provide additional shares of Common Stock which could
be used for various purposes without requiring further stockholder approval
unless necessitated by applicable law, regulation or stock exchange rule. The
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock and Preferred Stock, voting together as a single class, is required
for the adoption of the proposed amendments. The text of the proposed amendments
is set forth in Exhibit I.
In addition to permitting the Stock Split, the additional shares would be
available for general corporate purposes, including use in financing
transactions, acquisitions, stock dividends, further stock splits and employee
stock option and other stock ownership plans. Except for the Stock Split,
management of the Corporation has no plan, agreement or understanding at the
present time for the issuance or use of the additional shares of Common Stock to
be authorized by the amendments. No holders of any class of stock of the
Corporation are entitled as a matter of right to any preemptive or subscription
rights with respect to any shares of the Corporation's capital stock. The
Corporation intends to apply to list the additional shares to be issued as a
result of the Stock Split on the New York Stock Exchange.
If the amendments are approved and the Stock Split is effected, one
additional share of Common Stock will be issued for each issued share of Common
Stock (including treasury shares) and one additional share of Common Stock will
be reserved for each share currently reserved for issuance upon conversion of
the Corporation's series of $2.00 Convertible Preferred Stock. In such event,
the Corporation intends to use the Direct Registration System to issue the
additional shares. Through "book-entry" form, each stockholder's account will be
credited with an additional share of Common Stock for each share registered in
such person's name on April 24, 1998, the record date established by the Board
of Directors for the Stock Split. It is anticipated that on May 5, 1998 the
additional shares will be registered on the books of the Corporation maintained
by its transfer agent. Promptly thereafter, an account statement will be mailed
to each stockholder setting forth, among other things, the number of shares so
registered and credited to such stockholder's account. Upon request, a physical
stock certificate will be mailed to any such stockholder and the account
statement will be accompanied by instructions for making such request.
Certificates currently representing outstanding shares will continue to be valid
and should not be destroyed.
21
<PAGE>
A total of approximately 711,000,000 additional shares of Common Stock will
be issued as a result of the Stock Split. The additional shares of Common Stock
resulting from the Stock Split will have one vote per share and the par value of
the Common Stock will remain $.33 1/3 per share. The Stock Split will not affect
the validity of Common Stock certificates already outstanding. Share
certificates for Common Stock outstanding on the record date will continue
thereafter to represent the same number of shares of Common Stock indicated on
the certificate.
The aggregate number of shares that may be sold under the Corporation's
stock option, stock incentive and restricted stock plans (the "Plans"), the
number of shares covered by outstanding options and restricted stock awards
under the Plans and the exercise price of each such option will be
proportionately adjusted to reflect the Stock Split. The aggregate number of
shares of Common Stock that may be issued under the Management Incentive Plan
and the number of shares of Common Stock credited under contingent award
accounts will be proportionately adjusted to reflect the Stock Split. Other
appropriate adjustments will be made to the Corporation's benefit plans to
reflect the impact of the Stock Split.
None of the data in this proxy statement with respect to outstanding stock,
stock options, restricted stock or the exercise prices of stock options has been
adjusted to give effect to the Stock Split.
Under existing law and regulation, the Stock Split will not result in any
gain or loss or any other form of taxable income to the stockholders for federal
income tax purposes. The laws of jurisdictions other than the United States may
impose income taxes on the issuance of the additional shares in connection with
the Stock Split and stockholders subject to those laws are urged to consult
their tax advisors. A stockholder's basis in his or her shares held before the
Stock Split will be allocated between such shares and the new shares for the
purpose of determining future gain or loss on a sale of any of the shares and
the holding period of new shares will include the holding period of the shares
with respect to which they were issued.
After the Stock Split, purchases and sales of Common Stock by an individual
stockholder may be subject to somewhat higher brokerage charges and applicable
stock transfer taxes than on a pre-split transaction of equivalent market value,
due to the greater number of shares of Common Stock outstanding after the Stock
Split held by each such stockholder. In addition, the Corporation will incur
certain expenses in connection with the Stock Split, such as listing fees and
the cost of preparing and delivering to stockholders share account statements or
new certificates representing the additional shares.
In connection with the Stock Split, a transfer of $.33 1/3 cents for each
additional share of Common Stock issued will be made to the Corporation's
capital account as of May 5, 1998, the date on which stockholders will be
entitled to the additional shares, so that the additional shares to be issued
will be fully paid. The amounts so transferred will no longer be available for
distribution to stockholders as dividends.
Although an increase in the authorized shares of Common Stock could, under
certain circumstances, have an anti-takeover effect (for example, by diluting
the stock ownership of a person seeking to effect a change in the composition of
the Board of Directors or contemplating a tender offer or other transaction for
the combination of the Corporation with another company), immediately after the
Stock Split, the number of shares of Common Stock available for future issuance
would be, on a proportionate basis, the same as the number of shares of Common
Stock available for future issuance prior to the Stock Split. This proposal to
amend the Restated Certificate of Incorporation is not in response to any effort
of which the Corporation is aware to accumulate the Corporation's stock or
obtain control of the Corporation, nor is it part of a plan by management to
recommend a series of similar amendments to the Board of Directors and
stockholders.
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE FOR APPROVAL OF THE
AMENDMENTS TO THE RESTATED CERTIFICATE OF INCORPORATION.
22
<PAGE>
STOCKHOLDER PROPOSAL
A Stockholder of the Corporation has informed management of the intention to
present the resolution set forth below for consideration at the Annual Meeting.
The name, address and the number of shares held such Stockholder will be
promptly furnished orally or in writing, as requested, by the Corporation to any
person upon receipt of any oral or written request. Such request may be directed
to Eileen M. Lach, Secretary of the Corporation.
ITEM 4.
STOCKHOLDER PROPOSAL ON DIRECTORS ACCEPTING
CONSULTING FEES
BE IT RESOLVED: That the shareholders of American Home Products Corporation
(or "Company") urge that the Board of Directors establish a clear and
unequivocal policy that members of the Board refrain from accepting consulting
or other fees from the Company, either individually or through any associated
business entity, while they serve on the Board of Directors.
SUPPORTING STATEMENT
The Board of Directors should play an independent role in helping to
determine overall corporate policy and strategic direction. They should actively
monitor senior management in faithfully implementing these policies. In their
capacity on the Board, Directors owe their fundamental allegiance to the
shareholders of the corporation--the owners who elect them, and not to
management.
We believe, however, that certain financial relationships can adversely
affect the ability of Directors to function in their appropriate oversight role.
This is especially critical for so-called outside directors who are not
employee/Directors and who should bring a certain arms-length objectivity to
Board deliberations. The Company currently utilizes the services of a firm with
which one of our Directors is a part-owner, and has paid another Director to
lecture and participate on a company-sponsored Advisory Board. The large fees
collected by these Directors reflect a business relationship with our Company
which is a clear financial benefit to these Directors.
Shareholder confidence in our Directors is absolutely critical to a properly
functioning Board. We believe that these Directors, as our elected
representatives, have a serious potential conflict of interest.
Others share our concern regarding the independence and integrity of
Directors who have lucrative financial arrangements with companies on whose
Boards they sit. The National Association of Corporate Directors has issued a
Report on principles and best practices on director compensation, which states:
Boards should adopt a policy stating that a company should not hire
a director or a director's firm to provide professional or financial
services to the corporation. The director's role is distinct and
separate from that of a consultant; both roles can be severely
compromised through commingling....
Simply put, our Directors should not attempt to serve two masters at once;
they should decide whether they can best serve our Company as Directors or as
consultants but not both.
We urge support for adoption of this proposal.
AMERICAN HOME PRODUCTS RESPONSE
THE BOARD OF DIRECTORS AND MANAGEMENT DO NOT AGREE WITH THE FOREGOING
PROPOSAL AND RECOMMEND A VOTE AGAINST IT FOR THE FOLLOWING REASONS:
23
<PAGE>
The Proposal seeks to prohibit members of the Corporation's Board of
Directors (and their associated business entities) from accepting any consulting
or other fees from the Corporation for services outside of the scope of their
duties as directors. In the view of the Board of Directors and management, this
absolute prohibition is unnecessary and should not be adopted.
The Board believes that it can maintain a substantial degree of independence
from management without adopting the rigid approach set forth in the Proposal.
Historically, the Corporation has not relied extensively upon its non-employee
directors or their associated business entities to provide services to the
Corporation. In fact, there are no consulting or similar arrangements between
any director and the Corporation under which a director or an associated
business enterprise is currently being compensated, except for one director who
has been paid a nominal aggregate amount in honoraria for speaking engagements
organized by educational and charitable groups of which the Corporation is one
of the sponsors. Nevertheless, the Board and management believe that it is
appropriate for the Corporation to have the flexibility to obtain the services
of its directors or their firms when it is deemed to be in the Corporation's
best interests to do so.
The Board of Directors and management agree with the principles set forth in
the STATEMENT ON CORPORATE GOVERNANCE issued by The Business Roundtable in
September 1997. This Statement acknowledges that a business or personal
relationship between a non-employee director and a corporation may affect the
actual or perceived independence of the director and recommends that:
[W]here such relationships exist, boards should be mindful of them and
make a judgment about a director's independence based on his or her
individual circumstances rather than through the mechanical application
of rigid criteria. This would involve consideration of whether the
relationships are sufficiently significant as to interfere with the
director's exercise of independent judgment. If a particular director is
not deemed sufficiently independent, the board may nevertheless conclude
that the individual's role on the board remains highly desirable (as in
the case of an inside director) in the context of a board composed of a
majority of directors with the requisite independence. The overall
result should be a board that, as a whole, represents the interests of
stockholders with appropriate independence.
For the reasons stated above, the Board of Directors and management believe
that the Proposal is not in the best interests of the Corporation and its
stockholders.
ACCORDINGLY, THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE AGAINST
THIS STOCKHOLDER PROPOSAL.
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1999 Annual Meeting
must be received by the Corporation at its principal executive offices on or
before November 25, 1998 in order to be considered for inclusion in the
Corporation's Proxy Statement and form of proxy relating to that meeting.
OTHER MATTERS
Management knows of no other matters to be brought before the Annual
Meeting, but if other matters come before the meeting, it is the intention of
the persons named in the accompanying proxy to take such action as in their
judgment is in the best interest of the Corporation and its stockholders.
The Corporation will bear the expenses in preparing, printing and mailing
the proxy materials to the stockholders. In addition, the Corporation will
retain D.F. King & Co., Inc., New York, NY, to aid in the solicitation of
proxies, for which such firm will be paid a fee of $20,000 plus out-of-pocket
expenses and disbursements. In addition, officers and employees of the
Corporation and its subsidiaries may request the return of proxies by telephone,
telegram or in person, for which no additional compensation will be paid to
them.
24
<PAGE>
The Annual Report of the Corporation for the year ended December 31, 1997,
including financial statements, has been mailed to stockholders.
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, IT IS IMPORTANT THAT YOUR STOCK
BE REPRESENTED AT THE MEETING IN ORDER THAT THE PRESENCE OF A QUORUM CAN BE
SECURED. IF YOU ARE UNABLE TO ATTEND THE MEETING, YOU ARE URGED TO SUBMIT YOUR
PROXY BY TELEPHONE IF POSSIBLE OR TO DATE AND SIGN YOUR PROXY AND RETURN IT
WITHOUT DELAY IN THE ENCLOSED ADDRESSED ENVELOPE. THE SHARES REPRESENTED BY EACH
PROXY SO SIGNED AND RETURNED OR SUBMITTED BY TELEPHONE WILL BE VOTED IN
ACCORDANCE WITH THE STOCKHOLDER'S DIRECTIONS.
By Order of the Board of Directors
EILEEN M. LACH
SECRETARY
March 25, 1998
25
<PAGE>
EXHIBIT I
AMENDMENTS TO RESTATED CERTIFICATE OF INCORPORATION
Amendments to the following sections of the Restated Certificate of
Incorporation are reflected by showing additions set off by--double hyphen
marks--; deleted material is reflected [in brackets].
1. The first sentence of the first paragraph of Article FOURTH of the
Restated Certificate of Incorporation of the Corporation is hereby amended in
its entirety to read as follows:
"The total number of shares of Capital Stock which may be issued by the
corporation is [One Billion Two Hundred Five Million (1,205,00,000)]--Two
Billion Four Hundred and Five Million (2,405,000,000)-- of which [One Billion
Two Hundred Million (1,200,000,000)]--Two Billion Four Hundred Million
(2,400,000,000) shares--shall be Common Stock, par value of Thirty-three and
one-third cents (33 1/3 CENTS) per share and Five Million (5,000,000) shares
shall be Preferred Stock (hereinafter referred to as the "Preferred Stock"), par
value of Two Dollars fifty cents ($2.50) per share."
2. The first sentence of subdivision (g) of Section VII of such Article
FOURTH is hereby amended in its entirety to read as follows:
"The shares of such series shall be entitled to [Eighteen (18)]--thirty-six
(36)--votes per share voting with the shares of Common Stock at any annual or
special meeting of stockholders for the election of directors and upon any other
matter coming before such meeting."
26
<PAGE>
- --------------------------------------------------------------------------------
AMERICAN HOME PRODUCTS CORPORATION
FIVE GIRALDA FARMS
MADISON, NEW JERSEY 07940
This Proxy is solicited on Behalf of the Board of Directors and Management.
The undersigned hereby appoints JOHN R. STAFFORD, LOUIS L. HOYNES, JR. and
EILEEN M. LACH and each of them proxies with power of substitution, to represent
and to vote, as designated below, on behalf of the undersigned at the Annual
Meeting of Stockholders of the Corporation to be held on April 23, 1998 and at
any adjournment thereof on each of the following matters, as set forth in the
Proxy Statement, and upon such other matters properly coming before the meeting.
(Continued and to be signed if voting by mail on the reverse side or follow the
instructions to vote by telephone)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOU CAN VOTE YOUR SHARES IN ONE OF TWO WAYS
1. This proxy when properly executed will be voted in the manner directed
by the stockholder. If no direction is given, this proxy will be
voted FOR Items 1, 2 and 3 and AGAINST Item 4.
OR
2. Call toll-free 1-800-840-1208 24 hours a day, 7 days a week on a Touch
Tone telephone and follow the instructions.
PLEASE VOTE
<PAGE>
Please mark
Optional Secret Proxy / / your votes as /X/
indicated in
this example
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND YOU VOTE "FOR" ITEMS 1, 2 AND 3.
<S> <C>
WITHHELD AUTHORITY TO
Item 1 - ELECTION OF DIRECTORS: FOR VOTE FOR ALL NOMINEES FOR AGAINST ABSTAIN
/ / / / Item 2 APPOINTMENT OF INDEPEN- / / / / / /
Nominees: DENT PUBLIC ACCOUNTANTS
C.L. Alexander, Jr., F.A. Bennack, Jr., R.G. Blount,
R.C. Duke, R. Essner, J.D. Feerick, J.P. Mascotte, FOR AGAINST ABSTAIN
M.L. Polan, I.G. Seidenberg, J.R. Stafford, Item 3 - AMENDMENTS TO THE / / / / / /
J.R. Torell III and W. Wrigley RESTATED CERTIFICATE OF
INCORPORATION
WITHHELD FOR: (Write that nominee s name in the space provided below): THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND
A VOTE "AGAINST" ITEM 4.
- ---------------------------------------------------------- Item 4 - STOCKHOLDER PROPOSAL FOR AGAINST ABSTAIN
ON DIRECTORS ACCEPTING / / / / / /
CONSULTING FEES
Signature ____________________________________Signature ____________________________________ Date__________________________________
NOTE: Please sign exactly as the name appears above. When shares are held by joint owners, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign full
corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person.
- -----------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>
VOTE BY TELEPHONE
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card.
- - You will be asked to enter a Control Number which is located in the box in
the lower right hand corner of this form.
- --------------------------------------------------------------------------------
OPTION #1: To vote as the Board of Directors recommends on ALL proposals:
Press 1.
- --------------------------------------------------------------------------------
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
- --------------------------------------------------------------------------------
OPTION #2: If you choose to vote on each proposal separately, Press 0. You
will hear these instructions:
- --------------------------------------------------------------------------------
Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL
nominees, press 9.
To withhold FOR AN INDIVIDUAL nominee, press 0 and listen to
the instructions.
Proposal 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
The Instructions are the same for all remaining proposals.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
- --------------------------------------------------------------------------------
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF YOU VOTED BY PHONE.
- --------------------------------------------------------------------------------
CALL TOLL FREE ON A TOUCH TONE TELEPHONE
1-800-840-1208 - ANYTIME
There is NO CHARGE to you for this call.
