.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31,1997 1-1225
AMERICAN HOME PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2526821
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Five Giralda Farms, Madison, NJ 07940-0874
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (973) 660-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On
Title of Each Class Which Registered
$2 Convertible Preferred Stock, $2.50 par value New York Stock Exchange
Common Stock, $.33 - 1/3 par value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. (The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing).
Aggregate market value at March 2, 1998 $61,446,876,563
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date (applicable only to
corporate registrants).
Outstanding at
March 2, 1998
Common Stock, $.33 - 1/3 par value 654,924,364
Documents incorporated by reference: list hereunder the following documents if
incorporated by reference and the part of the Form 10-K into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statements; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933 (the listed documents should be clearly
described for identification purposes).
(1) 1997 Annual Report to Shareholders - In Parts I, II and IV
(2) Proxy Statement filed March 25,1998 - In Part III
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PART I
ITEM 1. BUSINESS
General
American Home Products Corporation (the "Company"), a Delaware
corporation organized in 1926, is currently engaged in the discovery,
development, manufacture, distribution and sale of a diversified line
of products in two primary business segments: health care products
and agricultural products. Health care products include branded and
generic ethical pharmaceuticals, biologicals, nutritionals, consumer
health care products, and animal biologicals and pharmaceuticals.
Agricultural products include crop protection and pest control
products such as herbicides, insecticides, fungicides and plant growth
regulators. The Company holds a majority interest in Immunex
Corporation, a biopharmaceutical company whose stock is publicly
traded.
In February 1998, the Company sold the Sherwood-Davis & Geck medical
devices business to a subsidiary of Tyco International Ltd. for
approximately $1.77 billion. This transaction completed the Company's
exit from the medical devices business.
In December 1997, the Company sold the stock of Storz Instrument
Company and affiliated companies, a global manufacturer and marketer
of ophthalmic products, and certain assets relating to the Storz
business for $380 million.
In February 1997, the Company acquired the worldwide animal health
business of Solvay S.A. for approximately $460 million.
In December 1996, the Company acquired the remaining equity interest
in the biopharmaceutical company Genetics Institute, Inc. ("G.I.")
that it did not already own for approximately $1.3 billion.
In November 1996, the Company sold a majority interest in the American
Home Foods business for approximately $1.2 billion. The Company
retained a 20% equity interest in International Home Foods, the
successor to American Home Foods. In November 1997, the Company sold
a portion of the 20% equity interest in International Home Foods.
In late 1994, the Company acquired the outstanding common stock of
American Cyanamid Company ("Cyanamid"). The aggregate purchase price
to acquire all of Cyanamid including acquisition-related fees and
expenses was approximately $9.6 billion.
Additional information relating to the G.I., Solvay S.A. and Cyanamid
acquisitions, the American Home Foods, Sherwood-Davis & Geck and Storz
dispositions, and certain other acquisitions and divestitures is set
forth in Notes 2 and 3 of the Notes to Consolidated Financial
Statements in the Company's 1997 Annual Report to Shareholders and is
incorporated herein by reference.
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Unless stated to the contrary, or unless the context otherwise
requires, references to the Company in this report include American
Home Products Corporation and its majority-owned subsidiaries.
Industry Segments
Financial information, by industry segment, for the three years ended
December 31, 1997 is set forth in Note 11 of the Notes to Consolidated
Financial Statements in the Company's 1997 Annual Report to
Shareholders and is incorporated herein by reference.
The Company is not dependent on any single or major group of customers
for its sales. The Company currently manufactures, distributes and
sells a diversified line of products in two primary industry segments.
The product designations appearing in differentiated type herein are
trademarks.
HEALTH CARE PRODUCTS -
Pharmaceuticals - This sector includes a wide variety of ethical
pharmaceutical and biological products for human and veterinary use
which are promoted and sold worldwide primarily to wholesalers,
pharmacies, hospitals, managed care organizations and physicians.
Some of these sales are made to large buying groups representing
certain of these customers. Principal product categories for human
use and their respective products are: women's health care including
PREMARIN, PREMPRO, LO/OVRAL (marketed as MIN-OVRAL internationally),
NORDETTE and TRIPHASIL (marketed as TRINORDIOL internationally);
infant nutritionals (international markets only); cardiovascular
including CORDARONE and ZIAC; mental health including ATIVAN and
EFFEXOR; anti-inflammatory and gastroenterology including LODINE,
ORUVAIL, ZOTON (international markets only) and NAPRELAN; anti-
infectives including MINOCIN, SUPRAX and ZOSYN (marketed as TAZOCIN
internationally); vaccines including HIBTITER; biopharmaceuticals
including recombinant Factor VIII; and oncology therapies. In
addition, the Company markets generic pharmaceutical products.
Principal animal health product categories include vaccines,
pharmaceuticals (including anthelmintics), endectocides and growth
implants. The Company manufactures these products in the United
States and Puerto Rico and in 22 foreign countries.
Sales of women's health care products in the aggregate accounted for
more than 10% of consolidated net sales in 1997, 1996 and 1995.
Except for sales of women's health care products, no single
pharmaceutical product or other category of products accounted for
more than 10% of consolidated net sales in 1997, 1996 or 1995. The
operating income before taxes from the women's health care products
in the aggregate, and the PREMARIN family of products individually,
accounted for more than 10% of consolidated operating income before
taxes in 1997, 1996 and 1995.
Consumer health care - Principle over-the-counter health care product
categories and their respective products are: analgesics including
ADVIL; cough/cold/allergy remedies including ROBITUSSIN and DIMETAPP;
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vitamins and mineral supplements including CENTRUM; hemorrhoidal;
antacids; and asthma relief items. These products are generally sold
to wholesalers and retailers, and are primarily promoted to consumers
worldwide through advertising. These products are manufactured in the
United States and Puerto Rico and in 17 foreign countries.
No single consumer health care product or category of products
accounted for more than 10% of consolidated net sales or operating
income before taxes in 1997, 1996 or 1995.
Medical Devices - In February 1998, the Company sold the Sherwood-
Davis & Geck medical devices business to a subsidiary of Tyco
International Ltd. This transaction completed the Company's exit from
the medical devices business. Principal products in this sector
included MONOJECT needles and syringes, ARGYLE tubes, catheters and
chest drainage devices, DAVIS & GECK wound closure products, tympanic
and predictive thermometers, ophthalmic surgical equipment and vision
care products, exercise equipment, cardiopulmonary instrumentation and
devices, enteral feeding systems and access devices, microsurgical
equipment and other hospital products which were promoted and sold
worldwide, principally to physicians, hospitals, other health care
institutions and wholesalers. Buying groups also represented certain
of these customers. In addition to the United States and Puerto Rico,
these products were manufactured in 10 foreign countries.
No single medical device product or category of products accounted for
more than 10% of consolidated net sales or operating income before
taxes in 1997, 1996 or 1995.
AGRICULTURAL PRODUCTS -
Principal agricultural product categories and their respective
products are: herbicides including PURSUIT (marketed as PIVOT
internationally), PROWL (marketed as STOMP internationally) and
SCEPTER; insecticides including COUNTER; and fungicides which are
promoted to consumers worldwide and generally sold directly to
wholesalers and retailers. In addition to the United States and Puerto
Rico, these products are manufactured in eight foreign countries.
No single agricultural product or category of products accounted for
more than 10% of consolidated net sales or operating income before
taxes in 1997, 1996 or 1995.
FOOD PRODUCTS -
In November 1996, the Company sold a majority interest in the American
Home Foods business. Products in this segment included prepared
pastas and other entrees, regional specialty foods, condiments, snack
products, spreadable fruit products and other food products which were
promoted to consumers through advertising and generally sold directly
to wholesalers and retailers. The Company retained a 20% equity
interest in International Home Foods, the successor to American Home
Foods. In November 1997, the Company sold a portion of the 20% equity
interest in International Home Foods.
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No single food product or category of products accounted for more than
10% of consolidated net sales or operating income before taxes in 1996
or 1995.
Sources and Availability of Raw Materials
Generally, raw materials and packaging supplies are purchased in the
open market from various outside vendors. The loss of any one source
of supply would not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Patents and Trademarks
The Company owns, has applications pending for, and is licensed under
many patents relating to a wide variety of products. The Company
believes that its patents and licenses are important to its business,
but no one patent or license (or group of related patents or licenses)
currently is of material importance in relation to its business as a
whole.
In the pharmaceuticals business, most of the Company's major products
are not protected by patents. The non-steroidal anti-inflammatory
("NSAID") LODINE ceased to be under patent protection in the United
States in 1997. LODINE XL, a product extension of LODINE, will have
patent protection until 2007. The anti-depressant EFFEXOR will have
patent protection into 2007. TETRAMUNE, a combination vaccine, will
have patent protection until 2007. SUPRAX, a third-generation
cephalosporin antibiotic, remains under patent protection until 2002.
VERELAN, a calcium channel blocker, will have patent protection until
2006. PREMPRO, a combination estrogen and progestin product, will
have patent protection until 2006. Concentrated recombinant human
antihemophilic factor (Factor VIII), a product that helps regulate
activation of the body's coagulation pathway, will have patent
protection until 2014.
Sales in the consumer health care business are largely supported by
the Company's trademarks and brand names. These trademarks and brand
names are a significant part of the Company's business and have a
perpetual life as long as they remain in use. See "Competition" below
for a discussion of generic and store brands competition.
In the Agricultural Products segment, the imidazolinone herbicide
products SCEPTER and PURSUIT will have patent protection until at
least 2006.
Seasonality
Sales and results of operations of the U.S. agricultural products
business are seasonal and tend to be heavily concentrated in the first
six months of each year. Sales of consumer health care products are
affected by seasonal demand for cold/flu products and, as a result,
second quarter results for consumer health care products tend to be
lower than results in other quarters.
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Competition
HEALTH CARE PRODUCTS -
The Company operates in the highly competitive health care industry
which includes the ethical pharmaceutical, animal health and consumer
health care businesses. Within the ethical pharmaceutical and animal
health businesses, the Company has many major multi-national
competitors and numerous other smaller domestic and foreign
competitors. Based on net sales, the Company believes it ranks within
the top 10 major competitors within the ethical pharmaceutical
business category and, with the acquisition of the Solvay S.A. animal
health business in the first quarter of 1997, the Company believes it
ranks within the top five major competitors within the animal health
business category. The consumer health care business also has many
competitors. Based on net sales, the Company believes it ranks
within the top five major competitors within this business category.
The Company's competitive position in the Health Care Products segment
is affected by several factors including resources available to
develop, enhance and promote products, customer acceptance, product
quality, patent protection, development of alternative therapies by
competitors, scientific and technological advances and governmental
actions affecting pricing and generic substitutes. For prescription
products, the growth of managed care organizations, such as health
maintenance organizations ("HMOs") and pharmaceutical benefit
management companies, has resulted in increased competitive pressures.
The continued growth of generic substitutes is further promoted by
legislation, regulation and various incentives enacted and promulgated
in both the public and private sectors.
PREMARIN, the Company's conjugated estrogens product, which has not
had patent protection for many years, contributes significantly to
sales and results of operations. PREMARIN currently is not subject to
generic competition in the United States, and, on May 5, 1997, the
U.S. Food and Drug Administration (FDA) announced that it would not
approve synthetic conjugated estrogens products at this time because
these products have not been shown to contain the same active
ingredient as PREMARIN. The FDA further stated that, until the full
composition of PREMARIN is determined, a synthetic generic version
cannot be approved, although a generic product derived from the same
natural source could be approved earlier under certain circumstances.
Although the Company believes that, as a result of this announcement,
PREMARIN is not likely to face generic competition in the near term,
it cannot predict the timing or outcome of continued efforts to obtain
approval for a generic conjugated estrogens product. While the
introduction of generic competition ordinarily is expected to
significantly impact the market for a brand name product, the extent
of such impact on PREMARIN and related products cannot be predicted
with certainty due to a number of factors, including the nature of the
product and the recently introduced combination estrogen and progestin
products in the PREMARIN family.
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Health care costs will continue to be the subject of attention in
both the public and private sectors in the U.S. Similarly, in
international markets, health care spending is subject to increasing
governmental review, much of which is focused on pharmaceutical
prices. While the Company cannot predict the impact that any future
health care initiatives may have on the Company's worldwide results of
operations, the Company believes that the pharmaceutical industry will
continue to play a very positive role in helping to contain global
health care costs through the development of innovative products.
The growth of generic and store brands continued to impact some of the
Company's consumer health care branded product line categories in 1997
and is expected to continue during 1998.
AGRICULTURAL PRODUCTS -
The Company operates in the highly competitive agrochemical industry.
The Agricultural Products segment has over 40 competitors worldwide
and ranks in the top 10 based on net sales. Among these companies,
the top 10 competitors are multi-national, representing over 70% of
the sales in the agrochemical market. Competitive factors include
product efficacy, distribution channels and resource availability for
development of new products and improvement of existing ones. There
can also be generic competition when products are no longer patent
protected.
GENERAL -
In all business segments, advertising and promotional expenditures are
significant costs to the Company and are necessary to effectively
communicate information concerning the Company's products to health
professionals, to the trade and to consumers.
Research and Development
Worldwide research and development activities are focused on
developing and bringing to market new products to treat and/or prevent
some of the most serious health care and agricultural problems.
Research and development expenditures totaled $1,558,035,000
in 1997, $1,429,056,000 in 1996 and $1,354,963,000 in 1995 with
approximately 80% of these expenditures in the ethical pharmaceutical
area in 1997.
The Company currently has 4 New Drug Applications and 28 Supplemental
Drug Applications filed with the FDA for review, and 98 active
Investigational New Drug Applications and two Biologics License
Applications pending. During 1997, several major collaborative
research and development arrangements were commenced or continued with
other pharmaceutical and biotechnology companies. Additionally, the
animal health business has 78 Veterinary Biologics License
Applications awaiting approval by the United States Department of
Agriculture ("USDA") and the Agricultural Products segment has 49
applications for new products and/or expanded use of existing products
awaiting approval by the United States Environmental Protection Agency
("EPA"). The extent of subsequent contributions from these potential
products, if any, cannot presently be predicted.
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During 1997, the Company received FDA approval for the mental health
product EFFEXOR XR, the pain and anti-inflammatory products DURACT and
SYNVISC, the cardiovascular blood thinner NORMIFLO, the oral
contraceptive ALESSE, the progesterone gel CRINONE, BENEFIX
coagulation Factor IX (Recombinant), the platelet factor product
NEUMEGA, the animal health care product DICURAL, a new fluroquinolone
antibiotic for the treatment of serious infections in dogs, the equine
dewormer and boticide product QUEST, the canine heartworm preventive
product PROHEART and the OTC product Children's ADVIL Grape
Suspension. The EPA also approved the Company's LIGHTNING and RAPTOR
herbicide products.
Regulation
The Company's various health care and agricultural products are
subject to regulation by government agencies throughout the world.
The primary emphasis of these requirements is to assure the safety and
effectiveness of the Company's products. In the United States, the
FDA, under the Federal Food, Drug and Cosmetic Act and the Public
Health Service Act, regulates many of the Company's health care
products, including human and animal pharmaceuticals, vaccines and
consumer health care products. The U.S. Department of Agriculture
("USDA") regulates the Company's domestic animal vaccine products.
The FDA's powers include the imposition of criminal and civil
sanctions against companies, including seizures of regulated products
and criminal sanctions against individuals. The FDA's enforcement
powers also include its inspection of the numerous facilities operated
by the Company. To facilitate compliance, the Company from time to
time may institute voluntary compliance actions such as product
recalls when it believes it is appropriate to do so. In addition,
many states have similar regulatory requirements. Most of the
Company's pharmaceutical products, and an increasing number of its
consumer health care products, are regulated under the FDA's new drug
approval processes, which mandate pre-market approval of all new
drugs. Such processes require extensive time, testing and
documentation for approval, resulting in significant costs for new
product introductions. The Company's pharmaceutical business is also
affected by the Controlled Substances Act, administered by the Drug
Enforcement Administration, which regulates strictly all narcotic and
habit-forming drug substances. In addition, in the foreign countries
where the Company does business, it is subject to regulatory and
legislative climates that, in many instances, are similar to or more
restrictive than that described above. The Company devotes
significant resources to dealing with the extensive federal, state and
foreign regulatory requirements applicable to its products.
Federal law also requires drug manufacturers to pay rebates to state
Medicaid programs in order for their products to be eligible for
federal matching funds under the Social Security Act. Additionally, a
number of states are, or may be, pursuing similar initiatives for
rebates and other strategies to contain the cost of pharmaceutical
products. The federal Vaccines for Children entitlement program
enables states to purchase vaccines at federal vaccine prices and
limits federal vaccine price increases in certain respects. Federal
and state rebate programs are expected to continue.
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The manufacture and sale of pesticides are regulated by the EPA. No
new pesticide and no existing pesticide for a new use may be
manufactured, processed or used in the United States without prior
notice to or approval of the EPA. Outside the United States,
agricultural chemicals are regulated by various agencies, often by
standards which differ from those in the United States.
Environmental
Certain of the Company's operations are affected by a variety of
federal, state and local environmental protection laws and regulations
and the Company has, in a number of instances, been notified of its
potential responsibility relating to the generation, storage,
treatment and disposal of hazardous waste. In addition, the Company
has been advised that it may be a responsible party in several sites
on the National Priority List created by the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"),
commonly known as Superfund. (See Item 3. Legal Proceedings.) In
connection with the spin-off in 1993 by Cyanamid of Cytec Industries
Inc. ("Cytec"), Cyanamid's former chemicals business, Cytec assumed
the environmental liabilities relating to the chemicals businesses,
except for the former chemical business site at Bound Brook, New
Jersey, and certain sites for which there is shared responsibility
between Cyanamid and Cytec. This assumption is not binding on third
parties, and if Cytec were unable to satisfy these liabilities, they
would, in the absence of other circumstances, be enforceable against
Cyanamid. The Company has no reason to believe that it has any
practical exposure to any of the liabilities against which Cytec has
agreed to assume and indemnify Cyanamid.
It is the Company's policy to accrue environmental cleanup costs if it
is probable that a liability has been incurred and an amount is
reasonably estimable. Additional information on environmental matters
is set forth in Notes 3, 5 and 10 of the Notes to Consolidated
Financial Statements in the Company's 1997 Annual Report to
Shareholders and is incorporated herein by reference.
Employees
At the end of 1997, the Company had 60,523 employees worldwide, with
31,233 employed in the United States including Puerto Rico.
Approximately 29% of worldwide employees are represented by various
collective bargaining groups. Relations with most organized labor
groups remain relatively stable.
Financial Information about the Company's Foreign and Domestic
Operations
Financial information about foreign and domestic operations for the
three years ended December 31, 1997 is set forth in Note 11 of the
Notes to Consolidated Financial Statements in the Company's 1997
Annual Report to Shareholders and is incorporated herein by reference.
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The Company's operations outside the United States are conducted
primarily through subsidiaries. International sales in 1997 amounted
to 42% of the Company's total worldwide sales.
The Company's international businesses are subject to risks of
currency fluctuations, governmental actions and other governmental
proceedings which are inherent in conducting business outside of the
United States. The Company does not regard these factors as deterrents
to maintaining or expanding its non-U.S. operations. Additional
information about foreign operations, specifically the Asian-Pacific
region, is set forth in Liquidity, Financial Condition and Capital
Resources in Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's 1997 Annual
Report to Shareholders and is incorporated herein by reference.
ITEM 2. PROPERTIES
The Company's corporate headquarters and the headquarters of its
domestic consumer health care business are located in Madison, New
Jersey. The Company's domestic and international ethical
pharmaceutical operations and its international consumer health care
business are headquartered in three executive/administrative buildings
in Radnor and St. Davids, Pennsylvania. The Company's animal health
business is headquartered in Overland Park, Kansas. The Company's
principal medical devices business maintained its headquarters in St.
Louis, Missouri. The Agricultural Products segment maintains its
headquarters in Parsippany, New Jersey. The Company's foreign
subsidiaries and affiliates, which generally own their properties,
have manufacturing facilities in 24 countries outside the United
States. The following are the principal manufacturing plants (M) and
research laboratories (R) of the Company as of December 31, 1997:
INDUSTRY SEGMENT
Health Care Products:
Alpirsbach, Germany (M)
Andover, Massachusetts (M, R)
Askeaton, Ireland (M, R)
*Ballymoney, N. Ireland (M)
Baulkham Hills, Australia (M)
Buenos Aires, Argentina (M)
Cabuyao, Philippines (M)
Cambridge, Massachusetts (R)
Carolina, Puerto Rico (M)
Catania, Italy (M, R)
Charles City, Iowa (M)
Chazy, New York (R)
Cherry Hill, New Jersey (M, R)
*Commerce, Texas (M)
*Deland, Florida (M)
Fort Dodge, Iowa (M, R)
Georgia, Vermont (M)
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Gosport, Great Britain (M)
Guayama, Puerto Rico (M)
Havant, Great Britain (M, R)
Hsin-Chu Hsien, Taiwan (M)
Maracay, Venezuela (M)
Marietta, Pennsylvania (M, R)
Munster, Germany (M)
Newbridge, Ireland (M)
*Norfolk, Nebraska (M)
Pearl River, New York (M, R)
Princeton, New Jersey (R)
Radnor, Pennsylvania (R)
Richmond, Virginia (M, R)
Rouses Point, New York (M, R)
Sanford, North Carolina (M)
Smithfield, Australia (M)
St. Laurent, Canada (M, R)
Suzhou, China (M)
*Tijuana, Mexico (M, R)
West Chester, Pennsylvania (M)
Agricultural Products:
Genay, France (M)
Gravelines, France (M)
Hannibal, Missouri (M)
Paulina, Brazil (M)
Princeton, New Jersey (R)
Resende, Brazil (M)
Schwabenheim, Germany (R)
*These facilities were divested on February 27, 1998 as part of
the Company's sale of the Sherwood-Davis & Geck medical devices
business.
All of the above properties are owned except certain facilities in
Cambridge, Massachusetts, Cherry Hill, New Jersey, Guayama, Puerto
Rico, Suzhou, China and Tijuana, Mexico which are under lease. The
Company also owns or leases a number of other smaller properties
worldwide which are used for manufacturing, research, warehousing
and office space.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to numerous lawsuits and
claims arising out of the conduct of its business, including product
liability and other tort claims.
As of March 19, 1998, the Company has been served with more than 3,200
lawsuits in federal and state courts on behalf of approximately 48,000
plaintiffs alleging injuries as a result of use of the NORPLANT
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SYSTEM, the Company's implantable contraceptive containing
levonorgestrel. Although approximately 70 of the cases have been
filed as class actions, class certification has been denied in the
federal actions as well as in every state in which the question has
been considered. On December 6, 1994, the Judicial Panel on Multi-
District Litigation ("MDL") ordered that all NORPLANT SYSTEM lawsuits
filed in federal courts be consolidated for pretrial proceedings in
the U.S. District Court (E.D. Tex.) in Beaumont. The MDL proceedings
now account for over 37,000 of the NORPLANT SYSTEM plaintiffs.
Following the denial of class certification, the MDL court scheduled
three "bellwether" trials, each involving the claims of five Texas
plaintiffs. Rather than proceeding with the first of these trials as
scheduled on February 24, 1997, the court entered summary judgment in
favor of the Company on all of plaintiffs' claims. That decision is
now on appeal to the U.S. Court of Appeals for the Fifth Circuit. No
NORPLANT SYSTEM case involving the Company has yet been tried to a
verdict. All of the cases involving the Company that have approached
trial have either been dismissed by the courts or withdrawn by the
plaintiffs, except for one trial in Hidalgo County, Texas which
resulted in a mistrial in January 1998 due to conflicts among
plaintiffs' attorneys. The Company will continue to contest the
NORPLANT SYSTEM litigation vigorously.
On September 15, 1997, the Company's Wyeth-Ayerst Laboratories
Division, the manufacturer of PONDIMIN (fenfluramine hydrochloride)
tablets C-IV and the distributor of REDUX (dexfenfluramine
hydrochloride capsules) C-IV, announced a voluntary and immediate
withdrawal of these antiobesity medications. The Company took this
action on the basis of new, preliminary information provided to the
Company on September 12, 1997 by the U.S. Food and Drug Administration
(FDA) regarding heart valve abnormalities in patients using these
medications. The Company estimates that approximately six million
people used these medications in the U.S.
As of March 19, 1998, the Company has been served or is aware that it
has been named as a defendant in 797 lawsuits as the manufacturer of
PONDIMIN and/or the distributor of REDUX. These lawsuits have been
filed on behalf of individuals who claim to have been injured as a
result of their use of PONDIMIN and/or REDUX, either individually or
in combination with the prescription drug phentermine (which the
Company does not manufacture, distribute or market). The lawsuits
also often name as defendants other distributors and/or retailers of
PONDIMIN and/or REDUX, the manufacturers, distributors and/or
retailers of phentermine and physicians or other health care
providers. The Company anticipates that it will be named as a
defendant in additional PONDIMIN and/or REDUX lawsuits in the future.
Of the 797 lawsuits naming the Company as a defendant, 180 are actions
that seek certification of a class, some on a national and others on a
statewide basis. Of these 180 lawsuits, 133 are pending in various
federal district courts and 47 are pending in various state courts. A
number of the actions brought in state courts have been removed to
federal courts. Individual plaintiffs have filed the remaining
lawsuits: 334 individual lawsuits are pending in various federal
district courts and 283 individual lawsuits are pending in various
state courts. On December 10, 1997, the federal Judicial Panel on
Multidistrict Litigation transferred all pending federal lawsuits
alleging injuries from the use of REDUX and/or PONDIMIN to the U.S.
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District Court for the Eastern District of Pennsylvania (MDL 1203),
where they will be coordinated for all pretrial purposes before U.S.
District Judge Louis C. Bechtle. The state cases are pending in 30
different states, with the bulk of the cases in California,
Massachusetts, New Jersey, New York, Oklahoma, Pennsylvania and Texas.
Plaintiffs' allegations of liability are based on various theories of
recovery, including, but not limited to, product liability, strict
liability, negligence, various breaches of warranty, conspiracy,
fraud, misrepresentation and deceit. These lawsuits typically allege
that the short or long-term use of PONDIMIN and/or REDUX,
independently or in combination (including the combination of PONDIMIN
and phentermine popularly known as "fen/phen"), causes, among other
things, primary pulmonary hypertension, valvular heart disease and/or
neurological dysfunctions. In addition, some lawsuits allege severe
emotional distress caused by the knowledge that ingestion of these
drugs, independently or in combination, could cause such injuries.
Plaintiffs typically seek relief in the form of monetary damages
(including general damages, medical care and monitoring expenses, loss
of earnings and earnings capacity, compensatory damages and punitive
damages), generally in unspecified amounts, on behalf of the
individual or the class. In addition, some actions seeking class
certification ask for certain types of purportedly equitable relief,
including, but not limited to, declaratory judgments and the
establishment of a research or medical surveillance program.
The Company is also named as a defendant in two shareholder lawsuits
arising out of the REDUX and PONDIMIN withdrawal. Oran, et al. v.
Stafford, et al.(No. 97-CV-4513 (NHP), U.S.D.C., D.N.J.)
(filed Sept. 18, 1997) is a securities fraud putative class action
in which plaintiffs allege, on behalf of a class of individuals
who purchased shares of the Company's common stock on the open market
during the period from March 1, 1997 through September 16, 1997, that
the Company (and nine officers and directors named as controlling
persons under Section 20(a) of the Securities Exchange Act of 1934)
engaged in a plan to defraud the market and purchasers of the
Company's common stock in violation of Section 10(b) of the Exchange
Act and SEC Rule 10b-5 by failing to disclose material facts or making
material misstatements of fact regarding alleged adverse events
associated with REDUX and PONDIMIN, in particular the alleged
association between those two products and valvular heart disease.
Plaintiffs' amended complaint also includes claims for negligent
misrepresentation and common law fraud and deceit. Plaintiffs seek
compensatory and punitive damages for themselves and for the class.
Grill v. Stafford, et al.(No. MRS-L-164-98, N.J. Sup. Ct.,
Morris Cty.) (filed Jan. 14, 1998) is a shareholder derivative action
filed against the Company, the directors (other than Mr. Essner), a
former director and officer of the Company, and certain officers which
seeks to recover any losses or damages sustained by the Company, 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
complaint contains allegations of material misstatements and omissions
regarding alleged adverse events associated with REDUX and PONDIMIN
similar to those described above and alleges that the defendants'
actions have exposed the Company to liability for personal injury
lawsuits and securities claims.
I-12
<PAGE>
The Company believes that it has meritorious defenses to these actions
and that it has acted properly at all times in dealing with PONDIMIN
and REDUX matters. The Company intends to defend all of the REDUX and
PONDIMIN related litigation vigorously.
In an action for patent infringement pending in U.S. District Court
(No.92-7403, E.D. Pa.), McNeilab Inc. is seeking approximately $77
million (plus $10 million in interest) in compensatory damages against
Scandipharm Inc., which would be entitled to seek indemnification from
a subsidiary of the Company, Eurand Microencapsulation, S.A. In this
action McNeilab is alleging that pancreatic tablets used to treat
cystic fibrosis, which Eurand exclusively supplies to Scandipharm,
infringe U.S. patents licensed to McNeilab. Treble damages are also
sought for alleged willful infringement.
On July 7, 1997, the plaintiffs were awarded $44 million in
compensatory damages and $1 million in punitive damages in an action
which was commenced in U.S. District Court in August 1993
(University of Colorado et al. v. American Cyanamid, Docket No.
93-K-1657, D.Col.). The plaintiffs had accused American Cyanamid of
misappropriating the invention of, and patenting as its own, the
formula for the current MATERNA Multi-Vitamins. The complaint also
contained allegations of conversion, fraud, misappropriation, wrongful
naming of inventor and copyright and patent infringement. The patent
whose ownership and inventorship is in dispute was granted to American
Cyanamid in 1984. The Court had previously granted American
Cyanamid's summary judgment motions dismissing all counts for relief
except for unjust enrichment and fraud, which were the issues tried
before the court in a three-week bench trial in May 1996. Although
the plaintiffs had earlier been granted summary judgment of their
copyright infringement claim, the court had declined to award
plaintiffs damages on that claim. Plaintiffs' post-trial motions
seeking to increase the damages to approximately $111 million
allegedly representing American Cyanamid's gross profit for 1982-1985
from the sale of the reformulated MATERNA product and to recover
approximately $800,000 of attorneys fees has been denied. The Company
has appealed the district court decision to the U.S. Court of Appeals
for the Federal Circuit.
On October 14, 1993, Rite Aid Corporation, Revco D.S. Inc. and other
retail drug chains and retail pharmacies filed an action in U.S.
District Court (M.D. Pa.) against the Company, other pharmaceutical
manufacturers and a pharmacy benefit management company alleging that
the Company and other defendants provided discriminatory price and
promotional allowances to managed care organizations and others in
violation of the Robinson-Patman Act. The complaint further alleges
collusive conduct among the defendants related to the alleged
discriminatory pricing in violation of the Sherman Antitrust Act as
well as certain other violations of common law principles of unfair
competition.
Subsequently, numerous other cases, many of which were purported class
actions brought on behalf of retail pharmacies and retail drug and
grocery chains, were filed in various federal courts against the
Company as well as other pharmaceutical manufacturers and wholesalers.
These cases make one or more similar allegations of violations of
federal or state antitrust or unfair competition laws. In addition, a
I-13
<PAGE>
mail order pharmacy plaintiff alleges that it was forced out of
business and certain plaintiffs also allege that the defendants'
patents covering brand name prescription drugs give the defendants
power to enter into exclusionary arrangements with certain managed
care customers and seek compulsory patent licenses. The various class
actions were consolidated as a single class action (the "Consolidated
Class Action") which alleges violations of Section 1 of the Sherman
Act. All of the federal actions have been coordinated and consolidated
for pretrial purposes under the caption In re Brand Name Prescription
Drugs Antitrust Litigation (MDL 997 N.D. Ill.). These federal actions
seek treble damages in unspecified amounts and injunctive and other
relief.
The court in the federal actions approved an amended settlement among
certain defendants, including the Company, and the Consolidated Class
Action plaintiffs. The settlement provides, among other things, for
certain payments to be made by the settling defendants, over a period
of three years, to the Consolidated Class Action plaintiffs. The
Company's settlement payments (including payments to be made on behalf
of American Cyanamid) will total $42.5 million. Certain provisions of
the amended settlement, which became effective on January 28, 1998 and
will be in effect for three years, prohibit the settling manufacturers
from refusing to grant discounts to retailers solely because of their
status as retailers and require that retailers be given the
opportunity to demonstrate their ability to move market share and to
negotiate and earn discounts similar to any discounts offered to
managed care organizations. The settlement also provides that it shall
not be deemed or construed to be an admission or evidence of any
violation of any statute or law or of any liability or wrongdoing by
the Company or of the truth of any of the claims or allegations
alleged in the Consolidated Class Action. In 1997, the Court of
Appeals for the Seventh Circuit reversed a district court ruling that
plaintiffs in the multidistrict proceeding could seek damages for
purchases that were only indirectly made from manufacturers. However,
many indirect purchasers are likely to remain in the cases because the
district court allowed the addition of wholesalers as defendants.
The individual federal actions, including those brought by Rite Aid
Corporation, Revco D.S. Inc. and other retail drug and grocery chains,
remain pending against the Company. In 1997, similar complaints were
filed by the American Drug Stores and Eckerd's Drug Stores chains and
they have been consolidated in the multidistrict litigation. In 1997,
the class action plaintiffs also filed a complaint against the
defendants that settled the Consolidated Class Action, including the
Company. The class action plaintiffs allege that the settling
defendants conspired to not implement the affirmative obligations in
the settlement agreements which were before the Seventh Circuit Court
of Appeals and not yet final at that time. The complaint seeks class
action status and requests preliminary and permanent injunctions. It
does not request money damages. The request for a preliminary
injunction was denied.
In addition to the federal actions, similar litigation on behalf of
consumers or retail pharmacies has been brought in various state
courts, including purported class actions in Alabama, Arizona,
California, Colorado, District of Columbia, Florida, Kansas, Maine,
Michigan, Minnesota, Mississippi, New York, North Carolina, Tennessee,
Washington and Wisconsin. These actions are all in various pre-trial
stages. Final approval has been granted for a settlement of a
I-14
<PAGE>
purported class action with similar allegations under state antitrust,
unfair competition and unitary pricing laws in Wisconsin state court
on behalf of retail pharmacies located in that state. The Company's
share of that settlement is approximately $440,000. Final approval
was received for a settlement of a similar state law case by
retailers in Minnesota. The Company's share of the Minnesota
settlement with retailers was approximately $99,000. The actions in
Colorado, Washington and New York have been dismissed on pre-trial
motions. An appeal of the New York action is pending.
The Federal Trade Commission is investigating allegations of concerted
action in the pricing of pharmaceutical products and the Company has
provided information in response to a subpoena.
In an action commenced in state court in Texas in January 1997 by
Foxmeyer Health Corporation against McKesson Corp., the Company's
Wyeth-Ayerst Laboratories Division and eleven other manufacturers,
which was removed to U.S. District Court for the Northern District of
Texas and referred to U.S. Bankruptcy Court in Dallas, Texas (Adv. No.
397-3052, U.S.B.C., N.D. Tex.), Foxmeyer is seeking in excess of $400
million in compensatory damages alleged to have risen from an alleged
conspiracy to drive Foxmeyer's subsidiary into bankruptcy, ostensibly
so that McKesson could then purchase the drug distribution operations
of the subsidiary at a discounted price.
A purported class action commenced in 1997 in state court in
Tennessee, Fox v. American Cyanamid Company (No. 19,996,
Ch.Ct.Tenn.), alleges violations of state antitrust and consumer
protection laws by Cyanamid concerning pricing practices relating to
marketing programs for crop protection products. The complaint
purports to be on behalf of indirect purchasers of Cyanamid's crop
protection products in the states of Tennessee, Alabama, California,
Florida, Kansas, Maine, Michigan, Minnesota, Mississippi, New Mexico,
North Carolina, North Dakota, South Dakota, West Virginia, Wisconsin
and the District of Columbia. A purported class action in federal
court in Alabama, Lowell v. American Cyanamid Company
(No.97-581-BH-M, U.S.D.C., S.D. Ala.) alleges violations of federal
antitrust laws involving pricing practices relating to marketing
programs for crop protection products. This action was dismissed
but the plaintiffs have filed a notice of appeal.
As discussed in Item I, the Company is a party to, or otherwise
involved in, legal proceedings under CERCLA and similar state laws
directed at the cleanup of various sites including 61 Superfund sites,
including the Cyanamid-owned Bound Brook, N.J. site. The Company's
potential liability varies greatly from site to site. For some sites,
the potential liability is de minimis and, for others, the final costs
of cleanup have not yet been determined. As assessments and cleanups
proceed, these liabilities are reviewed periodically and are adjusted
as additional information becomes available. Environmental
liabilities are inherently unpredictable. The liabilities can change
substantially due to such factors as additional information on the
nature or extent of contamination, methods of remediation required,
and other actions by governmental agencies or private parties. The 61
Superfund sites exclude sites for which Cytec assumed full liability
and agreed to indemnify Cyanamid but include certain sites for which
there is shared responsibility between Cyanamid and Cytec. The
Company has no reason to believe that it has any practical exposure to
I-15
<PAGE>
any of the liabilities against which Cytec has agreed to assume and
indemnify Cyanamid.
In the opinion of the Company, although the outcome of any litigation
cannot be predicted with certainty, the ultimate liability of the
Company in connection with pending litigation and other matters
described above will not have a material adverse effect on the
Company's consolidated financial position but could be material to the
results of operations in any one accounting period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
I-16
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT AS OF MARCH 27, 1998
Each officer is elected to hold office until a successor is chosen or until
earlier removal or resignation. None of the executive officers is related to
another:
Elected to
Name Age Offices and Positions Office
John R. Stafford 60 Chairman of the Board, President December 1986
and Chief Executive Officer,
Chairman of Executive, Finance,
Operations and Nominating
Committees
Business
Experience: 1991 to date, Chairman of the
Board, President and Chief
Executive Officer (President to
May 1990 and from February 1994)
Robert G. Blount 59 Senior Executive Vice President, October 1995
Director, Member of Executive,
Finance and Operations
Committees
Business
Experience: To October 1995, Executive Vice
President
October 1995 to date, Senior
Executive Vice President
Robert Essner 50 Executive Vice President September 1997
Director, Member of Finance
and Operations Committees
Business
Experience: To March 1997, President, Wyeth-
Ayerst Laboratories, U.S.
Pharmaceutical Business
March 1997 to September 1997,
President, Wyeth-Ayerst Global
Pharmaceuticals
September 1997 to date, Executive
Vice President
Joseph J. Carr 55 Senior Vice President May 1993
Member of Finance and Operations
Committees
Business
Experience: To May 1993, Group Vice President
May 1993 to date, Senior Vice
President
I-17
<PAGE>
Elected to
Name Age Offices and Positions Office
Louis L. Hoynes, Jr. 62 Senior Vice President and November 1990
General Counsel
Member of Finance and
Operations Committees
Business
Experience: 1991 to date, Senior Vice
President and General
Counsel
Robert I. Levy, M.D. 60 Senior Vice President-Science March 1998
and Technology
Member of Finance and
Operations Committees
Business
Experience: To March 1998, President,
Wyeth-Ayerst Research
March 1998 to date, Senior Vice
President - Science and
Technology
William J. Murray 52 Senior Vice President October 1995
Member of Finance and
Operations Committees
Business
Experience: To January 1995, Group Vice
President, American Cyanamid
Company
January 1995 to October 1995, Vice
President
October 1995 to date, Senior Vice
President
David M. Olivier 54 Senior Vice President January 1996
Member of Finance and
Operations Committees
Business
Experience: To January 1996, President,
Wyeth-Ayerst International, Inc.
January 1996 to date,
Senior Vice President
I-18
<PAGE>
Elected to
Name Age Offices and Positions Office
John R. Considine 47 Vice President - Finance February 1992
Member of Finance and
Operations Committees
Business
Experience: 1992 to date, Vice President -
Finance
William A. Hawkins 44 Vice President - Medical Device April 1997
and Specialty Pharmaceutical
Divisions
Member of Finance and
Operations Committees
Business
Experience: To January 1995, President & Chief
Executive Officer, IVAC
Corporation, Eli Lilly and Company
January 1995 to October 1995,
President & Chief Executive
Officer, Guidant Corporation,
Devices for Vascular
Intervention
October 1995 to April 1997,
President, Ethicon Endo-Surgery, Inc.,
Johnson & Johnson
May 1997 to March 1998, President,
Sherwood-Davis & Geck
April 1997 to date, Vice President
- Medical Device and Specialty
Pharmaceutical Divisions
Paul J. Jones 52 Vice President and Comptroller May 1995
Member of Finance Committee
Business
Experience: To April 1995, Senior Vice
President - Finance and
Administration, Wyeth-Ayerst
Laboratories Division
May 1995 to date, Vice President
and Comptroller
I-19
<PAGE>
Elected to
Name Age Offices and Positions Office
Rene R. Lewin 51 Vice President - Human Resources May 1994
Member of Finance Committee
Business
Experience: To May 1994, Executive Director
Human Resources - Worldwide
Pharmaceutical Division,
Eli Lilly and Company
May 1994 to date, Vice President -
Human Resources
Thomas M. Nee 58 Vice President - Taxes May 1986
Member of Finance Committee
Business
Experience: 1991 to date, Vice President -
Taxes
I-20
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The New York Stock Exchange is the principal market on which the
Company's common stock is traded. Tables showing the high and low
sales price for the stock, as reported in the consolidated transaction
reporting system, and the dividends paid per common share for each
quarterly period during the past two years, as presented in Market
Prices of Common Stock and Dividends on page 38 of the Company's 1997
Annual Report to Shareholders, are incorporated herein by reference.
There were 63,774 holders of record of the Company's common stock as
of March 2, 1998.
On March 5, 1998, the Company's Board of Directors approved a two-for-
one split of the Company's common stock to be effected in the form of
a 100% stock dividend. The stock split is subject to stockholder
approval of an increase in the number of authorized shares of common
stock from 1,200,000,000 to 2,400,000,000 at the Company's annual
meeting to be held on April 23, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The data with respect to the last five fiscal years, appearing in the
Ten-Year Selected Financial Data presented on pages 20 and 21 of the
Company's 1997 Annual Report to Shareholders, are incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations, appearing on pages 39 through 44 of the
Company's 1997 Annual Report to Shareholders, is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated
Financial Statements on pages 22 through 36 of the Company's 1997
Annual Report to Shareholders, the Report of Independent Public
Accountants on page 37, and Quarterly Financial Data on page 38, are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
II-1
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Information relating to the Company's directors is incorporated herein
by reference to pages 2 through 5 of a definitive proxy statement
filed with the Securities and Exchange Commission on March 25, 1998
("the 1998 Proxy Statement").
(b) Information relating to the Company's executive officers as of March
27, 1998 is furnished in Part I hereof under a separate unnumbered
caption ("Executive Officers of the Registrant as of March 27, 1998").
(c) Information relating to certain filing obligations of directors and
executive officers of the Company under the federal securities laws
set forth on page 6 of the 1998 Proxy Statement under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" is
incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is incorporated herein
by reference to pages 9 through 14 and pages 16 and 17 of the 1998
Proxy Statement. Information with respect to compensation of
directors is incorporated herein by reference to pages 5 and 6 of the
1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership is incorporated
herein by reference to pages 7 through 9 of the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
III-1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The following Consolidated Financial Statements, Notes to Consolidated
Financial Statements and Report of Independent Public Accountants,
included on pages 22 through 37 of the Company's 1997 Annual Report to
Shareholders, are incorporated herein by reference.
Pages
Consolidated Balance Sheets as of
December 31, 1997 and 1996 22
Consolidated Statements of Income
for the years ended December 31,
1997, 1996 and 1995 23
Consolidated Statements of Retained
Earnings and Additional Paid-in
Capital for the years ended
December 31, 1997, 1996 and 1995 24
Consolidated Statements of Cash Flows
for the years ended December 31, 1997,
1996 and 1995 25
Notes to Consolidated Financial Statements 26-36
Report of Independent Public Accountants 37
(a)2. Financial Statement Schedules
The following consolidated financial information is included in Part
IV of this report:
Pages
Report of Independent Public Accountants
on Supplemental Schedule IV-8
Schedule II - Valuation and Qualifying
Accounts for the years ended December 31, 1997,
1996 and 1995 IV-9
Schedules other than those listed above are omitted because they are
not applicable.
IV-1
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(2.1) Agreement and Plan of Merger, dated August 17, 1994, as amended, among
the Company, AC Acquisition Corp. and American Cyanamid Company, filed
as Exhibit (I) to the Report on Schedule 13D for Immunex Corporation
filed by the Company, dated December 1, 1994 for the event which
occurred on November 21, 1994 is hereby incorporated herein by
reference.
(3.1) The Company's Restated Certificate of Incorporation is incorporated
herein by reference to Exhibit 3.1 of the Company's Form 10/A dated
April 30, 1996.
(3.2) The Company's By-Laws, as amended to date.
(4.1) Indenture, dated as of April 10, 1992, between the Company and The
Chase Manhattan Bank (successor to Chemical Bank), as Trustee, is
incorporated by reference to Company's Exhibit 2 of the Company's Form
8-A dated August 25, 1992 (File Number 1-1225).
(4.2) Supplemental Indenture, dated October 13, 1992, between the Company
and The Chase Manhattan Bank (successor to Chemical Bank), as Trustee,
is incorporated by reference to Company's Form 10-Q for the quarter
ended September 30, 1992 (File Number 1-1225).
(10.1) A Credit Agreement, dated as of September 9, 1994, among the Company,
American Home Food Products, Inc., Sherwood Medical Company, A.H.
Robins Company, Incorporated, the several banks and other financial
institutions from time to time parties thereto and The Chase Manhattan
Bank (successor to Chemical Bank), as agent for the lenders
thereunder, filed as Exhibit 11(b)(2) to Amendment No. 7 to the
Schedule 14D-1 is hereby incorporated herein by reference.
(10.2) B Credit Agreement, dated as of September 9, 1994, among the Company,
American Home Food Products, Inc., Sherwood Medical Company, A.H.
Robins Company, Incorporated, the several banks and other financial
institutions from time to time parties thereto and The Chase Manhattan
Bank (successor to Chemical Bank), as agent for the lenders
thereunder, filed as Exhibit 11(b)(3) to Amendment No. 7 to the
Schedule 14D-1 is hereby incorporated herein by reference.
IV-2
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.3) First Amendment to A Credit Agreement, dated as of August 4, 1995,
among the Company, American Home Food Products, Inc., Sherwood Medical
Company, A.H. Robins Company, Incorporated, the several banks and
other financial institutions from time to time parties thereto and The
Chase Manhattan Bank (as successor to Chemical Bank), as agent for the
lenders thereunder is incorporated by reference to Exhibit 10.3 of the
Company's Form 10-K for the year ended December 31, 1995.
(10.4) First Amendment to B Credit Agreement, dated as of August 4, 1995,
among the Company, American Home Food Products, Inc., Sherwood Medical
Company, A.H. Robins Company, Incorporated, the several banks and
other financial institutions from time to time parties thereto and The
Chase Manhattan Bank (successor to Chemical Bank), as agent for the
lenders thereunder is incorporated by reference to Exhibit 10.4 of the
Company's Form 10-K for the year ended December 31, 1995.
(10.5) Second Amendment to A Credit Agreement, dated as of August 2, 1996,
among the Company, American Home Food Products, Inc., Sherwood Medical
Company, A.H. Robins Company, Incorporated, the several banks and
other financial institutions from time to time parties thereto and The
Chase Manhattan Bank, as agent for the lenders thereunder is
incorporated by reference to Exhibit 10.5 of the Company's Form 10-K
for the year ended December 31, 1996.
(10.6) Second Amendment to B Credit Agreement, dated as of August 2, 1996,
among the Company, American Home Food Products, Inc., Sherwood Medical
Company, A.H. Robins Company, Incorporated, the several banks and
other financial institutions from time to time parties thereto and The
Chase Manhattan Bank, as agent for the lenders thereunder is
incorporated by reference to Exhibit 10.6 of the Company's Form 10-K
for the year ended December 31, 1996.
(10.7) Third Amendment to A Credit Agreement, dated as of July 31, 1997,
among the Company, Sherwood Medical Company, A.H. Robins Company,
Incorporated, AC Acquisition Holding Company, the several banks and
other financial institutions from time to time parties thereto and The
Chase Manhattan Bank, as agent for the lenders thereunder.
(10.8) Third Amendment to B Credit Agreement, dated as of July 31, 1997,
among the Company, Sherwood Medical Company, A.H. Robins Company,
Incorporated, AC Acquisition Holding Company, the several banks and
other financial institutions from time to time parties thereto and The
Chase Manhattan Bank, as agent for the lenders thereunder.
IV-3
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.9)* 1978 Stock Option Plan, as amended to date, is incorporated herein
by reference to Exhibit 10.2 of the Company's Form 10-K for the year
ended December 31, 1990 (File Number 1-1225).
(10.10)* 1980 Stock Option Plan, as amended is incorporated by reference to
Exhibit 10.3 of the Company's Form 10-K for the year ended December
31, 1991 (File Number 1-1225).
(10.11)* Amendment to the 1980 Stock Option Plan is incorporated by
reference to Exhibit 10.7 of the Company's Form 10-K for the year
ended December 31, 1995.
(10.12)* 1985 Stock Option Plan, as amended is, incorporated by reference
to Exhibit 10.4 of the Company's Form 10-K for the year ended
December 31, 1991 (File Number 1-1225).
(10.13)* Amendment to the 1985 Stock Option Plan is incorporated by
reference to Exhibit 10.9 of the Company's Form 10-K for the year
ended December 31, 1995.
(10.14)* Amendment to the 1985 Stock Option Plan is incorporated by
reference to Exhibit 10.12 of the Company's Form 10-K for the year
ended December 31, 1996.
(10.15)* Management Incentive Plan, as amended to date.
(10.16)* Supplemental Executive Retirement Plan is incorporated herein by
reference to Exhibit (10.6) of the Company's Form 10-K for the year
ended December 31, 1990 (File Number 1-1225).
(10.17)* American Cyanamid Company's Supplemental Executive Retirement Plan
is incorporated by reference to Exhibit 10K of American Cyanamid
Company's Form 10-K for the year ended December 31, 1988 (File 1-
3426).
(10.18)* American Cyanamid Company's Supplemental Employees Retirement Plan
Trust Agreement, dated September 19, 1989, between American Cyanamid
Company and Morgan Guaranty Trust Company of New York is
incorporated by reference to Exhibit 10K of American Cyanamid
Company's Form 10-K for the year ended December 31, 1989 (File 1-
3426).
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-4
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.19)* American Cyanamid Company's ERISA Excess Retirement Plan is
incorporated by reference to Exhibit 10N of American Cyanamid
Company's Form 10-K for the year ended December 31, 1988 (File 1-
3426).
(10.20)* American Cyanamid Company's Excess Retirement Plan Trust
Agreement, dated September 19, 1989, between American Cyanamid
Company and Morgan Guaranty Trust Company of New York is
incorporated by reference to Exhibit 10M of American Cyanamid
Company's Form 10-K for the year ended December 31, 1989 (File 1-
3426).
(10.21)* 1990 Stock Incentive Plan is incorporated herein by reference to
Exhibit 28 of the Company's Form S-8 Registration Statement File No.
33-41434 under the Securities and Exchange Act of 1933, filed June
28, 1991 (File Number 1-1225).
(10.22)* Amendment to the 1990 Stock Incentive Plan is incorporated by
reference to Exhibit 10.13 of the Company's Form 10-K for the year
ended December 31, 1995.
(10.23)* Amendment to the 1990 Stock Incentive Plan is incorporated by
reference to Exhibit 10.21 of the Company's Form 10-K for the year
ended December 31, 1996.
(10.24)* 1993 Stock Incentive Plan is incorporated herein by reference to
Exhibit I of the Company's definitive Proxy Statement filed March
17, 1994.
(10.25)* Amendment to the 1993 Stock Incentive Plan is incorporated by
reference to Exhibit 10.15 of the Company's Form 10-K for the year
ended December 31, 1995.
(10.26)* Amendment to the 1993 Stock Incentive Plan is incorporated by
reference to Exhibit 10.24 of the Company's Form 10-K for the year
ended December 31, 1996.
(10.27)* 1996 Stock Incentive Plan, as amended to date.
(10.28)* Form of Stock Option Agreement is incorporated by reference to
Exhibit 10.27 of the Company's Form 10-K for the year ended December
31, 1996.
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-5
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.29)* Form of Special Stock Option Agreement (phased vesting) is
incorporated by reference to Exhibit 10.27 of the Company's Form 10-
K for the year ended December 31, 1995.
(10.30)* Form of the Company's Special Stock Option Agreement (three-year
vesting) is incorporated by reference to Exhibit 10.28 of the
Company's Form 10-K for the year ended December 31, 1995.
(10.31)* Amendment to Special Stock Option Agreement is incorporated by
reference to Exhibit 10.30 of the Company's Form 10-K for the year
ended December 31, 1996.
(10.32)* Form of the Company's Special Stock Option Agreement (transferable
options).
(10.33)* Form of the Company's Restricted Stock Performance Award Agreement
under the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and
1996 Stock Incentive Plan for a three year period is incorporated
by reference to Exhibit 10.31 of the Company's Form 10-K for the
year ended December 31, 1996.
(10.34)* Form of the Company's Restricted Stock Performance Award Agreement
under the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and
1996 Stock Incentive Plan for a two year period is incorporated by
reference to Exhibit 10.32 of the Company's Form 10-K for the year
ended December 31, 1996.
(10.35)* 1994 Restricted Stock Plan for Non-Employee Directors is
incorporated herein by reference to Exhibit II of the Company's
definitive Proxy Statement filed March 17, 1994.
(10.36)* Savings Plan, as amended, is incorporated herein by reference to
Exhibit 99 of the Company's Form S-8 Registration Statement File No.
33-50149 under the Securities and Exchange Act of 1933, filed
September 1, 1993 (File Number 1-1225).
(10.37)* Retirement Plan for Outside Directors, as amended on January 27,
1994 is herein incorporated by reference to Exhibit 10.12 of the
Company's Form 10-K for the year ended December 31, 1993.
(10.38)* Directors' Deferral Plan is incorporated by reference to Exhibit
10.37 of the Company's Form 10-K for the year ended December 31,
1996.
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-6
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.39)* Restricted Stock Trust Agreement under the 1993 Stock Incentive
Plan is incorporated by reference to Exhibit 10.23 of the Company's
Form 10-K for the year ended December 31, 1995.
(10.40)* Deferred Compensation Plan is incorporated by reference to Exhibit
10.1 of the Company's Form 10-Q for the quarter ended September 30,
1997.
(10.41)* Executive Retirement Plan is incorporated by reference to Exhibit
10.2 of the Company's Form 10-Q for the quarter ended September 30,
1997.
(10.42)* Supplemental Employee Savings Plan, as amended to date.
(10.43)* Form of Severance Agreement entered into between the Company and
the executive officers specified therein.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) 1997 Annual Report to Shareholders. Such report, except for those
portions thereof which are expressly incorporated by reference
herein, is furnished solely for the information of the Commission
and is not to be deemed "filed" as part of this filing.
(21) Subsidiaries of the Company.
(23) Consent of Independent Public Accountants relating to their report
dated January 27, 1998, consenting to the incorporation thereof in
Registration Statements on Form S-3 (File Nos. 33-45324 and 33-
57339) and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434, 33-
53733, 33-55449, 33-45970, 33-14458, 33-50149, 33-55456 and 333-
15509) by reference to the Form 10-K of the Company filed for the
year ended December 31, 1997.
(27) Financial Data Schedule.
(99) Cautionary Statements regarding "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
(b) Reports on Form 8-K
None
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Home Products Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in American Home Products
Corporation's Annual Report to Shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated January 27, 1998. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in the accompanying index is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
New York, N.Y.
January 27, 1998
IV-8
<PAGE>
<TABLE>
American Home Products Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<CAPTION>
Column A Column B Column C Column D Column E
Balance Balance
at at
Beginning Additions Deductions End of
of Period (A) Period
<S> <C> <C> <C> <C>
Description
Year ended 12/31/97:
Allowance for doubtful
accounts $179,980 $9,974 $21,529 $168,425
Allowance for cash
discounts 24,141 226,284 221,695 28,730
Allowance for deferred
tax assets 294,840 19,486 14,902 299,424
$498,961 $255,744 $258,126 $496,579
Year ended 12/31/96:
Allowance for doubtful
accounts $108,164 $88,273 $16,457 $179,980
Allowance for cash
discounts 27,445 235,802 239,106 24,141
Allowance for deferred
tax assets 206,644 117,569 29,373 294,840
$342,253 $441,644 $284,936 $498,961
Year ended 12/31/95:
Allowance for doubtful
accounts $77,985 $32,186 $2,007 $108,164
Allowance for cash
discounts 21,483 240,871 234,909 27,445
Allowance for deferred
tax assets 250,976 45,604 89,936 206,644
$350,444 $318,661 $326,852 $342,253
</TABLE>
(A) Represents amounts used for the purposes for which the accounts were
created and reversal of amounts no longer required.
IV-9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN HOME PRODUCTS CORPORATION
(Registrant)
March 27, 1998 By/S/Robert G. Blount
Robert G. Blount
Senior Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signatures Title Date
Principal Executive Officer:
/S/John R. Stafford Chairman, President and March 27 ,1998
John R. Stafford Chief Executive Officer
Principal Financial Officer:
/S/Robert G. Blount Senior Executive Vice March 27, 1998
Robert G. Blount President and Director
Principal Accounting Officer:
/S/Paul J. Jones Vice President and March 27, 1998
Paul J. Jones Comptroller
Directors:
/S/Clifford L. Alexander, Jr. Director March 27, 1998
Clifford L. Alexander, Jr.
/S/Frank A. Bennack, Jr. Director March 27, 1998
Frank A. Bennack, Jr.
/S/Robin Chandler Duke Director March 27, 1998
Robin Chandler Duke
IV-10
<PAGE>
Signatures Title Date
/S/Robert Essner Director March 27, 1998
Robert Essner
/S/John D. Feerick Director March 27, 1998
John D. Feerick
/S/John P. Mascotte Director March 27, 1998
John P. Mascotte
/S/Mary Lake Polan, M.D., Ph.D. Director March 27, 1998
Mary Lake Polan, M.D., Ph.D.
/S/Ivan G. Seidenberg Director March 27, 1998
Ivan G. Seidenberg
/S/John R. Torell III Director March 27, 1998
John R. Torell III
/S/William Wrigley Director March 27, 1998
William Wrigley
IV-11
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
(3.2) The Company's By-Laws, as amended to date.
(10.7) Third Amendment to A Credit Agreement, dated as of July 31, 1997,
among the Company, Sherwood Medical Company, A.H. Robins Company,
Incorporated, AC Acquisition Holding Company, the several banks and
other financial institutions from time to time parties thereto and
The Chase Manhattan Bank, as agent for the lenders thereunder.
(10.8) Third Amendment to B Credit Agreement, dated as of July 31, 1997,
among the Company, Sherwood Medical Company, A.H. Robins Company,
Incorporated, AC Acquisition Holding Company, the several banks and
other financial institutions from time to time parties thereto and
The Chase Manhattan Bank, as agent for the lenders thereunder.
(10.15)* Management Incentive Plan, as amended to date.
(10.27)* 1996 Stock Incentive Plan, as amended to date.
(10.32)* Form of Company's Special Stock Option Agreement (transferable
options).
(10.42)* Supplemental Employee Savings Plan, as amended to date.
(10.43)* Form of Severance Agreement entered into between the Company and
the executive officers specified therein.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) 1997 Annual Report to Shareholders. Such report, except for those
portions thereof which are expressly incorporated by reference
herein, is furnished solely for the information of the Commission
and is not to be deemed "filed" as part of this filing.
(21) Subsidiaries of the Company.
(23) Consent of Independent Public Accountants relating to their report
dated January 27, 1998, consenting to the incorporation thereof in
Registration Statements on Form S-3 (File Nos. 33-45324 and
33-57339) and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434,
33-53733, 33-55449, 33-45970, 33-14458, 33-50149, 33-55456 and
333-15509) by reference to the Form 10-K of the Company filed for
the year ended December 31, 1997.
(27) Financial Data Schedule.
(99) Cautionary Statements regarding "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
******************************************************************************
BY-LAWS
OF
AMERICAN HOME PRODUCTS CORPORATION
AS AMENDED THROUGH MARCH 5, 1998
******************************************************************************
<PAGE>
CONTENTS
STOCKHOLDERS MEETINGS
1. Annual Meeting 1
2. Special Meetings 1
3. Notice 1
4. Place 2
5. Quorum 2
6. Voting; Proxies 2
BOARD OF DIRECTORS
7. Powers; Number; Election; Term; Vacancies 3
8. Regular Meetings 5
9. Special Meetings 5
10. Quorum; Voting 5
11. Compensation 5
12. Residual Powers of Board 6
EXECUTIVE COMMITTEE
13. Appointment 6
14. Duties and Powers 6
15. Meetings 7
16. Quorum; Voting 7
17. Minutes 7
FINANCE COMMITTEE
18. Appointment 7
19. Duties and Powers 8
20. Meetings 8
21. Quorum; Voting 8
22. Minutes 8
AUDIT COMMITTEE
23. Appointment 8
24. Duties and Powers 9
25. Meetings 9
26. Quorum; Voting 9
27. Minutes 9
OTHER COMMITTEES
28. Appointment 10
29. Organization and Operation 10
OFFICERS
30. Principal Officers 10
31. Other Officers 11
32. Salaries 11
33. Term of Office; Removal 11
34. Vacancies 11
35. Chairman 11
36. Vice Chairman 12
37. President 12
38. Executive Vice Presidents 12
39. Senior Vice Presidents 13
40. Vice Presidents 13
41. Principal Financial Officer 13
42. Secretary 14
43. Treasurer 14
44. Comptroller 15
45. Delegation of Officer's Duties by Board 15
46. Delegation of Officer's Duties by Officer 15
47. Indemnification of Directors,
Officers and Employees 15
AUTHORITY TO ACT AND SIGN
48. Instrument Execution 18
49. Bank Accounts 18
50. Voting of Stock in Other Corporations 19
51. Sale and Transfer of Securities 19
STOCK
52. Certificates 19
53. Transfer 20
54. Transfer Agent and Registrar 20
55. Record Date 20
56. Registered Stockholders 21
57. Lost Certificates 21
MISCELLANEOUS
58. Notices 21
59. Fiscal Year 22
60. Offices 22
61. Seal 22
62. Amendments 22
<PAGE>
BY-LAWS
of
AMERICAN HOME PRODUCTS CORPORATION
* * * * * * * * * * * * * * * * * * * * *
STOCKHOLDERS MEETINGS
1. Annual Meeting. An annual meeting of stockholders for election of directors
and transaction of other business properly before the meeting shall be held
on the fourth Wednesday of April in each year, or on such other date and at
such time as the Board of Directors may designate.
2. Special Meetings. Except as provided in paragraph VII (g) (v) of Article
FOURTH of the Certificate of Incorporation respecting rights of holders of
Preferred Stock to call meetings of such holders in certain dividend default
situations, special meetings of stockholders, unless otherwise provided by
law, may be called by the Chairman or Vice Chairman of the Board of Directors
or the President or by the Secretary on the written request of a majority of
all the directors, such request to state the purpose of the proposed meeting,
which meeting shall thereupon be called by the Secretary. Business at
special meetings shall be confined to the matters stated in the notice.
3. Notice. Written notice of each meeting of stockholders shall be mailed, not
less than ten days prior to the meeting, to each stockholder entitled to vote
at such address as appears on the stock books of the corporation. The notice
shall specify the time and place of the meeting and, as to special meetings,
the matter or matters to be acted upon at such meeting.
<PAGE>
4. Place. Meetings of stockholders shall be held at the office of the
corporation in Wilmington, Delaware, or at such other place, within or
without the State of Delaware, as the Board of Directors may designate.
5. Quorum. Except as provided in paragraph VII (g) (v) of Article FOURTH of the
Certificate of Incorporation respecting meetings of stockholders during
certain dividend default situations, at which meetings holders of Preferred
Stock have special voting rights, the holders of a majority of the
outstanding stock having voting power, present in person or by proxy, shall
constitute a quorum at all meetings of stockholders for the transaction of
business unless otherwise provided by law. Except as provided in such
paragraph VII (g) (v) of Article FOURTH of the Certificate of Incorporation,
if a quorum shall not be present at any meeting of stockholders, the
stockholders entitled to vote, present in person or by proxy, may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present; and at such adjourned meeting at
which a quorum shall be present any business may be transacted which might
have been transacted at the meeting originally called.
6. Voting; Proxies. At each meeting of stockholders every stockholder entitled
to vote may vote in person or by proxy appointed by an instrument in writing
subscribed by such stockholder or his duly appointed attorney-in-fact or in
any other manner prescribed by the General Corporation Law of the State of
Delaware. Except as provided in paragraphs VII (g) (i) and VII (g) (v) of
Article FOURTH of the Certificate of Incorporation respecting holders of
Preferred Stock voting in certain situations, each holder of Common Stock
shall have one vote and each holder of Preferred Stock shall have eighteen
(18) votes on each matter submitted to a vote at a meeting of stockholders
for each share of, respectively, Common and Preferred Stock having voting
power, registered in his name on the stock books of the corporation. The
vote for directors and, upon the demand of any stockholder, the vote upon any
other matter before the meeting, shall be by ballot. Elections shall be
decided by a plurality of the votes cast and other matters shall be decided
by a majority of the votes cast on such matters.
<PAGE>
BOARD OF DIRECTORS
7. Powers; Number; Election; Term; Vacancies. The property and business of the
corporation shall be managed by its Board of Directors, which shall be not
less than eight nor more than fifteen in number as determined from time to
time by the Board, except as provided in paragraph VII (g) (ii) of Article
FOURTH of the Certificate of Incorporation respecting additional directors in
certain dividend default situations. Directors shall be elected at the
annual meeting of stockholders and each director shall continue in office
until his successor shall be elected or until his earlier removal or
resignation.
Except as provided in paragraph VII (g) (ii) of Article FOURTH of the
Certificate of Incorporation respecting additional directors in certain
dividend default situations, nominations for the election of directors may be
made by the Board of Directors or a committee appointed by the Board of
Directors or by any stockholder entitled to vote in the election of directors
generally. However, any stockholder entitled to vote in the election of
directors generally may nominate one or more persons for election as
directors only if written notice of such stockholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
United States Mail, postage prepaid, to the Secretary of the corporation not
later than (i) with respect to an election to be held at an annual meeting of
stockholders, ninety days prior to the anniversary date of the immediately
preceding annual meeting, and (ii) with respect to an election to be held at
a special meeting of stockholders for the election of directors, the close of
business on the tenth day following the date on which notice of such meeting
is first given to stockholders. Each such notice shall set forth: (a) the
name and address of the stockholder who intends to make the nomination and of
the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the corporation entitled to
vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (d) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission;
and (e) the consent of each nominee to serve as a director of the corporation
if so elected. The presiding officer of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
Except as provided in Paragraph VII (g) (v) of Article FOURTH of the
Certificate of Incorporation respecting the additional directors in certain
dividend default situations, vacancies in the membership of the Board,
whether or not caused by an increase in the number of directors, will be
filled solely by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence
shall hold office only until the next succeeding annual meeting of
stockholders.
<PAGE>
8. Regular Meetings. Regular meetings of the Board may be held without notice
at such time and place as the Board shall from time to time determine.
9. Special Meetings. Special Meetings of the Board may be called by direction
of the Chairman, the Vice Chairman, the President or two directors on two
days notice to each director specifying the time and place of meeting.
10. Quorum; Voting. At all meetings of the Board a majority of all the
directors then in office, or if the number of directors is then an even
number, one-half such number shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board unless otherwise
provided by law, the Certificate of Incorporation or these by-laws.
11. Compensation. Directors shall be paid such fees for their services as
directors and for attending meetings of the Board and committees appointed
thereby as shall be determined from time to time by the Board. The Board may
also provide for compensation to a director for expenses he may incur in
attending such meetings. Nothing herein shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
<PAGE>
12. Residual Powers of Board. In addition to the powers conferred by these by-
laws upon the Board, the Board may exercise all such powers of the
corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these by-laws directed or required to be
exercised or done by the stockholders. Nothing contained in these by-laws
shall restrict the Board or any committee thereof from taking any action in
any manner permitted by law, including unanimous written consent and
conference communication by means of telephone or similar communications
equipment by which all persons participating in the meeting can hear each
other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
EXECUTIVE COMMITTEE
13. Appointment. The Board may by vote of a majority of all the directors
appoint three or more members to constitute an Executive Committee which
shall serve at the pleasure of the Board. Vacancies in the membership of
the Executive Committee shall be filled by the Board by vote of a majority
of all the directors.
14. Duties and Powers. During the intervals between meetings of the Board, the
Executive Committee shall perform all the duties and exercise all the powers
of the Board in the management of the property and business of the
corporation except such duties and powers as are by law, the Certificate of
Incorporation or these by-laws directed or required to be performed or
exercised specifically by the Board as such or by any proportion thereof.
The Chairman of the Executive Committee shall assist the Chairman of the
Board, shall perform such of the duties and exercise such of the powers of
the Chairman as the latter may delegate to him and shall, in the absence or
disability of the President, perform the duties and exercise the powers of
the President. He shall perform such other duties and exercise such other
powers as the Board or the Chairman shall from time to time prescribe.
<PAGE>
15. Meetings. The Executive Committee may meet at stated times without notice,
or on two days notice to all by one of its members.
16. Quorum; Voting. A majority of the Executive Committee shall constitute a
quorum for the transaction of business and the act of a majority of those
present at any meeting at which there is a quorum shall be the act of the
Committee.
17. Minutes. The Executive Committee shall keep regular minutes of its
proceedings and report its actions to the Board when it so requests.
FINANCE COMMITTEE
18. Appointment. The Board may appoint three or more directors, officers or
employees of the corporation or its subsidiaries to constitute a Finance
Committee which shall serve at the pleasure of the Board. Vacancies in the
membership of the Finance Committee shall be filled by the Board.
<PAGE>
19. Duties and Powers. The Finance Committee shall supervise the financial
affairs, budgets and procedures of the corporation and its subsidiaries and
shall fix the salaries of officers and employees of the corporation and its
subsidiaries, except such thereof as may be fixed by the Board or any other
committee appointed by it for such purpose.
20. Meetings. The Finance Committee may meet at stated times without notice, or
on notice to all by the Chairman or Vice-Chairman of the Board, the
President, an Executive Vice President or a Senior Vice President.
21. Quorum; Voting. A majority of the Finance Committee shall constitute a
quorum for the transaction of business and the act of a majority of those
present at any meeting at which there is a quorum shall be the act of the
Committee.
22. Minutes. The Finance Committee shall keep regular minutes of its
proceedings and make copies thereof available to the Board at its meetings.
AUDIT COMMITTEE
23. Appointment. The Board shall appoint three or more directors of the
Corporation, none of whom is presently employed by the Corporation or any of
its subsidiaries, to constitute an Audit Committee, which shall serve at the
pleasure of the Board. Vacancies in the membership of the Audit Committee
shall be filled by the Board.
<PAGE>
24. Duties and Powers. The Audit Committee shall recommend a firm of
independent public accountants to be engaged as the principal auditor for
each year's annual audit on behalf of the Corporation subject to the approval
of the Board of Directors and ratification by the stockholders. The Audit
Committee shall discuss with the auditors the scope and results of the audit
and shall report to the Board of Directors thereon. The Audit Committee
shall undertake such other financial reviews as the Board deems appropriate.
25. Meetings. The Audit Committee may meet at stated times without notice, or
on notice to all by the Chairman or Vice Chairman of the Board, the
President, an Executive Vice President or a Senior Vice President, or by one
of the members of the Audit Committee.
26. Quorum; Voting. A majority of the Audit Committee shall constitute a quorum
for the transaction of business and the act of a majority of those present at
any meeting at which there is a quorum shall be the act of the Committee.
27. Minutes. The Audit Committee shall keep regular minutes of its proceedings
and make copies thereof available to the Board at its meetings.
<PAGE>
OTHER COMMITTEES
28. Appointment. The Board may from time to time appoint further standing or
special committees of directors, officers or employees of the corporation or
its subsidiaries to serve at the pleasure of the Board and confer upon such
committees such powers and duties as the Board may deem expedient within the
limits permitted by law.
29. Organization and Operation. Unless otherwise provided in the resolutions
appointing any such committee and determining its powers and duties, the
committee may establish procedures for calling and conducting meetings,
provided that no less than a majority of its members shall constitute a
quorum for the transaction of business and the act of no less than a majority
of those present at a meeting at which there is a quorum shall be the act of
the committee, and the committee shall keep regular minutes of its
proceedings and report its actions to the Board when it so requests.
OFFICERS
30. Principal Officers. The principal officers shall be chosen annually by the
Board and shall be a Chairman of the Board of Directors, a President, one or
more Vice Presidents, a Secretary, a Treasurer and a Comptroller and, in the
discretion of the Board, a Vice Chairman of the Board of Directors, one or
more Executive Vice Presidents and one or more Senior Vice Presidents. The
Chairman or Vice Chairman and President may be the same person; the Secretary
and Treasurer may be the same person and Executive Vice President, Senior
Vice President or Vice President may hold at the same time the office of
Secretary, Treasurer or Comptroller. The Chairman and Vice Chairman, if
any, and the President shall be chosen from the members of the Board; the
other principal officers need not be directors.
<PAGE>
31. Other Officers. The Board may choose such other officers and agents as it
shall deem necessary, who shall hold their offices for such terms and shall
perform such duties and exercise such powers as are delegated to them
pursuant to these by-laws or as the Board shall from time to time prescribe.
32. Salaries. The salaries of all principal officers shall be fixed by the
Board.
33. Term of Office; Removal. Each officer shall hold office until his successor
is chosen or until his earlier removal or resignation. The Board may remove
any officer or agent provided that removal of a principal officer be by vote
of a majority of all the directors.
34. Vacancies. Vacancies in any office may be filled by the Board.
35. Chairman. The Chairman of the Board of Directors shall preside at all
meetings of stockholders and of the Board. He shall be ex-officio a member of
all standing committees appointed by the Board, shall be the chief executive
officer of the corporation, shall have all powers and perform all duties
incident to such chief executive office and, subject to the direction of the
Board, shall have general and active supervision of the property and business
of the corporation. He shall be the officer through whom the Board delegates
authority to corporate management and he shall be the medium of communication
to the Board of information as to the affairs of the corporation and of all
matters presented for the Board's consideration. He shall be responsible to
see that all orders and resolutions of the Board are carried into effect by
the proper officers.
<PAGE>
36. Vice Chairman. The Vice Chairman of the Board of Directors shall assist
the Chairman of the Board, shall perform such of the duties and exercise such
of the powers of the Chairman as the latter may delegate to him and shall, in
the absence or disability of the Chairman, perform the duties and exercise
the powers of the Chairman. He shall perform such other duties and exercise
such other powers as the Board or the Chairman shall from time to time
prescribe.
37. President. The President shall assist the Chairman and Vice Chairman of
the Board, shall perform such of the duties and exercise such of the powers
of the Chairman as the latter may delegate to him and shall, in the absence
or disability of the Vice Chairman, perform the duties and exercise the
powers of the Vice Chairman. He shall perform such other duties and exercise
such other powers as the Board, the Chairman or the Vice Chairman shall from
time to time prescribe.
38. Executive Vice Presidents. Each Executive Vice President shall serve in a
general executive capacity, more particularly as general assistant to the
President. In the absence or disability of the President, and in the event
the Chairman of the Executive Committee is absent or disabled, an Executive
Vice President shall, in the order of seniority in that office, perform the
duties and exercise the powers of the President. Executive Vice Presidents
shall perform such other duties and exercise such other powers as the Board,
the Chairman, the Vice Chairman or the President shall from time to time
prescribe.
<PAGE>
39. Senior Vice Presidents. Each Senior Vice President shall serve in a
general executive capacity, more particularly as general assistant to the
President or to one or more Executive Vice Presidents. In the absence or
disability of the President, and in the event the Chairman of the Executive
Committee and all Executive Vice Presidents are absent or disabled, a Senior
Vice President shall, in the order of seniority in that office, perform the
duties and exercise the powers of the President. Senior Vice Presidents
shall perform such other duties and exercise such other powers as the Board,
the Chairman, the Vice Chairman or the President shall from time to time
prescribe.
40. Vice Presidents. In the absence or disability of the Executive Vice
Presidents and Senior Vice Presidents, a Vice President shall, in the order
of seniority in that office, perform the duties and exercise the powers of
the Executive Vice Presidents and Senior Vice Presidents. Vice Presidents
shall perform such other duties and exercise such other powers as the Board,
the Chairman, the Vice Chairman or the President shall from time to time
prescribe.
41. Principal Financial Officer. The Board may designate an Executive Vice
President, a Senior Vice President, a Vice President or the Treasurer as the
Principal Financial Officer of the corporation.
<PAGE>
42. Secretary. The Secretary shall attend all meetings of stockholders and of
the Board and shall record the minutes of all proceedings of such meetings in
books to be kept for that purpose, and shall perform like duties for the
standing committees appointed by the Board unless the Board directs
otherwise. He shall have custody of the seal of the corporation and shall
affix it or cause it to be affixed to all instruments requiring it. He shall
give or cause to be given the notice required of all meetings of stockholders
and of the Board. He shall perform such other duties and exercise such other
powers as the Board, the Chairman, the Vice Chairman or the President shall
from time to time prescribe.
43. Treasurer. The Treasurer shall have general charge of and responsibility
for the corporate funds and securities. He shall deposit or cause to be
deposited in the name of the corporation all moneys and other valuable
effects of the corporation in such depositories as may be designated in
accordance with these by-laws. He shall disburse the funds of the
corporation as directed by the Board or by any other principal officer,
taking proper vouchers for such disbursements. He shall advise upon all
terms of credit granted by the corporation. He shall render to the Board,
when the Board so requests, an accounting of all his transactions as
Treasurer and of the financial condition of the corporation. He shall
perform such other duties and exercise such other powers as the Board, the
Chairman, the Vice Chairman or the President shall from time to time
prescribe.
<PAGE>
44. Comptroller. The Comptroller shall have general supervision of the
accounting practices of the corporation and its subsidiaries and the
preparation of statements and other reports respecting financial aspects of
the corporation's or its subsidiaries' operations. He shall establish,
through appropriate channels, recording and reporting procedures and
standards pertaining to such matters. He shall be responsible for collection
of all corporation accounts. He shall perform such other duties and exercise
such other powers as the Board, the Chairman, the Vice Chairman or the
President shall from time to time prescribe.
45. Delegation of Officer's Duties by Board. In the absence or disability of
any principal officer, or for any other reason that the Board may deem
sufficient, the Board may by vote of a majority of all the directors delegate
any or all of the powers or duties of such officer to any other officer.
46. Delegation of Officer's Duties by Officer. Any principal officer may
delegate portions of his powers and duties to any assistant officer chosen by
the Board and acting under the principal officer's supervision.
INDEMNIFICATION OF
DIRECTORS, OFFICERS AND EMPLOYEES
47. Each person (and heirs and legal representatives of such person) who serves
or has served as a director, officer or employee of the corporation or of any
other corporation or entity when requested by this corporation, and of which
this corporation is or was a stockholder, a creditor or otherwise interested,
shall be indemnified by this corporation against all liability and reasonable
expense, including but not limited to counsel fees and disbursements and
amounts of judgments, fines or penalties, incurred by or imposed upon him in
connection with any claim, action, suit or proceeding, actual or threatened,
whether civil, criminal, administrative or investigative, and appeals in
which he may become involved as a party or otherwise by reason of acts or
omissions in his capacity as and while a director, officer or employee of
this corporation or such other corporation or entity, provided that such
person is wholly successful with respect thereto and unless the Board in its
absolute discretion shall determine that such person did not meet the
standard of conduct required herein.
The term "wholly successful" shall mean termination of any claim,
action, suit or proceeding against such person without any finding of
liability or guilt against him and without any settlement by payment, promise
or undertaking by or for such person or the expiration of a reasonable period
of time after the making of any claim or threat without action, suit or
proceeding having been brought and without any settlement by payment,
promise, or undertaking by or for such person.
The standard of conduct required shall be that such person acted in
good faith for a purpose which he reasonably believed to be in or not opposed
to the best interests of the corporation, and, in addition, in any criminal
action or proceeding, had no reasonable cause to believe that his conduct was
unlawful.
Should indemnification be requested hereunder in respect to any claim,
action, suit or other proceeding where the person seeking indemnification has
not been wholly successful, such indemnification may be made only upon the
prior determination by a resolution of a majority of those members of the
Board who are not involved in the claim, action, suit or other proceeding,
that such person met the standards of conduct required herein, or, in the
discretion of the Board, upon the prior determination by non-employee legal
counsel, in written opinion, that such person has met such standards, and
where a settlement is involved, that the amount thereof is reasonable.
Indemnification under this by-law shall not include any amount payable
by such person to the corporation or entity in satisfaction of any judgment
or settlement, or any amount payable on account of profits realized by him in
the purchase or sale of securities of the corporation, and shall be reduced
by the amount of any other indemnification or reimbursement of such liability
and expense to such person.
The termination of any claim, action, suit or other proceeding, by
judgment, order, settlement (whether with or without court approval) or
conviction or upon a plea of guilty or of nolo contendere, or its equivalent,
shall not of itself create a presumption that such person did not meet the
standard of conduct required herein.
Expenses incurred which are subject to indemnification hereunder may
be advanced by the corporation prior to final disposition of the claim,
action, suit or other proceeding upon receipt of an undertaking acceptable to
the corporation by or on behalf of the recipient to repay such amount unless
it shall ultimately be determined that he is entitled to indemnification.
The right of indemnification herein provided shall be in addition to
other rights to which those to be indemnified may otherwise be entitled by
agreement, vote of stockholders, operation of law or otherwise, and shall be
available whether or not the claim asserted against such person is based upon
matters which antedate the adoption of this by-law. If any word, clause or
provision of this by-law or any indemnification made hereunder shall for any
reason be determined to be invalid, the provisions hereof shall not otherwise
be affected thereby but shall remain in full force and effect.
<PAGE>
AUTHORITY TO ACT AND SIGN
48. Instrument Execution. Unless otherwise provided by law or by the Board,
all instruments to be executed on behalf of the corporation, whether or not
requiring the seal of the corporation, may be executed by the Chairman, the
Vice Chairman, the President, any Executive Vice President, any Senior Vice
President or any Vice President and attested by the Secretary or an Assistant
Secretary.
49. Bank Accounts. Unless otherwise provided by the Board, any two of the
following officers: the Chairman, the Vice Chairman, the President, any
Executive Vice President, any Senior Vice President, any Vice President and
the Treasurer, may from time to time (1) open and maintain in the name of the
corporation, and terminate, general and special bank accounts for the funds
of the corporation with such banks, trust companies or other depositories as
they may designate and (2) designate, and revoke the designation of, the
officers or employees of the corporation who may sign, manually or by
facsimile, checks, drafts or orders on such bank accounts. Any such action,
designation or revocation shall be by written instrument, signed by the
officers taking the action or making or revoking the designation and filed
with the bank, trust company or other depository.
<PAGE>
50. Voting of Stock in Other Corporations. Unless otherwise directed by the
Board, Chairman, the Vice Chairman, the President, any Executive Vice
President, any Senior Vice President, the Treasurer or the Secretary may, on
behalf of the corporation, attend, act and vote at any meeting of
stockholders of any corporation in which this corporation may hold stock and
at any such meeting shall possess and may exercise all rights of this
corporation incident to ownership of such stock or may give a proxy or
proxies in the name of this corporation to any other person or persons who
may vote such stock and exercise any and all other rights in regard to it as
are here accorded to the officers mentioned.
51. Sale and Transfer of Securities. Unless otherwise directed by the Board,
any two of the following officers: the Chairman, the Vice Chairman, the
President, any Executive Vice President, any Senior Vice President and the
Treasurer may, on behalf of the corporation, transfer, convert, endorse,
sell, assign, set over and deliver, or take action appropriate to the
encumbrance by the corporation of any bonds, shares of stock, warrants or
other securities owned by or standing in the name of the corporation, and may
execute and deliver in the name of the corporation all written instruments
necessary or proper to implement the authority herein contained.
STOCK
52. Stock Certificates; Uncertificated Shares. The shares of the corporation
shall be represented by certificates, provided that the Board of Directors
of the corporation may provide by resolution or resolutions that some or
all of any or all classes or series of its stock shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and upon request every
holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the Chairman or Vice-
Chairman of the Board of Directors, or the President or Vice-President,
and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
<PAGE>
53. Transfer. Transfer of stock shall be made on the books of the corporation
only upon surrender of the certificate therefor, endorsed by the person named
in the certificate or accompanied by proper written evidence of succession,
assignment or authority to transfer such stock or upon receipt of proper
transfer instructions from the owner of uncertificated shares.
54. Transfer Agent and Registrar. The Board may appoint one or more Transfer
Agents to record transfers of shares of stock and to keep the stock
certificate books, transfer books and stock ledgers of the corporation. The
Board may also appoint one or more Registrars to register certificates of
stock. The Board may require all certificates of stock to bear the
signatures of either or both a Transfer Agent and a Registrar. Where any
such certificate is manually signed by the Registrar, the signature of any
Transfer Agent may be facsimile engraved or printed.
55. Record Date. The Board may fix in advance a date, not less than ten nor
more than sixty days preceding the date of any meeting of stockholders or the
date for the payment of any dividend or the date for the allotment of rights
or the date when any change, conversion or exchange of stock shall go into
effect or the date in connection with obtaining consent of stockholders or
any class thereof for any purpose, as a record date for the determination of
stockholders entitled to notice of and to vote at any such meeting or to
receive payment of any such dividend or to receive any allotment of rights or
to exercise the rights or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation
after any such record date fixed as aforesaid. The Board may direct that
the stock books of the corporation be closed against transfers during such
period.
<PAGE>
56. Registered Stockholders. The corporation shall be entitled to treat the
holder of record of any share of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to
or interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, except as provided by law.
57. Lost Certificates. The Board may direct a new certificate of stock to be
issued in place of any certificate theretofore issued and claimed to have
been lost, stolen or destroyed, provided that any person claiming a
certificate to be lost, stolen or destroyed shall make an affidavit of
ownership and of the facts of such loss, theft or destruction and, if the
Board so requires, shall advertise the same, and provided further that the
Board may require the owner of the certificate claimed to be lost, stolen or
destroyed, or his legal representative, to deliver to the corporation for
itself, its officers Transfer Agents and Registrars, a bond of indemnity in
such amount or unlimited in amount, upon such terms and secured by such
surety as the Board may require.
<PAGE>
MISCELLANEOUS
58. Notices. Whenever under the provisions of these by-laws notice is required
to be given to any person other than in his capacity as stockholder, it may
be given by hand delivery, by telegram or by mail. Whenever under the
provisions of these by-laws notice is required to be given to any
stockholder, it may be given by mail, by depositing the same in the post
office or a letter box, in a post-paid, sealed envelope, addressed to such
stockholder at such address as appears on the stock books of the corporation,
and such notice shall be deemed to be given at the time when the same shall
be thus mailed. Any person entitled to notice under any provision of these
by-laws may waive such notice.
59. Fiscal Year. The fiscal year of the corporation shall begin the first day
of January in each year.
60. Offices. The corporation may have an office in New York, New York, and at
such other places as the business of the corporation may require.
61. Seal. The corporate seal shall have inscribed thereon the name of the
corporation and the words "Corporate Seal, Delaware."
62. Amendments. These by-laws may be altered or repealed and new by-laws may
be adopted at any meeting of stockholders by the vote of the holders of a
majority of the outstanding stock having voting power, provided the notice of
such meeting includes the proposed alterations or repeal or the proposed new
by-laws, or a summary thereof, or the Board by vote of a majority of all the
directors.
THIRD AMENDMENT TO A CREDIT AGREEMENT
Third Amendment (this "Amendment"), dated as of July 31, 1997 among
Sherwood Medical Company, A.H. Robins Company, Incorporated and AC Acquisition
Holding Company (each, a "Subsidiary Borrower"), American Home Products
Corporation (the "Company", and together with the Subsidiary Borrowers, the
"Borrowers"), the lending institutions party to the A Credit Agreement referred
to below (the "Banks") and The Chase Manhattan Bank, as Agent (in such capacity,
the "Agent"). All capitalized terms used herein and not otherwise defined shall
have the respective meanings provided such terms in the A Credit Agreement
referred to below.
W I T N E S S E T H :
WHEREAS, the Borrowers, the Banks and the Agent are parties to a Credit
Agreement, dated as of September 9, 1994, (as heretofore amended, the "A Credit
Agreement");
WHEREAS, the parties hereto wish to amend the A Credit Agreement as herein
provided;
NOW THEREFORE, it is agreed:
1. The amount "$2,500,000,000" shall replace (i) the amount
"$3,000,000,000" in the first recital of the A Credit Agreement and (ii) the
amount of "$2,800,000,000" in each of Section 2.1(a) and 2.2(a) of the A Credit
Agreement.
2. Section 1.1 of the A Credit Agreement is hereby amended by deleting
the definition of "Applicable Margin" in its entirety and inserting in lieu
thereof the following new definition:
"Applicable Margin": a percentage equal to, (x) for Alternate Base
Rate Loans, 0%, (y) for C/D Rate Loans, .2725% and (z) for Eurodollar Rate
Loans, .1475%.
3. Section 1.1 of the A Credit Agreement is hereby amended by deleting
the definition of "Facility Fee Percentage" in its entirety and inserting in
lieu thereof the following definition:
""Facility Fee Percentage": a percentage equal to .0400%."
4. Section 1.1 of the A Credit Agreement is hereby amended by deleting
clause (a) of the definition of "Termination Date" in its entirety and inserting
in lieu thereof "(a) July 30, 1998 (as such date may be extended in accordance
with the provisions of subsection 2.19)and ".
5. In order to induce the Agent and the Banks to enter into this
Amendment, the Borrowers hereby represent and warrant that (x) no Default or
Event of Default exists on the Third Amendment Effective Date (as defined
herein) both before and after giving effect to this Amendment and (y) all of the
representations and warranties contained in the Credit Documents shall be true
and correct in all material respects on the Third Amendment Effective Date both
before and after giving effect to this Amendment with the same effect as though
such representations and warranties had been made on and as of the Third
Amendment Effective Date (it being understood that any representation or
warranty made as of a specific date shall be true and correct in all material
respects as of such specific date).
6. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the A Credit
Agreement or any other Credit Document.
7. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Company and the Agent.
8. This Amendment and the rights and obligations of the parties hereunder
shall be construed in accordance with and governed by the law of the State of
New York.
9. Notwithstanding anything to the contrary contained in the A Credit
Agreement or this Amendment, for purposes of this Amendment "Banks" shall mean
each of the lending institutions who shall have delivered (including by way of
telecopier) by July 30, 1997 (or such later date as the Agent and the Company
shall agree) a signed copy hereof to the Agent as provided in Section 8.2 of the
A Credit Agreement that has been accepted by the Company.
10. As of the Third Amendment Effective Date, (v) Schedule I to the A
Credit Agreement shall be revised to read as set forth on Annex I hereto, (w)
Schedule II to the A Credit Agreement shall be revised by the Agent to give
effect to such revised Schedule I, (x) the Banks shall constitute all the
Lenders and no other entity that had been a Lender will continue to be a Lender,
(y) either (A) all amounts owing to Lenders prior to July 30, 1997 who are not
Banks (the "Former Lenders") shall be paid to such Former Lenders or (B) such
Former Lenders shall assign their Commitments to one or more Banks and (z) no
such Former Lender will continue to be a Lender.
11. This Amendment shall become effective as of the date hereof (the
"Third Amendment Effective Date") on the date upon which (x) each of the
Borrowers, the Agent and Banks (as defined in paragraph 9 hereto) with
Commitments as set forth on Annex I hereto aggregating $2,500,000,000 shall have
signed a copy hereof (whether the same or different copies) and shall have
delivered (including by way of telecopier) the same to the Agent as provided in
Section 8.2 of the A Credit Agreement and (y) the Third Amendment to the B
Credit Agreement, dated as of the date hereof, has become effective.
12. From and after the Third Amendment Effective Date, all references in
the A Credit Agreement and each of the other A Credit Documents to the A Credit
Agreement shall be deemed to be references to the A Credit Agreement after
giving effect to this Amendment.
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
AMERICAN HOME PRODUCTS CORPORATION
By:_________________________________
Title: Vice President - Finance
SHERWOOD MEDICAL COMPANY
By:
Title: Vice President
A. H. ROBINS COMPANY, INCORPORATED
By:_________________________________
Title: Vice President and Treasurer
AC ACQUISITION HOLDING COMPANY
By:_________________________________
Title: Vice President and Treasurer
BANCA COMMERCIALE ITALIANA
NEW YORK BRANCH
By:_________________________________
Title: Charles Daugherty,Vice President
By:_________________________________
Title: K. Purelis, Vice President
BANCA DI ROMA
By:_________________________________
Title: Virgina Mahler Cosenza
Assistant Vice President
By:_________________________________
Title: Vice President
BANCA MONTE DEI PASCHI DI SIENA, S.p.A.
By:_________________________________
Title: S.V.P. and General Manager
By:_________________________________
Title: Brian R. Landy
Vice President
BANCA NAZIONALE DEL LAVORO S.p.A.
NEW YORK BRANCH
By:_________________________________
Title: Giuliano Violetta
First Vice President
By:_________________________________
Title: Giulio Giovine
Vice President
BANCA POPOLARE DI MILANO
By:_________________________________
Title: Anthony Franco
Executive Vice President & GM
By:_________________________________
Title: Fulvio Montanari
First Vice President
BANK OF AMERICA NT & SA
By:_________________________________
Title: Vice President
BANK OF IRELAND
By:_________________________________
Title:
BANK OF MONTREAL
By:_________________________________
Title: Sharron P. Walsh
Director
THE BANK OF NEW YORK
By:_________________________________
Title: Vice President
THE BANK OF NOVA SCOTIA
By:_________________________________
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, as Co-Agent
By:_____________________________
Title: Vice President
BANKERS TRUST COMPANY
By:_________________________________
Title: Vice President
BANQUE NATIONALE DE PARIS
NEW YORK BRANCH
By:____________________________________
Title: Richard L. Sted
Senior Vice President
By:_________________________________
Title: Richard Pace
Vice President, Corporate
Banking Division
CARIPLO - CASSA DI RISPARMIO
DELLE PROVINCIE LOMBARDE SPA
By:_____________________________
Title: F. Vice President
By:_____________________________
Title: F. Vice President
THE CHASE MANHATTAN BANK,
as Administrative Agent
By:_________________________________
Title: Managing Director
CITIBANK, N.A., as Co-Agent
By:_________________________________
Title: Mary W. Corkran
Vice President
COMMERZBANK AKTIENGESELLSCHAFT
New York and/or Grand Cayman Branches,
as Co-Agent
By:__________________________________
Title:
By:__________________________________
Title: A. Oliver Welsch-Lehmann
Assistant Treasurer
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK, B.A.,
"RABOBANK NEDERLAND"
By:_________________________________
Title: Ellen A. Polansky
Vice President
By:_________________________________
Title: W. Pieter C. Kodde
Vice President
CORESTATES BANK, N.A., as co-Agent
By:_____________________________
Title: Vice President
CRESTAR BANK
By:__________________________________
Title: Senior Vice President
THE DAI-ICHI KANGYO BANK LTD.,
as co-Agent
By:__________________________________
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as co-Agent
By:_____________________________
Title: Corporate Banking Officer
FLEET NATIONAL BANK
By:_____________________________
Title: Assistant Vice President
THE FUJI BANK, LIMITED,
as co-Agent
By:_________________________________
Title: Senior Vice President
ISTITUTO BANCARIO SAN PAOLO DI
TORINA S.p.A. - NEW YORK LIMITED
BRANCH, as co-Agent
By:___________________________________
Title: Vice President
By:_________________________________
Title: Vice President
MELLON BANK, N.A.
By:_____________________________
Title: Vice President
MARINE MIDLAND BANK
By:_________________________________
Title: William M. Holland
Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:_________________________________
Title: Deputy General Manager
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as co-Agent
By:_________________________________
Title: Charles H. King
Vice President
NATIONAL WESTMINSTER BANK PLC
By:_________________________________
Title: Vice President
NATIONSBANK, N.A., as co-Agent
By:_________________________________
Title: Senior Vice President
THE NORINCHUKIN BANK, NEW YORK BRANCH
By:_________________________________
Title: Takeshi Akimoto
General Manager
THE NORTHERN TRUST COMPANY
By:_________________________________
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By:_________________________________
Title: Vice President
ROYAL BANK OF CANADA
By:_________________________________
Title: Manager
ROYAL BANK OF CANADA
GRAND CAYMAN BRANCH
By:_________________________________
Title: Senior Manager
THE SAKURA BANK, LIMITED
By:_________________________________
Title: Yasumasa Kikuchi
Senior Vice President
THE SANWA BANK LTD, NEW YORK
BRANCH
By:_________________________________
Title: Joseph E. Leo
Vice President & Area Manager
STANDARD CHARTERED BANK
By:_________________________________
Title: Brian S. Taylor
Vice President
THE SUMITOMO TRUST & BANKING CO., LTD,
NEW YORK BRANCH
By:_________________________________
Title: Suraj Bhatia
Senior Vice President
THE SUMITIMO TRUST & BANKING CO.
By:_________________________________
Title:
SUNTRUST BANK, INC.
By:_________________________________
Title: Group Vice President
SWISS BANK CORPORATION, NEW YORK BRANCH
as co-Agent
By:_________________________________
Title: William S. Lutkins
Associate Director, Credit Risk
Management
By:_________________________________
Title: Dorothy L. McKinley
Associate Director, Banking
Finance Support, N.A.
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By:_________________________________
Title: Deputy General Manager
TORONTO DOMINION (NEW YORK), INC.
By:_________________________________
Title: Debbie A. Greene
Vice President
THE TOYO TRUST & BANKING CO., LTD.
NEW YORK BRANCH
By:_________________________________
Title: Vice President
WACHOVIA BANK OF GEORGIA, N.A.,
as co-Agent
By:_________________________________
Title: Vice President
THIRD AMENDMENT TO B CREDIT AGREEMENT
Third Amendment (this "Amendment"), dated as of July 31, 1997 among
Sherwood Medical Company, A.H. Robins Company, Incorporated and AC Acquisition
Holding Company (each, a "Subsidiary Borrower"), American Home Products
Corporation (the "Company", and together with the Subsidiary Borrowers, the
"Borrowers"), the lending institutions party to the B Credit Agreement referred
to below (the "Banks") and The Chase Manhattan Bank, as Agent (in such capacity,
the "Agent"). All capitalized terms used herein and not otherwise defined shall
have the respective meanings provided such terms in the B Credit Agreement
referred to below.
W I T N E S S E T H :
WHEREAS, the Borrowers, the Banks and the Agent are parties to a Credit
Agreement, dated as of September 9, 1994 (as heretofore amended, the "B Credit
Agreement");
WHEREAS, the parties hereto wish to amend the B Credit Agreement as herein
provided;
NOW THEREFORE, it is agreed:
1. The first recital of the B Credit Agreement is hereby amended by
deleting the amount "3,000,000,000" in its entirety and inserting in lieu
thereof the amount of "2,500,000,000".
2. Section 1.1 of the B Credit Agreement is hereby amended by deleting
the definition of "Applicable Margin" in its entirety and inserting in lieu
thereof the following new definition:
"Applicable Margin": for any day, the rate per annum set forth below
opposite the Rating Period then in effect, it being understood that the
Applicable Margin for (x) Alternate Base Rate Loans shall be the percentage set
forth under the column "Alternate Base Rate Margin", (y) C/D Rate Loans shall be
the percentage set forth under the column "C/D Rate Margin" and (z) Eurodollar
Rate Loans shall be the percentage set forth under the column "Eurodollar Rate
Margin":
Alternative Eurodollar
Rating Base Rate C/D Rate- Rate
Period Margin Margin Margin
Category A Period 0% .2300% .1050%
Category B Period 0% .2500% .1250%
Category C Period 0% .2525% .1275%
Category D Period 0% .2850% .1600%
Category E Period 0% .3500% .2250%
3. Section 1.1 of the B Credit Agreement is hereby amended by deleting
the definition of "Facility Fee Percentage" in its entirety and inserting in
lieu thereof the following definition:
""Facility Fee Percentage": a percentage equal to at any time (i)
during a Category A Period, .0450%, (ii) during a Category B Period,
.0500%, (iii) during a Category C Period, .0600%, (iv) during a
Category D Period, .0900% and (v) during a Category E Period, .1250%."
4. Section 1.1 of the B Credit Agreement is hereby amended by deleting
clause (a) of the definition of "Termination Date" in its entirety and inserting
in lieu thereof "(a) July 31, 2002 and ".
5. In order to induce the Agent and the Banks to enter into this
Amendment, the Borrowers hereby represent and warrant that (x) no Default or
Event of Default exists on the Third Amendment Effective Date (as defined
herein) both before and after giving effect to this Amendment and (y) all of the
representations and warranties contained in the Credit Documents shall be true
and correct in all material respects on the Third Amendment Effective Date both
before and after giving effect to this Amendment with the same effect as though
such representations and warranties had been made on and as of the Third
Amendment Effective Date (it being understood that any representation or
warranty made as of a specific date shall be true and correct in all material
respects as of such specific date).
6. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the B Credit
Agreement or any other Credit Document.
7. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Company and the Agent.
8. This Amendment and the rights and obligations of the parties hereunder
shall be construed in accordance with and governed by the law of the State of
New York.
9. Notwithstanding anything to the contrary contained in the B Credit
Agreement or this Amendment, for purposes of this Amendment "Banks" shall mean
each of the lending institutions who shall have delivered (including by way of
telecopier) by July 30, 1997 (or such later date as the Agent and the Company
shall agree) a signed copy hereof to the Agent as provided in Section 8.2 of the
B Credit Agreement that has been accepted by the Company.
10. As of the Third Amendment Effective Date, (v) Schedule I to the B
Credit Agreement shall be revised to read as set forth on Annex I hereto, (w)
Schedule II to the B Credit Agreement shall be revised by the Agent to give
effect to such revised Schedule I and (x) the Banks shall constitute all the
Lenders and no other entity that had been a Lender will continue to be a Lender,
(y) either (A) all amounts owing to Lenders prior to July 30, 1997 who are not
Banks (the "Former Lenders") shall be paid to such Former Lenders or (B) such
Former Lenders shall assign their Commitments to one or more Banks and (z) no
such Former Lender will continue to be a Lender.
11. This Amendment shall become effective as of the date hereof (the
"Third Amendment Effective Date") on the date upon which (x) each of the
Borrowers, the Agent and the Banks (as defined in paragraph 9) with Commitments
as set forth on Annex I hereto aggregating $2,500,000,000 shall have signed a
copy hereof (whether the same or different copies) and shall have delivered
(including by way of telecopier) the same to the Agent as provided in Section
8.2 of the B Credit Agreement and (y) the Third Amendment to the A Credit
Agreement, dated as of the date hereof, has become effective.
12. From and after the Third Amendment Effective Date, all references in
the B Credit Agreement and each of the other Credit Documents to the B Credit
Agreement shall be deemed to be references to the B Credit Agreement after
giving effect to this Amendment.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered as of the date first above
written.
AMERICAN HOME PRODUCTS CORPORATION
By:_________________________________
Title: Vice President - Finance
SHERWOOD MEDICAL COMPANY
By:
Title: Vice President
A. H. ROBINS COMPANY, INCORPORATED
By:_________________________________
Title: Vice President and Treasurer
AC ACQUISITION HOLDING COMPANY
By:_________________________________
Title: Vice President and Treasurer
BANCA COMMERCIALE ITALIANA
NEW YORK BRANCH
By:_________________________________
Title: Charles Daugherty,Vice President
By:_________________________________
Title: K. Purelis, Vice President
BANCA DI ROMA
By:_________________________________
Title: Virgina Mahler Cosenza
Assistant Vice President
By:_________________________________
Title: Vice President
BANCA MONTE DEI PASCHI DI SIENA, S.p.A.
By:_________________________________
Title: S.V.P. and General Manager
By:_________________________________
Title: Brian R. Landy
Vice President
BANCA NAZIONALE DEL LAVORO S.p.A.
NEW YORK BRANCH
By:_________________________________
Title: Giuliano Violetta
First Vice President
By:_________________________________
Title: Giulio Giovine
Vice President
BANCA POPOLARE DI MILANO
By:_________________________________
Title: Anthony Franco
Executive Vice President & GM
By:_________________________________
Title: Fulvio Montanari
First Vice President
BANK OF AMERICA NT & SA
By:_________________________________
Title: Vice President
BANK OF IRELAND
By:_________________________________
Title:
BANK OF MONTREAL
By:_________________________________
Title: Sharron P. Walsh
Director
THE BANK OF NEW YORK
By:_________________________________
Title: Vice President
THE BANK OF NOVA SCOTIA
By:_________________________________
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, as Co-Agent
By:_____________________________
Title: Vice President
BANKERS TRUST COMPANY
By:_________________________________
Title: Vice President
BANQUE NATIONALE DE PARIS
NEW YORK BRANCH
By:____________________________________
Title: Richard L. Sted
Senior Vice President
By:_________________________________
Title: Richard Pace
Vice President, Corporate
Banking Division
CARIPLO - CASSA DI RISPARMIO
DELLE PROVINCIE LOMBARDE SPA
By:_____________________________
Title: F. Vice President
By:_____________________________
Title: F. Vice President
THE CHASE MANHATTAN BANK,
as Administrative Agent
By:_________________________________
Title: Managing Director
CITIBANK, N.A., as Co-Agent
By:_________________________________
Title: Mary W. Corkran
Vice President
COMMERZBANK AKTIENGESELLSCHAFT
New York and/or Grand Cayman Branches,
as Co-Agent
By:__________________________________
Title:
By:__________________________________
Title: A. Oliver Welsch-Lehmann
Assistant Treasurer
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK, B.A.,
"RABOBANK NEDERLAND"
By:_________________________________
Title: Ellen A. Polansky
Vice President
By:_________________________________
Title: W. Pieter C. Kodde
Vice President
CORESTATES BANK, N.A., as co-Agent
By:_____________________________
Title: Vice President
CRESTAR BANK
By:__________________________________
Title: Senior Vice President
THE DAI-ICHI KANGYO BANK LTD.,
as co-Agent
By:__________________________________
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as co-Agent
By:_____________________________
Title: Corporate Banking Officer
FLEET NATIONAL BANK
By:_____________________________
Title: Assistant Vice President
THE FUJI BANK, LIMITED,
as co-Agent
By:_________________________________
Title: Senior Vice President
ISTITUTO BANCARIO SAN PAOLO DI
TORINA S.p.A. - NEW YORK LIMITED
BRANCH, as co-Agent
By:___________________________________
Title: Vice President
By:_________________________________
Title: Vice President
MELLON BANK, N.A.
By:_____________________________
Title: Vice President
MARINE MIDLAND BANK
By:_________________________________
Title: William M. Holland
Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:_________________________________
Title: Deputy General Manager
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as co-Agent
By:_________________________________
Title: Charles H. King
Vice President
NATIONAL WESTMINSTER BANK PLC
By:_________________________________
Title: Vice President
NATIONSBANK, N.A., as co-Agent
By:_________________________________
Title: Senior Vice President
THE NORINCHUKIN BANK, NEW YORK BRANCH
By:_________________________________
Title: Takeshi Akimoto
General Manager
THE NORTHERN TRUST COMPANY
By:_________________________________
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By:_________________________________
Title: Vice President
ROYAL BANK OF CANADA
By:_________________________________
Title: Manager
ROYAL BANK OF CANADA
GRAND CAYMAN BRANCH
By:_________________________________
Title: Senior Manager
THE SAKURA BANK, LIMITED
By:_________________________________
Title: Yasumasa Kikuchi
Senior Vice President
THE SANWA BANK LTD, NEW YORK
BRANCH
By:_________________________________
Title: Joseph E. Leo
Vice President & Area Manager
STANDARD CHARTERED BANK
By:_________________________________
Title: Brian S. Taylor
Vice President
THE SUMITOMO TRUST & BANKING CO., LTD,
NEW YORK BRANCH
By:_________________________________
Title: Suraj Bhatia
Senior Vice President
THE SUMITIMO TRUST & BANKING CO.
By:_________________________________
Title:
SUNTRUST BANK, INC.
By:_________________________________
Title: Group Vice President
SWISS BANK CORPORATION, NEW YORK BRANCH
as co-Agent
By:_________________________________
Title: William S. Lutkins
Associate Director, Credit Risk
Management
By:_________________________________
Title: Dorothy L. McKinley
Associate Director, Banking
Finance Support, N.A.
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By:_________________________________
Title: Deputy General Manager
TORONTO DOMINION (NEW YORK), INC.
By:_________________________________
Title: Debbie A. Greene
Vice President
THE TOYO TRUST & BANKING CO., LTD.
NEW YORK BRANCH
By:_________________________________
Title: Vice President
WACHOVIA BANK OF GEORGIA, N.A.,
as co-Agent
By:_________________________________
Title: Vice President
American Home Products Corporation
MANAGEMENT INCENTIVE PLAN
(As amended by the Board of Directors on February 6, 1997 and as approved by
stockholders on April 28, 1997.)
I. Purpose
The Management Incentive Plan (the "Plan") is maintained by the Corporation
primarily for the purpose of providing immediate and deferred incentive
compensation for a select group of management and highly compensated employees
and is designed to provide for awards to selected key salaried employees in
executive, administrative, technical, professional or other important
capacities, who individually, or as members of a group, contribute in a
substantial degree to the success of the Company, thus affording to them a means
of participating in that success and an incentive to contribute further to that
success.
II. Definitions
The following words and phrases as used herein shall have the meanings set
forth below:
(1) "Company" shall mean American Home Products Corporation (the
Corporation), and any corporation, domestic or foreign, 50% or more of whose
share voting power is held, directly or indirectly, by the Company.
(2) "Employee" shall mean any key salaried employee of the Company whether
or not an Officer or Director, including individuals whose employment has
terminated during the applicable year by reason of death or retirement.
(3) "Committee" shall mean the Compensation and Benefits Committee
consisting of three or more Corporation Directors who are not Employees.
(4) "Average Net Capital" shall mean the average of the beginning and
ending balances, shown in the Corporation's Consolidated Balance Sheet, of the
Stockholders' Equity and funded debt.
(5) "Net Income" shall mean the "net income for year," after taxes, shown
in the Corporation's Consolidated Statement of Income, adjusted, however, by
adding any amount by which such net income after taxes has been reduced by
provision for awards under the Plan.
(6) "Incentive Earnings" shall mean the excess of Net Income for any year
over the greater of (a) an amount equal to 12% of Average Net Capital or b) an
amount equal to $.375 multiplied by the average number of shares of the
Corporation's Common Stock outstanding at the close of business on each day of
the year assuming full conversion of the Corporation's Preferred Stock. The
amount of Incentive Earnings shall be reported to the Committee by the
Corporation's Treasurer as promptly after the close of the year as is practical;
provided, however, that such Incentive Earning's and awards based thereon shall
be adjusted downward, if necessary, to reflect the net income for the year
certified by the Corporation's independent public accountants as adjusted as
provided in II (5) above. In the event of stock split, stock dividend or other
relevant change in the Corporation's capitalization, the Committee shall,
subject to the approval of the Board of Directors, appropriately adjust such
$.375 per share of the Corporation's Common Stock.
(7) "Award Fund" shall mean the amount, not in excess of 12% of Incentive
Earnings, which is recommended by the Committee and approved by the Board of
Directors as the maximum amount to be used for awards under the Plan for the
applicable year. Any unawarded portion of the Award Fund shall not be available
for awards for subsequent years.
III. Administration
The Plan shall be administered by the Committee which may make such
determinations, make such awards and take such other action in connection with
the Plan as it deems necessary, taking into consideration the recommendations of
management. Such determinations, awards and action shall be binding and
conclusive for all purposes and upon all persons unless and except to the extent
that the Board of Directors of the Company shall have previously directed that
all or specified types of action by the Committee shall be subject to approval
by the Board of Directors.
IV. Eligibility
The individuals eligible to receive awards under the Plan shall be such
Employees as the Committee shall determine each year.
V. Awards
The Committee shall determine the awards to be made for any year subject to
the following: (1) the award amounts payable with respect to any year to an
Employee who for such year is the Chief Executive Officer of the Corporation or
one of the Corporation's four other highest compensated officers (as determined
in accordance with Section 162(m) of the Internal Revenue Code of 1986, as
amended) shall not exceed 3% of the Award Fund, and, (2) the portion of the
Award Fund remaining after the awards to the Employees in (1) above shall be
available for awards to other Employees in such amounts as the Committee
determines. In no event, however, shall the amount of an award payable to any
Employee exceed the Employee's total compensation for the year, excluding only
any award under the Plan. Awards may be in whole or in part (a) current and
payable in cash ("Cash Award"), or (b) deferred and conditional and payable (i)
in cash ("Contingent Cash Award") or (ii) in shares of the Corporation's Common
Stock ("Contingent Stock Award"). The aggregate number of shares of the
Corporation's Common Stock which may be issued under the Plan shall be
24,000,000 (plus the number of shares credited in respect of dividends as
hereinafter provided) and all such shares shall be from Treasury Stock or from
authorized and unissued shares as the Board of Directors shall from time to time
determine. In the event of stock split, stock dividend or other relevant change
in the Corporation's capitalization, the Committee shall, subject to the
approval of the Board of Directors, appropriately adjust such maximum number of
shares.
Insofar as the Committee has not predetermined the manner of payment of
awards, whether in terms of individuals or classifications on the basis of age,
salary, amount of award or other criteria, the Committee may permit eligible
Employees to indicate a preference, which shall not be binding on the Committee,
within limits established by the Committee, that all or any portion of an award
be a Cash Award, a Contingent Cash Award or a Contingent Stock Award.
VI. Payment of Awards
(1) Cash Awards
The amount of each Cash Award shall be paid in cash as soon as practicable
after the close of the calendar year for which the award is made.
(2) Contingent Cash Awards
The Company shall credit the amount of each Contingent Cash Award to the
Employee's Contingent Award Account and shall, subject to the conditions of
paragraph VI(4), pay the same out in equal installments on the five succeeding
anniversaries of the date of the award.
(3) Contingent Stock Awards
(a) The amount of each Contingent Stock Award shall be used to determine
the largest full number of shares of the Corporation's Common Stock which such
amount would purchase at the average closing market price of such Common Stock
on the Consolidated Transaction Reporting System for the last five business
days, on which at least one sale of such Common Stock took place on such System,
of the calendar year for which the award is made. The Company shall credit the
Employee's Contingent Award Account as of the date of the award with the number
of shares so determined. At no time after such credit and prior to the delivery
of the shares so credited shall any of such shares be earmarked for his or her
account, nor shall he or she have any of the rights of a stockholder with
respect to such shares. Any excess of the Contingent Stock Award remaining after
such computation of shares of stock shall be carried forward and treated as an
addition to any future award to the Employee; provided, however, that any such
excess remaining after termination of the Employee's employment shall be paid to
him or her in cash at the time of the first delivery from his or her Contingent
Award Account.
As of December 31 of each year, the Corporation shall determine the amount
of the dividends which would have been paid during such calendar year with
respect to the number of shares credited in each Contingent Award Account at the
record date for each such dividend payment had the shares so credited then been
issued and outstanding. The Employee's Contingent Award Account shall be
credited with the largest full number of shares of the Corporation's Common
Stock purchasable with the above determined amount at the average closing market
price of such Common Stock on the Consolidated Transaction Reporting System, for
the last five business days, on which at least one sale of such Common Stock
took place on such System, of the calendar year (such share credits in respect
of dividends shall not be deemed awards under the Plan). The cash equivalent of
any excess thereafter remaining shall be carried forward and treated as an
addition to the next succeeding year's dividends on the shares credited to the
Employee's Contingent Award Account; provided, however, that the cash equivalent
of any such excess remaining after final delivery from the Employee's Contingent
Award Account shall be paid to him or her in cash.
In the event of stock split, stock dividend or other relevant change in the
Corporation's capitalization, the Committee shall, subject to the approval of
the Board of Directors, appropriately adjust the shares of stock theretofore
credited to the Contingent Award Accounts.
(b) The Company shall, subject to the conditions of paragraph VI(4),
deliver to the Employee the shares of stock credited to his or her Contingent
Award Account in approximately equal installments as soon as practicable after
the first day of January of each of the five years following any termination of
his or her employment, unless the Committee shall otherwise determine.
(c) Notwithstanding any other provisions hereof, the Committee may in its
absolute discretion provide, with respect to any Contingent Stock Award made to
any participant or participants under the Plan, that in the event of any
delivery of shares of Common Stock by the Company pursuant to such Contingent
Stock Award, the number of such shares which the recipient thereof shall be
entitled to receive and which shall be delivered by the Company shall be (i) the
number of such shares which would have been delivered in the absence of this
paragraph VI(3)(c), minus (ii) the number of whole shares of Common Stock
necessary to satisfy the minimum federal, state and/or local income tax
withholding obligations which are imposed on the Company by applicable law in
respect of the delivery of such award (and which may be satisfied by the
reduction effected hereby in the number of deliverable shares), it being
understood that the value of the shares referred to in clause (ii) above shall
be determined, for the purposes of satisfying such withholding obligations, on
the basis of the average of the high and low per share prices for the Common
Stock as reported on the Consolidated Transaction Reporting System on the date
of authorization of delivery by the Committee, or on such other reasonable basis
for determining fair market value as the Committee may from time to time adopt.
Notwithstanding any term or provision of this paragraph VI(3)(c), in determining
the total number of shares authorized for issuance under the Plan pursuant to
paragraph V hereof and in calculating the limit set forth in paragraph V hereof
on the number of shares which may be awarded to any individual Employee under
the Plan, the reduction in the number of shares effected by this paragraph
VI(3)(c) shall not be taken into account.
(4) Conditions of Payment of Contingent Awards
(a) In the event that the Employee is discharged for, or after any other
termination of employment is found while employed by the Company to have engaged
in, deliberate gross misconduct, as determined by the Company, no further
payment or delivery shall thereafter be made in respect of his or her Contingent
Cash or Stock Awards and all his or her rights with respect to his or her
Contingent Cash or Stock Awards and all his or her rights with respect to his or
her Contingent Award Account shall thereupon be forfeited.
(b) In the event of termination of the Employee's employment prior to his
or her retirement for reasons other than death or discharge for deliberate gross
misconduct, as determined by the Company, any unpaid installments of his or her
Contingent Cash Awards and any undelivered shares of stock from his or her
Contingent Award Account shall, subject to the conditions set forth in paragraph
(d) below, be paid or delivered to him or her at the dates and in the
installments originally determined.
(c) In the event of the Employee's death, any unpaid installments of his or
her Contingent Cash Awards shall be paid and any undelivered shares of stock
from his or her Contingent Award Account shall be paid or delivered at the dates
and in the installments originally determined, unless the Committee shall
otherwise determine, to or as directed by his or her legal representative, or
legatee or such other person designated by an appropriate court as the person
entitled to receive the same, provided that the Employee was employed by the
Company at the time of his or her death or up to the date of his or her death
had complied with the conditions set forth in paragraph (d) below.
(d) No payment of a Contingent Cash Award or delivery from a Contingent
Award Account shall be made to any Employee after termination of employment
unless he or she shall have to the date fixed for such payment or delivery (i)
refrained from becoming or serving as an officer, director or employee of any
individual, partnership or corporation, or the owner of a business, or a member
of a partnership which conducts a business in competition with the Company or
renders a service (including, without limitations, advertising agencies and
business consultants) to competitors with any portion of the business of the
Company, (ii) made himself or herself available, if so requested by the Company,
at reasonable times and upon a reasonable basis to consult with, supply
information to, and otherwise cooperate with, the Company and (iii) refrained
from engaging in deliberate action which, as determined by the Committee, causes
substantial harm to the interests of the Company. If these conditions are not
fulfilled, no further payment or delivery shall thereafter be made with respect
to the Employee's Contingent Cash or Stock Awards and all his or her rights with
respect to his or her Contingent Award Account shall thereupon be forfeited.
VII. Limitations
No Employee, whether or not deemed eligible or offered an opportunity to
indicate a preference under the Plan, or other person shall have any claim or
right (legal, equitable or other) to be granted an award under the Plan, and no
Director, Officer, Employee of the Company or any other person shall have the
authority to enter into any agreement with any person for the making or payment
of an award or to make any representation or warranty with respect thereto.
No Employee to whom a Contingent Award has been made shall have any rights
to his or her Contingent Award Account other than to receive the Contingent
Award at the time and in the form determined by the Committee, subject to the
fulfillment of the conditions prescribed herein, which right may not be
assigned, transferred or pledged during his or her lifetime.
Neither the action of the Corporation in establishing the Plan nor any
action taken by it or by the Committee under the provisions hereof, nor any
provision of the Plan, shall be construed as giving to any Employee the right to
be retained in the employ of the Company.
VIII. Amendment, Suspension or Termination of the Plan in Whole or in Part
The Board of Directors may discontinue the Plan at any time and may from
time to time amend the terms of the Plan; provided, however, that no such
discontinuance or amendment shall adversely affect any right or obligation with
respect to any award theretofore made, and no such amendment shall, without the
approval of stockholders, operate so as to increase the annual amount of the
Award Fund or increase the aggregate number of shares of the Corporation's
Common Stock that may be issued under the Plan.
IX. Construction
The Plan shall be governed by and construed in accordance with the laws of
the State of New York.
American Home Products Corporation
1996 STOCK INCENTIVE PLAN
(As approved by stockholders on April 23, 1996 and as amended by the Board of
Directors through March 5, 1998)
Section 1. Purpose. The purpose of the 1996 Stock Incentive Plan (the
"Plan") is to provide favorable opportunities for officers and other key
employees of American Home Products Corporation (the "Company") and its
subsidiaries to acquire shares of Common Stock of the Company or to benefit from
the appreciation thereof. Such opportunities should provide an increased
incentive for these employees to contribute to the future success and prosperity
of the Company, thus enhancing the value of the stock for the benefit of the
stockholders, and increase the ability of the Company to attract and retain
individuals of exceptional skill upon whom, in large measure, its sustained
progress, growth and profitability depend.
Pursuant to the Plan, options to purchase the Company's Common Stock
("Options") and Stock Appreciation Rights may be granted and Restricted Stock
may be awarded by the Company. Options granted under the Plan may be either
incentive stock options, as defined in Section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code"), or options which do not meet the
requirements of said Section 422(b) of the Code, herein referred to as non-
qualified stock options.
It is intended, except as otherwise provided herein, that incentive stock
options may be granted under the Plan and that such incentive stock options
shall conform to the requirements of Section 422 and 424 of the Code and to the
provisions of this Plan and shall otherwise be as determined by the Committee
and, to the extent provided in the last sentence of Section 2 hereof, approved
by the Board of Directors. The terms "subsidiaries" and "subsidiary
corporation" shall have the meanings given to them by Section 424 of the Code.
All section references to the Code in this Plan are intended to include any
amendments or substitutions therefor subsequent to the adoption of the Plan.
Section 2. Administration. The Plan shall be administered by a
Compensation and Benefits Committee (the "Committee") consisting of two or more
members of the Board of Directors of the Company, each of whom shall be (i) a
"disinterested person" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and (ii) an "outside
director" within the meaning of Section 162(m) of the Code. The Committee shall
have full authority to grant Options and Stock Appreciation Rights, and make
Restricted Stock awards, to interpret the Plan and to make such rules and
regulations and establish such procedures as it deems appropriate for the
administration of the Plan, taking into consideration the recommendations of
management. Notwithstanding the foregoing and anything else in the Plan to the
contrary, the Committee may from time to time delegate the Finance Committee of
the Company (the "Finance Committee") the authority to grant, and the Finance
Committee shall thereafter have the authority to grant on behalf of the
Committee, in accordance with rules and procedures adopted from time to time by
the Committee, Options under the Plan with respect to not more than 1,200,000
shares of the Company's Common Stock in any calendar year to new key employees
of the Company and its subsidiaries upon their employment or promotion, provided
that such employees are not then subject to Section 16 of the Securities
Exchange Act of 1934, as amended, and the effective date of the grant of each
such Option shall be deemed for all purposes to be the date the Finance
Committee approves such grant. The decisions of the Committee shall be binding
and conclusive for all purposes and upon all persons unless and except to the
extent that the Board of Directors of the Company shall have previously directed
that all or specified types of decisions of the Committee shall be subject to
approval by the Board of Directors.
Section 3. Number of Shares. The total number of shares which may be sold
or awarded under the Plan and with respect to which Stock Appreciation Rights
may be exercised shall not exceed 15,000,000 shares of the Company's Common
Stock. Such number shall be, without further action, adjusted to 30,000,000 in
accordance with Section 8 hereof upon the consummation of a two-for-one stock
split (in the form of a dividend) anticipated to occur in 1996. The total
number of shares which may be sold or awarded under the Plan to any optionee
(hereinafter defined), including shares for which Stock Appreciation Rights may
be exercised, shall not exceed 10% of such number, as and if adjusted, over the
life of the Plan. The shares may be authorized and unissued or issued and
reacquired shares, as the Board of Directors from time to time may determine.
Shares with respect to which Options or Stock Appreciation Rights are not
exercised prior to termination of the Option and shares that are part of a
Restricted Stock award which are forfeited before the restrictions lapse shall
be available for Options and Stock Appreciation Rights thereafter granted and
for Restricted Stock thereafter awarded under the Plan, to the fullest extent
permitted by Rule 16b-3 under the Exchange Act (if applicable at the time).
Section 4. Participation. The Committee may, from time to time, select
and grant Options and Stock Appreciation Rights to officers (whether or not
directors) and other key employees of the Company and its subsidiaries
("optionees") and award Restricted Stock to officers (whether or not directors)
and other key employees of the Company and its subsidiaries and shall determine
the number of shares subject to each Option or award.
Section 5. Terms and Conditions of Options. The terms and conditions of
each Option and each Stock Appreciation Right shall be set forth in an agreement
or agreements between the Company and the optionee. Such terms and conditions
shall include the following as well as such other provisions, not inconsistent
with the Plan, as may be deemed advisable by the Committee:
(a) Number of Shares. The number of shares subject to the Option.
(b) Option Price. The option price per share (the "Option Price"), which
shall not be less than 100% of the fair market value of the Company's Common
Stock on the date the Option is granted. Fair market value shall be deemed to
be the mean between the highest and lowest sale prices of the Common Stock on
the Consolidated Transaction Reporting System on the date the Option is granted.
(c) Date of Grant. Subject to previous directions of the Board of
Directors pursuant to the last sentence of Section 2, the date of grant of an
Option shall be the date when the Committee meets and awards such Option.
(d) Payment. The Option Price multiplied by the number of shares to be
purchased by exercise of the Option shall be paid upon the exercise thereof.
Unless the terms of an Option provide to the contrary, upon exercise, the
aggregate Option Price shall be payable by delivering to the Company (i) cash
equal to such aggregate Option Price, (ii) shares of the Company's Common Stock
owned by the grantee having a fair market value (determined in accordance with
Section 5(b)) at least equal to such aggregate Option Price, (iii) a combination
of any of the above methods which total to such aggregate Option Price, or (iv)
any other form of consideration which has been approved by the Committee,
including under any approved cashless exercise mechanism; and payment of such
aggregate Option Price by any such means shall be made and received by the
Company prior to the delivery of the shares as to which the Option was
exercised. The right to deliver in full or partial payment of such Option Price
any consideration other than cash shall be limited to such frequency as the
Committee shall determine in its absolute discretion. A holder of an Option
shall have none of the rights of a stockholder until the shares are issued to
him or her; provided that if an optionee exercises an Option and the appropriate
purchase price is received by the Company in accordance with this Section 5(d)
prior to any dividend record date, such optionee shall be entitled to receive
the dividends which would be paid on the shares subject to such exercise if such
shares were outstanding on such record date.
(e) Term of Options. Each Option granted pursuant to the Plan shall be for
the term specified in the applicable option agreement (the "Option Agreement")
subject to earlier termination in all cases as provided in paragraph (g) of this
Section.
(f) Exercise of Option. Options granted under the Plan may be exercised
during the period and in accordance with the conditions set forth in the Plan
and the applicable Option Agreement; provided, however, that (i) no option
granted under the Plan may be exercisable earlier than the later of (A) one year
from the date of grant or (B) the date on which the optionee completes two years
of continuous employment with the Company or one or more of its subsidiaries and
(ii) in the event of an optionee's death, Retirement (as defined below) or
Disability (as defined below), any options held by such optionee shall become
exercisable on his or her Retirement date, the date his or her employment
terminates on account of Disability or the date of his or her death provided he
or she has been in the continuous employment of the Company or one or more of
its subsidiaries for at least two years at such time. No Option may be
exercised after it is terminated as provided in paragraph (g) of this Section,
and no Option may be exercised unless the optionee, except as provided in
paragraph (g) of this Section, is then employed by the Company or any of its
subsidiaries and shall have been continuously employed by the Company or one or
more of such subsidiaries since the date of the grant of his or her Option.
Non-qualified stock options and incentive stock options may be exercised
regardless of whether or not other Options granted to the optionee pursuant to
the Plan are outstanding or whether or not other stock options granted to the
optionee pursuant to any other plan are outstanding.
(g) Termination of Options. An Option, to the extent not validly
exercised, shall terminate upon the occurrence of the first of the following
events:
(i) On the date specified in the Option Agreement;
(ii) Three years after the date of termination of the optionee's
employment by the Company or its subsidiaries due to "Retirement" (defined
as termination of full time employment on or after the earliest retirement
age under any qualified retirement plan of the Company or its subsidiaries
which covers the optionee, or age 55 with 5 continuous years of such
employment if there is no such plan) or "Disability" (defined as disability
for purposes of at least one qualified retirement plan or long term
disability plan maintained by the Company or its subsidiaries in which the
optionee participates), during which three year period the optionee may
exercise the Option to the extent he or she was entitled to exercise it at
the time of such termination or such shorter period as may be provided in
the Option Agreement;
(iii) Three years after the date of the optionee's death during
which three year period the Option may be exercised by the optionee's legal
representative or legatee or such other person designated by an appropriate
court as the person entitled to exercise such Option to the extent the
optionee was entitled to exercise it at the time of his or her death;
(iv) Three months after termination by the Company or one of its
subsidiaries of the optionee's employment for any reason other than death,
Retirement, Disability or deliberate gross misconduct, determined in the
sole discretion of the Committee, during which three month period the
Option may be exercised by the optionee to the extent the optionee was
entitled to exercise it at the time of such termination;
(v) Concurrently with the time of termination by the Company or one of
its subsidiaries of the optionee's employment for deliberate gross
misconduct, determined in the sole discretion of the Committee (for
purposes only of this subparagraph (v) an Option shall be deemed to be
exercised when the optionee has received the stock certificate representing
the shares for which the Option was exercised); or
(vi) Concurrently with the time of termination by the employee of
his or her employment with the Company or one of its subsidiaries for
reasons other than Retirement, Disability or death.
Notwithstanding the above, no Option shall be exercisable after
termination of employment unless the optionee shall have, during the entire
time period in which his or her Options are exercisable, (a) refrained from
becoming or serving as an officer, director, partner or employee of any
individual proprietorship, partnership or corporation, or the owner of a
business, or a member of a partnership which conducts a business in
competition with the Company or renders a service (including without
limitation, advertising agencies and business consultants) to competitors
with any portion of the business of the Company, (b) made himself or
herself available, if so requested by the Company, at reasonable times and
upon a reasonable basis to consult with, supply information to, and
otherwise cooperate with, the Company and (c) refrained from engaging in
deliberate action which, as determined by the Committee, causes substantial
harm to the interests of the Company. If these conditions are not
fulfilled, the optionee shall forfeit all rights to any unexercised Option
as of the date of the breach of the condition.
Notwithstanding the provisions of subparagraphs (ii) and (iii) of this
Section 5(g), an Option granted under the Plan to an optionee who dies or
terminates employment due to Retirement or Disability before this Plan is
approved by the stockholders of the Company, to the extent not validly
exercised, shall terminate three years after the date the Plan is approved
by the stockholders of the Company.
(h)Non-transferability of Options and Stock Appreciation Rights. Options
and Stock Appreciation Rights shall not be transferable by the optionee other
than by will or the laws of descent and distribution, and Options and Stock
Appreciation Rights shall during his or her lifetime be exercisable only by the
optionee; provided, however, that the Committee may, in its sole discretion,
allow for transfer of Options (other than incentive stock options, unless such
transferability would not adversely affect incentive stock option tax treatment)
to other persons or entities, subject to such conditions or limitations as it
may establish to ensure that transactions with respect to Options intended to be
exempt from Section 16(b) of the Exchange Act pursuant to Rule 16b-3 under the
Exchange Act do not fail to maintain such exemption as a result of the Committee
causing Options to be transferrable, or for other purposes; provided further,
however, that for any Option that is transferred, other than by the laws of
descent and distribution, any related Stock Appreciation Right shall be
extinguished.
(i)Applicable Laws or Regulations. The Company's obligation to sell and
deliver stock under the Option is subject to such compliance as the Company
deems necessary or advisable with federal and state laws, rules and regulations.
(j)Limitations on Incentive Stock Options. To the extent that the
aggregate fair market value of the Company's Common Stock, determined at the
time of grant in accordance with the provisions of Section 5(b), with respect to
which incentive stock options granted under this or any other Plan of the
Company are exercisable for the first time by an optionee during any calendar
year exceeds $100,000, or such other amount as may be permitted under the Code,
such excess shall be considered non-qualified stock options.
Notwithstanding anything in the Plan to the contrary, any incentive stock
option granted to any individual who, at the time of grant, is the owner,
directly or indirectly, of stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any
subsidiary thereof, shall (i) have a term not exceeding five years from the date
of grant and (ii) shall have an option price per share of not less than 110% of
the fair market value of the Company's Common Stock on the date the incentive
stock option is granted (determined in accordance with the last sentence of
Section 5(b)).
Section 6. Stock Appreciation Rights.
(a)The Committee may, in its sole discretion, from time to time grant
Stock Appreciation Rights to certain optionees in connection with any Option
granted under this Plan and in connection with Options granted under the 1990
and 1993 Stock Incentive Plans and under the 1985 Stock Option Plan. Stock
Appreciation Rights may be granted either at the time of the grant of an Option
under the Plan or at any time thereafter during the term of the Option, provided
such Stock Appreciation Rights may also be granted with respect to outstanding
Options under the 1990 and 1993 Stock Incentive Plans and the 1985 Stock Option
Plan. Stock Appreciation Rights may be granted with respect to all or part of
the stock under a particular Option.
(b)Stock Appreciation Rights shall entitle the holder of the related
Option, upon exercise, in whole or in part, of the Stock Appreciation Rights, to
receive payment in the amount and form determined pursuant to subparagraph (iii)
of paragraph (c) of this Section 6. Stock Appreciation Rights may be exercised
only to the extent that the related Option has not been exercised. The exercise
of Stock Appreciation Rights shall result in a pro rata surrender of the related
Option to the extent that the Stock Appreciation Rights have been exercised.
(c)Stock Appreciation Rights shall be subject to such terms and conditions
which are not inconsistent with the Plan as shall from time to time be approved
by the Committee and reflected in the applicable Option Agreement (or in a
separate document, which shall be considered for purposes of the Plan to be
incorporated into and part of the applicable Option Agreement), and to the
following terms and conditions.
(i) Stock Appreciation Rights shall be exercisable at such time or
times and to the extent, but only to the extent, that the Option to which
they relate shall be exercisable.
(ii) [Reserved]
(iii) Upon exercise of Stock Appreciation Rights, the holder thereof
shall be entitled to elect to receive therefor payment in the form of
shares of the Company's Common Stock (rounded down to the next whole number
so no fractional shares are issued), cash or any combination thereof in an
amount equal in value to the difference between the Option Price per share
and the fair market value per share of Common Stock on the date of exercise
multiplied by the number of shares in respect of which the Stock
Appreciation Rights shall have been exercised, subject to any limitation on
such amount which the Committee may in its discretion impose. The fair
market value of Common Stock shall be deemed to be the mean between the
highest and lowest sale prices of the Common Stock on the Consolidated
Transaction Reporting System on the date the Stock Appreciation Right is
exercised or if no transaction on the Consolidated Transaction Reporting
System occurred on such date, then on the last preceding day on which a
transaction did take place.
(iv) Any exercise of Stock Appreciation Rights by an officer or
director subject to Section 16(b) of the Exchange Act, as well as any
election by such officer or director as to the form of payment of Stock
Appreciation Rights (Common Stock, cash or any combination thereof), shall
be made during the ten-day period beginning on the third business day
following the release for publication of any quarterly or annual statement
of sales and earnings by the Company and ending on the twelfth business day
following the date of such release ("window period"). In the event that
such a director or officer exercises a Stock Appreciation Right for cash or
stock pursuant to this Section 6 during a "window period", the day on which
such right is effectively exercised shall be that day, if any, during such
"window period" which is designated by the Committee in its discretion for
all such exercises by such individuals during such period. If no such day
is designated, the day of effective exercise shall be determined in
accordance with normal administrative practices of the Plan.
(d)To the extent that Stock Appreciation Rights shall be exercised, the
Option in connection with which such Stock Appreciation Rights shall have been
granted shall be deemed to have been exercised for the purpose of the maximum
limitations set forth in the Plan under which such Options shall have been
granted. Any shares of Common Stock which are not purchased due to the
surrender in whole or in part of an Option pursuant to this Section 6 shall not
be available for granting further Options under the Plan.
Section 6A. Deferral.
(a)Notwithstanding anything herein to the contrary, an optionee may elect,
at the discretion of, and in accordance with rules which may be established by,
the Committee, to defer delivery of the proceeds of exercise of an unexercised
Option or the corresponding Stock Appreciation Right, provided such election is
irrevocable and is made (i) at least six months prior to the date that such
Option or the corresponding Stock Appreciation Right otherwise would expire and
(ii) at least one month prior to the date such Option or the corresponding Stock
Appreciation Right is exercised (or such shorter period as may be determined by
the Committee). Upon such exercise, the amount deferred shall be equal in value
to the difference between the Option Price per share and the fair market value
per share of the Common Stock on the date of exercise (determined in accordance
with Section 5(b)), multiplied by the number of shares covered by such exercise
and in respect of which the optionee shall have made the deferral election, and
shall be credited to an account in the name of the optionee on the books and
records of the Company (a "Deferred Compensation Account") at the date of
exercise. A separate Deferred Compensation Account shall be maintained with
respect to each Option or corresponding Stock Appreciation Right subject to an
effective deferral election.
(b)Interest shall be credited on amounts in the Deferred Compensation
Account from the date of exercise of the Option or the corresponding Stock
Appreciation Right to the date of payment, at the rate of interest determined by
the Committee and communicated to the optionees. The value of an optionee's
Deferred Compensation Account shall be payable in a lump sum cash payment or in
annual installments over a period not to exceed 10 years or as otherwise
determined by the Committee. At the time an optionee makes such deferral
election, the optionee shall elect the form of payment and date for lump sum
payment or commencement of annual payments of the Deferred Compensation Account,
with such date at least one year subsequent to the date of exercise of the
Option or corresponding Stock Appreciation Right, but not later than the date of
the optionee's termination of employment with Company. Notwithstanding any
election by an optionee, in the event of Disability or death of the optionee,
the optionee's Deferred Compensation Account shall be paid within 90 days in the
form of a single lump sum.
(c)Notwithstanding the deferred payment date elected by the optionee, the
Committee may, in its discretion, allow for early payment of an optionee's
Deferred Compensation Account in the event of an "unforeseeable emergency." For
this purpose, an unforeseeable emergency shall be defined as an unanticipated
emergency that is caused by an event beyond the control of the optionee and that
would result in severe financial hardship to the optionee if early withdrawal
were not permitted. Any withdrawal on account of an unforeseeable emergency
must be limited to the amount necessary to meet the emergency. The above
provisions regarding a withdrawal upon an unforeseeable emergency shall be
interpreted in accordance with published revenue procedures, regulations,
releases or interpretations. In addition, Deferred Compensation Accounts may be
distributed on an accelerated basis in the discretion of the Committee.
(d)Optionees have the status of general unsecured creditors of the Company
with respect to their Deferred Compensation Accounts, and such accounts
constitute a mere promise by the Company to make payments with respect thereto.
(e)An optionee's right to benefit payments under the Plan with respect to
the Deferred Compensation Accounts may not be anticipated, alienated, sold,
transferred, assigned, pledged, encumbered, attached or garnished by creditors
of the optionee or the optionee's beneficiary and any attempt to do so shall be
void.
Section 7. Restricted Stock Performance Awards. The Committee may, in its
sole discretion, from time to time, make awards of shares of the Company's
Common Stock or awards of units representing shares of the Company's Common
Stock, up to 2,000,000 shares in the aggregate (such number to be adjusted
without further action to 4,000,000 in accordance with Section 8 hereof upon the
consummation of the stock split referred to in Section 3), to such officers and
other key employees of the Company and its subsidiaries in such quantity, and on
such terms, conditions and restrictions (whether based on performance standards,
periods of service or otherwise) as the Committee shall establish ("Restricted
Stock"). The terms, conditions and restrictions of any Restricted Stock award
made under this Plan shall be set forth in an agreement or agreements between
the Company and the recipient of the award.
(a)Issuance of Restricted Stock. The Committee shall determine the manner
in which Restricted Stock shall be held during the period it is subject to
restrictions.
(b)Stockholder Rights. Beginning on the date of grant of the Restricted
Stock award and subject to the execution of the award agreement by the recipient
of the award and subject to the terms, conditions and restrictions of the award
agreement, the Committee shall determine to what extent the recipient of the
award has the rights of a stockholder of the Company including, but not limited
to, whether or not the employee receiving the award has the right to vote the
shares or to receive dividends or dividend equivalents.
(c)Restriction on Transferability. None of the shares or units of a
Restricted Stock award may be assigned or transferred, pledged or sold prior to
their delivery to a recipient or, in the case of a recipient's death, to the
recipient's legal representative or legatee or such other person designated by
an appropriate court; provided, however, that the Committee may, in its sole
discretion, allow for transfer of shares or units of a Restricted Stock Award to
other persons or entities.
(d)Delivery of Shares. Upon the satisfaction of the terms, conditions and
restrictions contained in the Restricted Stock award agreement or the release
from the terms, conditions and restrictions of a Restricted Stock award
agreement, as determined by the Committee, the Company shall deliver, as soon as
practicable, to the recipient of the award (or permitted transferee), or in the
case of his or her death to his or her legal representative or legatee or such
other person designated by an appropriate court, a stock certificate for the
appropriate number of shares of the Company's Common Stock, free of all such
restrictions, except for any restrictions that may be imposed by law.
(e)Forfeiture of Restricted Stock. Subject to Section 7(f), all of the
restricted shares or units with respect to a Restricted Stock award shall be
forfeited and all rights of the recipient with respect to such restricted shares
or units shall terminate unless the recipient continues to be employed by the
Company or its subsidiaries until the expiration of the forfeiture period and
the satisfaction of any other conditions set forth in the award agreement.
(f)Waiver of Forfeiture Period. Notwithstanding any other provisions of
the Plan, the Committee may, in its sole discretion, waive the forfeiture period
and any other conditions set forth in any award agreement under certain
circumstances (including the death, Disability or Retirement of the recipient of
the award or a material change in circumstances arising after the date of an
award) and subject to such terms and conditions (including forfeiture of a
proportionate number of the restricted shares) as the Committee shall deem
appropriate.
Section 8. Adjustment in Event of Change in Stock. Subject to Section 9,
in the event of stock split, stock dividend, cash dividend (other than a regular
cash dividend), combination of shares, merger, or other relevant change in the
Company's capitalization, the Committee shall, subject to the approval of the
Board of Directors, appropriately adjust the number and kind of shares available
for issuance under the Plan, the number, kind and Option Price of shares subject
to outstanding Options and Stock Appreciation Rights and the number and kind of
shares subject to outstanding Restricted Stock awards; provided, however, that
to the extent permitted in the case of incentive stock options by Sections 422
and 424 of the Code, in the event that the outstanding shares of Common Stock of
the Company are increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation, through reorganization, merger, consolidation, liquidation,
recapitalization, reclassification, stock split-up, combination of shares or
dividend, appropriate adjustment in the number and kind of shares as to which
Options may be granted and as to which Options or portions thereof then
unexercised shall be exercisable, and in the Option Price thereof, shall be made
to the end that the proportionate number of shares or other securities as to
which Options may be granted and the optionee's proportionate interests under
outstanding Options shall be maintained as before the occurrence of such event;
provided, that any such adjustment in shares subject to outstanding Options
(including any adjustments in the Option Price) shall be made in such manner as
not to constitute a modification as defined by subsection (h)(3) of Section 424
of the Code; and provided, further, that, in the event of an adjustment in the
number or kind of shares under a Restricted Stock award pursuant to this Section
8, any new shares or units issued to a recipient of a Restricted Stock award
shall be subject to the same terms, conditions and restrictions as the
underlying Restricted Stock award for which the adjustment was made.
Section 9. Effect of a Change of Control.
(a) For purposes of this Section 9, "Change in Control" shall, unless the
Board of Directors of the Company otherwise directs by resolution adopted prior
thereto or, in the case of a particular award, the applicable award agreement
states otherwise, be deemed to occur if (i) any "person" (as that term is used
in Sections 13 and 14(d)(2) of the Exchange Act) other than a Permitted Holder
(as defined below) is or becomes the beneficial owner (as that term is used in
Section 13(d) of the Exchange Act), directly or indirectly, of 50% or more of
either the outstanding shares of Common Stock or the combined voting power of
the Company's then outstanding voting securities entitled to vote generally,
(ii) during any period of two consecutive years, individuals who constitute the
Board of Directors of the Company at the beginning of such period cease for any
reason to constitute at least a majority thereof, unless the election or the
nomination for election by the Company's stockholders of each new director was
approved by a vote of at least three-quarters of the directors then still in
office who were directors at the beginning of the period or (iii) the Company
undergoes a liquidation or dissolution or a sale of all or substantially all of
the assets of the Company. No merger, consolidation or corporate reorganization
in which the owners of the combined voting power of the Company's then
outstanding voting securities entitled to vote generally prior to said
combination, own 50% or more of the resulting entity's outstanding voting
securities shall, by itself, be considered a Change in Control. As used herein,
"Permitted Holder" means (i) the Company, (ii) any corporation, partnership,
trust or other entity controlled by the Company and (iii) any employee benefit
plan (or related trust) sponsored or maintained by the Company or any such
controlled entity.
(b) Except to the extent reflected in a particular award agreement, in
the event of a Change of Control:
(i) notwithstanding any vesting schedule, or any other limitation on
exercise or vesting, with respect to an award of Options, Stock
Appreciation Rights or Restricted Stock, such Options or Stock Appreciation
Rights shall become immediately exercisable with respect to 100 percent of
the shares subject thereto, and the restrictions shall expire immediately
with respect to 100 percent of such Restricted Stock award; and
(ii) the Committee may, in its discretion and upon at least 10
days advance notice to the affected persons, cancel any outstanding
Options, Stock Appreciation Rights or Restricted Stock awards and pay to
the holders thereof, in cash, the value of such awards based upon the
highest price per share of Company Common Stock received or to be received
by other stockholders of the Company in connection with the Change of
Control.
Section 10. Amendment and Discontinuance. The Board of Directors of the
Company may from time to time amend or revise the terms of the Plan, or may
discontinue the Plan at any time as permitted by law, provided, however, that
such amendment shall not (except as provided in Section 8), without further
approval of the stockholders, (i) increase the aggregate number of shares with
respect to which awards may be made under the Plan; (ii) change the manner of
determining the Option Price (other than determining the fair market value of
the Common Stock to conform with applicable provisions of the Code or
regulations and interpretations thereunder); (iii) extend the term of the Plan
or the maximum period during which any Option may be exercised or (iv) make any
other change which, in the absence of stockholder approval, would cause awards
granted under the Plan which are then outstanding, or which may be granted in
the future, to fail to meet the exemptions provided by Rule 16b-3 under the
Exchange Act and Section 162(m) of the Code. No amendments, revision or
discontinuance of the Plan shall, without the consent of an optionee or a
recipient of a Restricted Stock award, in any manner adversely affect his or her
rights under any Option theretofore granted under the Plan.
Section 11. Effective Date and Duration. The Plan was adopted by the
Board of Directors of the Company on January 25, 1996, subject to approval by
the stockholders of the Company at a meeting to be held in April 1996. Neither
the Plan nor any Option or Stock Appreciation Right or Restricted Stock award
shall become binding until the Plan is approved by a vote of the stockholders in
a manner which complies with Rule 16b-3 promulgated pursuant to the Exchange Act
and Sections 162(m) and 422(b)(1) of the Code. No Option may be granted and no
stock may be awarded under the Plan before January 25, 1996 nor after January
24, 2006.
Section 12. Tax Withholding. Notwithstanding any other provision of the
Plan, the Company or its subsidiaries, as appropriate, shall have the right to
deduct from all awards under the Plan cash and/or stock, valued at fair market
value on the date of payment in accordance with Section 5(b), in an amount
necessary to satisfy all federal, state or local taxes as required by law to be
withheld with respect to such awards. In the case of awards paid in the
Company's Common Stock, the optionee or permitted transferee may be required to
pay to the Company or a subsidiary thereof, as appropriate, the amount of any
such taxes which the Company or subsidiary is required to withhold, if any, with
respect to such stock. Subject in particular cases to the disapproval of the
Committee, the Company may accept shares of the Company's Common Stock of
equivalent fair market value in payment of such withholding tax obligations if
the optionee elects to make payment in such manner.
Section 13. Construction and Conditions. The Plan and Options, Restricted
Stock awards, and Stock Appreciation Rights granted thereunder shall be governed
by and construed in accordance with the laws of the State of Delaware and in
accordance with such federal law as may be applicable.
Neither the existence of the Plan nor the grant of any Options or Stock
Appreciation Rights or awards of Restricted Stock pursuant to the Plan shall
create in any optionee the right to continue to be employed by the Company or
its subsidiaries. Employment shall be "at will" and shall be terminable "at
will" by the Company or employee with or without cause. Any oral statements or
promises to the contrary are not binding upon the Company or the employee.
AMERICAN HOME PRODUCTS CORPORATION
STOCK OPTION AGREEMENT
(Transferable Option)
UNDER: 1996 STOCK INCENTIVE PLAN
DATED:
OPTION PRICE:
INCENTIVE STOCK OPTION SHARES:
[Name/Address] NON-QUALIFIED STOCK OPTION SHARES:
1. Under the terms and conditions of this Agreement and of the
American Home Products Corporation (the "Company") 1996 Stock
Incentive Plan (the "Plan"), a copy of which is attached hereto and
incorporated herein by reference, the Company hereby grants to the
Optionee an option or options (together, the "Option") to purchase
the number of shares of the Company's common stock as specified
above ("Option Shares") at the option price also above specified.
Capitalized terms not otherwise defined herein have the meanings
assigned to them in the Plan.
2. This Option may be exercised, in whole or in part from time
to time in any whole number of Option Shares, upon and after the
earlier of (i) with respect to one-third of the Option Shares
(rounded down), the date that is one year from the date of grant of
this Option, with respect to an additional one-third of the Option
Shares (rounded down), the date that is two years from the date of
grant of this Option and, with respect to the remaining one-third
of the Option Shares, the date that is three years from the date of
grant of this Option, or (ii) the date of the death, Disability or
Retirement (each as defined in the Plan) of Optionee, subject to
the provisions of Section 5 of the Plan which generally requires
that at the time of exercise or the date of termination of
Optionee's employment with the Company and its subsidiaries, the
Optionee is or was employed by the Company or one or more of its
subsidiaries and had been continuously employed by the Company or
one or more of its subsidiaries for at least two years and since
the date of grant. Once this Option becomes exercisable, it shall
remain exercisable until its expiration as described in paragraph
3 below. To the extent Option Shares have been purchased pursuant
to the exercise of this Option, such shares shall no longer be
available for purchase hereunder. The date upon and after which
this Option may be exercised will be accelerated upon a Change in
Control (as defined in the Plan) of the Company and upon such
occurrence may be cashed out at the discretion of the Compensation
and Benefits Committee on the terms described in Section 9 of the
Plan.
3. This Option shall expire upon the date that is ten years from
the date of grant or earlier as provided in Section 5 of the Plan
which provides, among other things, that Options shall expire upon
the first to occur of the following: (i) the date that is three
years from the date of Optionee's death, Disability or Retirement,
(ii) the date that is three months from the date of the termination
of Optionee's employment with the Company and its subsidiaries by
the Company or any of its subsidiaries for any reason other than
death, Disability, Retirement or deliberate gross misconduct (as
determined by the Compensation and Benefits Committee), or (iii)
immediately upon the date of (A) the termination of Optionee's
employment with the Company and its subsidiaries by the Company or
any of its subsidiaries because of Optionee's deliberate gross
misconduct (as determined by the Compensation and Benefits
Committee), (B) Optionee's voluntary termination of employment with
the Company and its subsidiaries, or (C) Optionee's violation of
(x) the noncompetition, or cooperation provisions of Section 5(g)
of the Plan or (y) the undertaking not to deliberately cause
substantial harm to the Company as set forth in Section 5(g) of the
Plan.
4. To the extent any Incentive Stock Option granted hereby
becomes exercisable for the first time in the aggregate amount of
more than $100,000 (fair market value at time of grant) during any
calendar year (including for this purpose any other Incentive Stock
Options previously granted to the Optionee by the Company), such
excess will be treated as a non-qualified stock option under U.S.
federal tax provisions, if applicable. In addition, any such
incentive stock option exercised by Optionee after three months
after separation from service to the Company (or after one year
after total and permanent disability) will be treated as a non-
qualified stock option under applicable U.S. federal tax
provisions.
5. This Option may be exercised by sending the Treasurer of the
Company an option exercise notice indicating the number of Option
Shares for which the Option is to be exercised at that time and the
form in which the certificates are to be registered for Option
Shares purchased in the name of the Optionee (or a Transferee (as
defined in paragraph 7, below), or in Optionee's name and that of
another person(s) as joint tenants with the right of survivorship).
This notice shall be accompanied by payment of the Option Price for
the Option Shares being purchased in the form of (i) personal or
bank check in U.S. Dollars payable to American Home Products
Corporation and drawn on or payable at a United States bank and/or
(ii) shares of the Company's common stock issued in the Optionee's
(or permitted Transferee's) name and duly assigned to the Company
or (iii) by any other form of consideration which has been approved
by the Compensation and Benefits Committee, as and to the extent
provided and permitted by Section 5(d) of the Plan.
Notwithstanding anything to the contrary herein, the Company or its
subsidiaries, as appropriate, shall have the right to deduct from
the number of Option Shares to be delivered upon exercise such
number of Option Shares as may be necessary to satisfy all federal,
state or local taxes or other deductions legally required to be
withheld or in the alternative may require the Optionee to deliver
to the Company or a subsidiary an amount of cash or number of
shares of common stock of the Company to satisfy such withholding.
6. This Agreement and this Option as well as the Company's
obligation to sell and deliver Option Shares covered by this Option
is subject to all federal, state and other laws, rules and
regulations of the United States and/or of the country wherein the
Optionee resides or is employed. Compliance with any recording,
protocolization or registration requirements and payment of any
fees or taxes applicable to this Agreement or the transactions it
contemplates are the exclusive responsibility of the Optionee.
7. This Option is not transferable or assignable other than by
will or by the laws of descent and distribution and may be
exercised during the Optionee's lifetime only by Optionee except
that the Optionee may irrevocably transfer all or a portion of the
non-qualified stock options represented hereby to (i) the spouse
(current or former), children, stepchildren, grandchildren or step-
grandchildren of the Optionee ("Immediate Family Members"), (ii) a
trust or trusts for the exclusive benefit of such Immediate Family
Members, or (iii) a general or limited partnership or other entity
in which such Immediate Family Members are the only partners or
beneficial owners, provided that (x) there may be no consideration
for any such transfer, (y) the Optionee submits to the Company an
Option Transfer Form duly completed and executed by the Optionee
and Transferee in the form attached as Exhibit A hereto, and (z)
subsequent transfers shall be prohibited except by will or the laws
of descent and distribution. Following transfer, any such Option
shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, provided that for
purposes of the Plan the term "Optionee" shall be deemed to include
a permitted transferee hereunder (the "Transferee"), provided,
however, that (i) the events of death, Disability, Retirement or
other termination of employment (and any other provision regarding
employment) described in paragraphs 2 and 3 of this Agreement and
Sections 5(f) and 5(g) of the Plan shall continue to be applied
with respect to the Optionee, and following any such events, the
transferred Option shall be exercisable by the Transferee only to
the extent, and for the periods specified in the Plan, (ii) the
cashless exercise program referred to in Section 5(d) of the Plan
shall not apply to Transferee unless specifically permitted by the
Committee, and (iii) Section 6A of the Plan shall not apply to
Transferee. If such Option is transferred to a Transferee, upon
exercise of such Option, if any taxes are withheld from the
proceeds remitted (in cash or stock) to Transferee or if the
Transferee separately satisfies any withholding tax obligation, the
amount of the withholding tax shall be deemed to be a loan from
Transferee to Optionee.
8. After the Optionee's death the Option may be exercised only
by the Optionee's legal representative or legatee or such other
person designated by an appropriate court as the person entitled to
make such exercise or, subject to paragraph 7 above, by other
Transferees. The Option may be exercised after the Optionee's
death by any permitted distributee or Transferee only to the extent
that he or she was entitled to exercise it at the time of
Optionee's death.
9. In the event that this Agreement also contains a grant of a
Stock Appreciation Right (an "SAR") in connection with the Option,
the terms of the SAR shall be governed by the provisions of Section
6 of the Plan, provided, however, that any permitted transfer of an
Option, in accordance with paragraph 7 hereof, shall result in the
automatic termination of any SARs in tandem with such Option.
10. Subject to the express provisions of the Plan, this
Agreement and the Plan are to be interpreted and administered by
the Compensation and Benefits Committee, whose determination will
be final.
11. This Agreement shall be governed by the laws of the State
of Delaware and in accordance with such federal law as may be
applicable.
AMERICAN HOME PRODUCT CORPORATION
/s/ John R. Stafford
Chairman of the Board
Accepted and agreed to:
- --------------------------------
Optionee's Signature
- --------------------------------
Optionee's Social Security Number
<PAGE>
EXHIBIT A
OPTION TRANSFER FORM
Reference is made to the Stock Option Agreement dated
_____________________ (the "Agreement") under which American Home
Products Corporation (the "Company") granted to the undersigned
transferor ("Optionee") non-qualified stock options covering
________ shares of the Company's Common Stock under the 1996
Stock Incentive Plan (the "Plan"). Capitalized terms used herein
without definition are used as defined in the Agreement and the
Plan. The Optionee hereby transfers non-qualified stock options
covering ________ shares of the Company's Common Stock (the
"Options") granted under the Plan pursuant to the Agreement to
the following transferee (the "Transferee"):
- ------------------------ --------------------------------
Name of person or entity Social security or tax ID number
- -----------------------------
Type of entity (if applicable)
- ------------------------ --------------------------------
Relationship to Optionee Address
The Optionee and, by its execution of this form, the Transferee,
hereby represent and warrant to the Company that the Transferee
is a permitted transferee in accordance with paragraph 7 of the
Agreement and under Section 5(h) of the Plan. It is understood
and agreed by Optionee and Transferee that (i) the Committee
shall be entitled, in its sole discretion, to determine whether
such transfer is in accordance with such requirements, and (ii)
the Company and the Committee shall be under no obligation to
notify the Transferee of the termination date of any Option
transferred hereunder.
The Transferee hereby agrees, subject to paragraph 7 of the
Agreement, to be bound by all of the terms, conditions and
limitations set forth in the Agreement and the Plan binding upon
the Optionee under the Agreement, and specifically understands
that (i) the events of death, Disability, Retirement or other
termination of employment (and any other provisions regarding
employment) described in paragraphs 2 and 3 of the Agreement and
Sections 5(f) and 5(g) of the Plan shall continue to be applied
with respect to the Optionee, and following any such events, the
transferred Options shall be exercisable by the Transferee only
to the extent, and for the periods specified in the Plan, and
(ii) the Options may not, without the consent of the Committee,
be transferred by the Transferee except by will or pursuant to
the laws of descent and distribution. The Transferee understands
and acknowledges that any shares of Common Stock purchased by the
Transferee pursuant to the Options may not be registered under
the Securities Act of 1933, as amended, and that such shares may
contain a restrictive legend in substantially the form as set
forth below (in addition to any legend required under applicable
state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
In order to enforce the foregoing, the Company may impose stop-
transfer instructions with respect to such securities until such
time as the Company is reasonably satisfied that such
restrictions are no longer applicable to the sale of such
securities.
The Optionee further represents and warrants to the Company and
the Transferee that (i) Optionee has delivered to the Transferee
a copy of the Agreement, (ii) Optionee has consulted with
qualified income and estate tax advisors in determining to
transfer the Options to the Transferee or waives any such
requirement to do so and (iii) Optionee has considered and
understands each of the following:
1. The transfer to the Transferee is irrevocable.
2. Optionee will not control the exercise of the Options
once they have been transferred.
3. Optionee is assuming all of the risks and possible
consequences associated with the transfer of the Options,
and acknowledges that the Company and its representatives
are not responsible or liable for any tax, penalty, judgment
or outcome resulting from the transfer of the Options.
OPTIONEE: TRANSFEREE:
- -------------------------------- --------------------------------
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES SUPPLEMENTAL EMPLOYEE
SAVINGS PLAN
(as amended to July 1, 1997)
I. PURPOSE
The purpose of the Supplemental Employee Savings Plan ("the Plan") is to provide
a savings plan of deferred compensation for selected managers or highly
compensated employees in situations where part of such employees' compensation
falls outside of the IRS qualified savings plan. The Plan shall be implemented
by agreements entered into between the selected employees and their respective
employers which shall be either American Home Products Corporation ("AHP") or a
U.S. subsidiary thereof. The Plan shall be unfunded for tax purposes and for
purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and shall be administered and interpreted in such manner as not to be
subject to the participation and vesting, the funding and the fiduciary
responsibility provisions of Title I of ERISA. Participants in the Plan have
the status of general unsecured creditors of their employers and the Plan
constitutes a mere promise by the employer to make benefit payments in the
future. The Plan shall be administered by the Savings Plan Committee (the
"Committee") which also administers the AHPC Savings Plan. The Committee shall
have sole discretion to determine which selected employees will be permitted to
participate in the Plan.
II. ADMINISTRATION
The Committee shall administer the Plan and shall have full authority to
determine all questions arising in connection with the Plan, including its
interpretation. The Committee's decisions shall be conclusive and binding on
all persons. The Committee may adopt rules and procedures to implement the
Plan.
III. PARTICIPATION
The Committee shall have discretion to determine which employees of AHP and its
subsidiaries may participate in the Plan. The Committee shall also have
discretion to determine when participation begins and terminates. At the
discretion of the Committee, a selected employee may begin or terminate
participation at any time by appropriate notice to the Committee. A letter
designating selection shall be issued to such employee by such employee's
employer. Such letter shall indicate the applicable salary for which the
employee may participate. When the agreement set forth at the end of the Plan
is executed by both the employee and the appropriate officer of the employer, it
shall become effective and the employee shall thereupon become a participant in
the Plan. An employee who accepts an offer to participate in the Plan agrees to
have from 1% to 6% of his or her applicable salary, as determined by the
Committee, reduced from salary otherwise payable in accordance with the terms
and conditions set forth in Article IV.
IV. PLAN FORMULA
(1). In General
Employee Salary Deferral Contributions, (1% to 6% of applicable salary) and
Matching Contributions (50% of the Salary Deferral Contributions as defined
in the Savings Plan, hereinafter referred to as "Salary Deferral
Contributions" and "Matching Contributions" respectively) may be made to
the Plan and the Plan may receive contributions of such amounts. Salary
Deferral Contributions shall be withheld from the respective employee's
salary and accounted for separately. Matching Contributions shall be
accounted for separately.
(2). Investments
Salary Deferral Contributions and Matching Contributions shall be adjusted
for investment experience in the same manner, as directed by the employee,
that would have resulted if these contributions were able to be invested as
Salary Deferral Contributions in the investment funds described in Section
6 of the Savings Plan which are set forth in Appendix A, as attached
hereto, and incorporated herein by reference.
(3). Valuation, Distributions and Vesting Etc.
The distribution of Salary Deferral Contributions and Matching Contributions
shall be in a lump sum in cash and the amount of the distribution shall be
determined in accordance with the investment performance under the applicable
provisions of the Savings Plan as if such amounts had actually been invested in
the same investment funds as set forth in Appendix A, as attached hereto, and
incorporated herein by reference. Distributions shall be made in accordance
with the provisions set forth in Section 7 of the Savings Plan, except that the
Committee may waive one or more of the requirements set forth therein. No
payments will be made under the Plan until the employee terminates employment by
death or otherwise, or is permanently disabled. Vesting shall be determined in
accordance with the same provisions set forth in the Savings Plan. Whatever
beneficiary designations were made pursuant to the Saving Plan shall also apply
to the Plan in the event of the Participant's death. Beneficiary designations
shall be made pursuant to the Plan and in accordance with the agreement between
the employer and the employee. Notwithstanding the provisions of this paragraph
IV(3), distributions will only be made on six (6) months prior notice and in any
event distributions will be made no sooner than the date on which the
distribution from the Savings Plan is made. Employee's foreign salary shall be
converted into U.S. dollars under guidelines adopted by the Committee.
V. FOREIGN LAW
This Plan shall be construed so that foreign law does not apply. If foreign law
should apply to a particular participant, participation in the Plan shall
terminate for such participant and such participant shall be appropriately
reimbursed for any Salary Deferral Contributions and Matching Contributions made
to the date of such termination.
VI. AMENDMENT AND TERMINATION
The Plan may be terminated or amended at any time by the Committee provided that
benefits vested prior to such termination or amendment shall remain unaffected.
VII. GOVERNING LAW AND CONSTRUCTION
The Plan shall be governed in accordance with the laws of the State of New York
except to the extent superseded by ERISA. The provisions of the Savings Plan
are hereby incorporated by reference to the extent that they are referred to
herein and to the extent that they do not conflict with the express provisions
of the Plan set forth above. The Plan shall be deemed to have been adopted
contemporaneously with the Savings Plan so that elections of savings percentages
made under the Savings Plan may be made effective at such election date under
the Plan. If any provision of the Plan is unenforceable due to operation of law
or is contrary to foreign law, such provision shall be severable and not affect
other portions of the Plan.
<PAGE>
APPENDIX A - As Amended to July 1, 1997
INVESTMENT FUNDS AVAILABLE UNDER THE
SUPPLEMENTAL EMPLOYEE SAVINGS PLAN
The following funds shall be available for investment under the Supplemental
Employee Savings Plan:
1. the Interest Income Fund;
2. the Fidelity Balanced Fund;
3. the Spartan U.S. Equity Index Fund;
4. the Fidelity Magellan Fund;
5. the Fidelity International Growth & Income Fund;
6. the Fidelity Low-Price Stock Fund;
7. the Mas Value Portfolio; and
8. the AHPC Common Stock Fund
SEVERANCE AGREEMENT
This Severance Agreement (this "Agreement") is made as of
______________, 1998 by and between AMERICAN HOME PRODUCTS CORPORATION, a
Delaware corporation (the "Company"), and [SEE ANNEX A] ("Executive").
RECITALS
WHEREAS the Board of Directors of the Company (the "Board") has
approved a severance agreement to provide Executive with certain benefits upon
the termination of his employment;
NOW THEREFORE, the parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall continue in effect through December 31, 2000; provided,
however, the term of this Agreement shall automatically be extended for one
additional year beyond 2000 and successive one year periods thereafter, unless,
not later than September 30, 1998 (for the additional year ending on December
31, 2001) or September 30 of each year thereafter (for each subsequent
extension), the Company shall have given notice that it does not wish to extend
this Agreement for an additional year, in which event this Agreement shall
continue to be effective until the end of its then remaining term; provided,
further, that, notwithstanding any such notice by the Company not to extend, if
a Change in Control shall have occurred during the original or any extended term
of this Agreement, this Agreement shall continue in effect for a period of
thirty-six (36) months beyond such Change in Control. Notwithstanding the
foregoing, this Agreement shall terminate if Executive ceases to be an employee
of the Corporation and its subsidiaries for any reason prior to a Change in
Control which, for these purposes, shall include cessation of such employment as
a result of the sale or other disposition of the division, subsidiary or other
business unit by which the Executive is employed.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
there shall have been a Change in Control of the Company, as set forth below.
For purposes of this Agreement, a Change in Control shall be deemed to have
occurred if:
(A) any person or persons acting in concert (excluding Company benefit
plans) becomes the beneficial owner of securities of the Company having at
least 20% of the voting power of the Company's then outstanding securities
(unless the event causing the 20% threshold to be crossed is an acquisition
of voting common securities directly from the Company); or
(B) the consummation of any merger or other business combination of
the Company, sale or lease of the Company's assets or combination of the
foregoing transactions (the "Transactions") other than a Transaction
immediately following which the shareholders of the Company who owned
shares immediately prior to the Transaction (including any trustee or
fiduciary of any Company employee benefit plan) own, by virtue of their
prior ownership of the Company's shares, at least 65% of the voting power,
directly or indirectly, of (a) the surviving corporation in any such merger
or other business combination; (b) the purchaser or lessee of the Company's
assets; or (c) both the surviving corporation and the purchaser or lessee
in the event of any combination of Transactions; or
(C) within any 24 month period, the persons who were directors
immediately before the beginning of such period (the "Incumbent Directors")
shall cease (for any reason other than death) to constitute at least a
majority of the Board or the board of directors of a successor to the
Company. For this purpose, any director who was not a director at the
beginning of such period shall be deemed to be an Incumbent Director if
such director was elected to the Board by, or on the recommendation of or
with the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors (so long as such director was not
nominated by a person who has expressed an intent to effect a Change in
Control or engage in a proxy or other control contest).
3. TERMINATION FOLLOWING CHANGE IN CONTROL. If any of the events
described in Section 2 hereof constituting a Change in Control shall have
occurred, Executive shall be entitled to the benefits provided in Section 4(iv)
hereof upon the subsequent termination of Executive's employment with the
Company and its subsidiaries during the term of this Agreement unless such
termination is (A) a result of Executive's death or Retirement (except as
provided in Section 3(i) below), or (B) by Executive without Good Reason, or (C)
by the Company or any of its subsidiaries for Disability or for Cause.
(i) DISABILITY; RETIREMENT. For purposes of this Agreement,
"Disability" shall mean permanent and total disability as such term is defined
under Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the
"Code"), without regard to whether Executive is subject to the Code. Any
question as to the existence of Executive's Disability upon which Executive and
the Company cannot agree shall be determined by a qualified independent
physician selected by Executive (or, if Executive is unable to make such
selection, such selection shall be made by any adult member of Executive's
immediate family or Executive's legal representative), and approved by the
Company, said approval not to be unreasonably withheld. The determination of
such physician made in writing to the Company and to Executive shall be final
and conclusive for all purposes of this Agreement. For purposes of this
Agreement, "Retirement" shall mean Executive's voluntary termination of
employment with the Company under any of the Company's retirement plans;
provided, however, that notwithstanding the foregoing, no Retirement shall
adversely affect, interfere with or otherwise impair in any way Executive's
right to receive the payments and benefits to which he is entitled on account of
a termination without Cause or with Good Reason.
(ii) CAUSE. For purposes of this Agreement, "Cause" shall mean (A)
the conviction of, or plea of guilty or nolo contendere to, a felony or (B) the
willful engaging by an Executive in gross misconduct which is materially and
demonstrably injurious to the Company. Notwithstanding the foregoing, Executive
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to Executive a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters (3/4) of the Incumbent
Directors of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice to Executive and an opportunity for Executive,
together with Executive's counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, Executive was guilty of conduct set
forth above in this Section 3(ii) and specifying the particulars thereof in
detail.
(iii) GOOD REASON. Executive shall be entitled to terminate
employment with Good Reason. For the purpose of this Agreement, "Good Reason"
shall mean the occurrence, without Executive's express written consent, of any
of the following circumstances unless, in the case of paragraphs 3(iii) (A),
(E), (F), or (G), such circumstances are fully corrected prior to the date
specified as the Date of Termination (as defined in Section 3(v)) in the Notice
of Termination (as defined in Section 3(iv)) given in respect thereof:
(A) the assignment to Executive of any duties inconsistent with
Executive's status as an executive of the Company or its subsidiaries,
Executive's removal from his or her position (as it existed immediately
prior to the Change in Control), or a substantial diminution in the nature
or status of Executive's responsibilities from those in effect immediately
prior to the Change in Control;
(B) a reduction by the Company or any of its subsidiaries in
Executive's annual base salary as in effect on the date hereof or as the
same may be increased from time to time;
(C) a failure in any year after the Change in Control to grant stock
options whose value at the time of grant on a Black-Scholes basis is no
less than the greatest Black-Scholes value at the time of grant of stock
options granted by the Company to Executive at any one time in any of the
three years prior to the Change in Control (in calculating this value, (i)
an initial employment grant shall be excluded unless it is the only grant
made during such period, (ii) the one-time 1995 special stock option grant
made May 25, 1995 to certain designated executives shall not be included,
and (iii) any shares of restricted stock granted in lieu of shares subject
to an option shall be converted to option shares in accordance with the
formula used to determine the number of restricted shares to be granted and
shall be treated as having been granted as shares subject to an option)
(the "Stock Option Value"); provided, however, that the Black-Scholes value
of any grant on a per option share basis shall be equal to the per option
share value of a grant, if any, made on the same date as such grant and
reported in the Company's proxy statement filed prior to a Change in
Control and all determinations of the Black-Scholes value of other grants
shall be made by Towers Perrin (or, if unavailable or unwilling to serve,
any other nationally recognized compensation consulting firm chosen by the
Company and reasonably acceptable to the Executive), using the same
methodology and such assumptions consistent with those used for purposes of
the Company's latest proxy statement filed prior to the Change in Control;
(D) the relocation of Executive's place of business to a location
more than 100 miles from the location where Executive was based and
performed services immediately prior to the Change in Control; provided,
however, that any relocation of greater than 25 miles, but less than or
equal to 100 miles, will still constitute Good Reason unless Executive is
provided with relocation benefits in the aggregate no less favorable than
the 1993 Relocation Policy with respect to the relocation of the corporate
offices to Madison, New Jersey from New York City;
(E) the failure by the Company to pay to Executive any portion of any
installment of deferred compensation under any deferred compensation
program of the Company in which Executive participated within seven (7)
days of the date such compensation is due;
(F) the failure by the Company or any of its subsidiaries to continue
in effect any incentive compensation plan in which Executive participated
prior to the Change in Control, unless an equitable alternative
compensation arrangement (embodied in an ongoing substitute or alternative
plan) has been provided for Executive, or the failure by the Company or any
of its subsidiaries to continue Executive's participation in any such
incentive plan on a basis, both in terms of the amount of benefits provided
and the level of Executive's participation relative to other participants,
that is no less than existed at any time during the three years prior to
the Change in Control;
(G) except as required by law, the failure by the Company or any of
its subsidiaries to continue to provide Executive with benefits, in the
aggregate, at least as favorable as those enjoyed by Executive under the
employee benefit and welfare plans of the Company and its subsidiaries,
including, without limitation, the pension, life insurance, medical,
dental, health and accident, retiree medical, disability, deferred
compensation and savings plans, in which Executive was participating at the
time of the Change in Control, the taking of any action by the Company or
any of its subsidiaries which would directly or indirectly materially
reduce the fringe benefits enjoyed by Executive at the time of the Change
in Control, or the failure by the Company or any of its subsidiaries to
provide Executive with the number of paid vacation days to which Executive
was entitled at the time of the Change in Control;
(H) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 6 hereof; or
(I) any purported termination of Executive's employment by the
Company or its subsidiaries which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 3(iv) below (and, if
applicable, the requirements of Section 3(ii) above); for purposes of this
Agreement, no such purported termination shall be effective.
In addition, Executive shall be entitled to terminate employment for any reason
or no reason after the first anniversary of the Change in Control but within 90
days following such anniversary which shall be deemed to constitute Good Reason
hereunder as if included as a subparagraph (J) above (a "Voluntary
Termination"). In the event of any dispute about the date of the Change in
Control or the anniversary thereof, the good faith determination by Executive of
such date(s) for purposes of this provision shall be binding and conclusive on
the Company.
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstances constituting Good Reason hereunder.
(iv) NOTICE OF TERMINATION. Any purported termination of Executive's
employment by the Company and its subsidiaries or by Executive shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 7 hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
(other than with respect to a Good Reason termination pursuant to Section
3(iii)(I) or a Voluntary Termination) the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(v) DATE OF TERMINATION. "Date of Termination" shall mean (A) if
Executive's employment is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that Executive shall not have returned
to the full-time performance of Executive's duties during such thirty (30) day
period), and (B) if Executive's employment is terminated pursuant to Section
3(ii) or (iii) above or for any reason (other than Disability), the date
specified in the Notice of Termination (which, in the case of a termination
pursuant to Section 3(ii) above shall not be less than thirty (30) days, and in
the case of a termination pursuant to Section 3(iii) above shall not be less
than thirty (30) nor more than sixty (60) days, respectively, from the date such
Notice of Termination is given); provided, that, if within thirty (30) days
after any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
grounds for termination, the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of the
parties, by a binding arbitration award or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or the time for
appeal therefrom having expired and no appeal having been perfected); provided
further that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company and its
subsidiaries will continue to pay Executive's full compensation in effect when
the notice giving rise to the dispute was given (including, but not limited to,
base salary and bonus) and continue Executive as a participant in all incentive
compensation, benefit and insurance plans in which Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 3(v). Amounts paid under this
Section 3(v) are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a
Change in Control of the Company, as defined by Section 2, upon termination of
Executive's employment or during a period of Disability, which, in either event,
occurs during the term of this Agreement, Executive shall be entitled to the
following benefits:
(i) During any period that Executive fails to perform Executive's
full-time duties with the Company and its subsidiaries as a result of the
Disability, Executive shall continue to receive an amount equal to Executive's
base salary and bonus at the rate in effect at the commencement of any such
period through the Date of Termination for Disability. Thereafter, Executive's
benefits shall be determined in accordance with the employee benefit programs of
the Company and its subsidiaries then in effect.
(ii) If Executive's employment shall be terminated by the Company or
any of its subsidiaries for Cause or by Executive without Good Reason (excluding
death, Disability or Retirement) the Company (or one of its subsidiaries, if
applicable) shall pay through the Date of Termination Executive's full base
salary at the rate in effect at the time Notice of Termination is given and
shall pay any amounts otherwise payable to Executive on or immediately prior to
the Date of Termination pursuant to any other compensation plans, programs or
employment agreements then in effect, and the Company shall have no further
obligations to Executive under this Agreement.
(iii) If Executive's employment shall be terminated by reason of
Executive's death or Retirement, Executive's benefits shall be determined in
accordance with the retirement and other benefit programs of the Company and its
subsidiaries then in effect, except as otherwise provided in Section 3(i).
(iv) If Executive's employment by the Company and its subsidiaries
shall be terminated (other than for death or Disability) by (a) the Company and
its subsidiaries other than for Cause or (b) Executive with Good Reason, then
Executive shall be entitled to the benefits provided below:
(A) The Company (or one of its subsidiaries, if applicable) shall pay
Executive's full base salary, at the rate in effect at the time of the
Change in Control and increased to reflect any subsequent increases in such
base salary (the "Base Salary"), and a pro-rated Bonus calculated through
the Date of Termination, no later than the thirtieth day following the Date
of Termination, plus all other amounts to which Executive is entitled under
any compensation plan of the Company applicable to Executive, at the time
such payments are due. For purposes of this Agreement, the "Bonus" shall
mean the highest amount of cash and the value (determined as of the time of
the awards in the same manner as was used for the awards) of deferred stock
awarded as an annual incentive under the Management Incentive Plan (or any
other plan, policy or arrangement) to Executive in respect of any of the
three years immediately prior to the year in which the Notice of
Termination is given.
(B) The Company shall pay Executive, on a date that is no later than
the thirtieth day following the Date of Termination, as severance pay to
Executive a severance payment equal to three (3) times the sum of (i)
Executive's Base Salary, (ii) the Bonus, and (iii) the Stock Option Value
(or, if greater, the highest value at the time of grant on a Black-Scholes
basis, determined as provided for herein, of any option grant made to
Executive after the Change in Control).
(C) The Company shall also pay to Executive, no less frequently than
monthly, all legal fees and expenses reasonably incurred by Executive in
connection with this Agreement (including all such fees and expenses, if
any, incurred in contesting or disputing the nature of any such termination
for purposes of this Agreement or in seeking to obtain or enforce any right
or benefit provided by this Agreement); and
(D) (i) Upon the date of Termination, Executive (or Executive's
spouse or applicable beneficiary in the event of Executive's death) will be
eligible to receive a benefit, when such benefits otherwise become payable,
from the Company's general funds to be calculated using the benefit
calculation provisions of the AHPC Retirement Plan - U.S. (the "DB Plan")
and, to the extent Executive participates therein, the AHPC Supplemental
Executive Retirement Plan (the "SERP") and the AHPC Executive Retirement
Plan (the "ERP") as if the provisions thereunder contained the assumptions
set forth herein, and offset by any benefits actually payable under the DB
Plan, the SERP, and the ERP not taking into account the assumptions set
forth herein. Any elections made under the DB Plan, the SERP and the ERP
for purposes of determining the form of payment will also apply for
purposes of this benefit. The assumptions to be used in calculating
Executive's benefit are: (x) Executive has continued in the employ of the
Company for an additional three years (the "Severance Period") after the
Date of Termination, and (y) Executive has earned annually from the Date of
Termination to the date of Executive's assumed continued employment
pursuant to clause (x) above the same compensation Executive earned in the
twelve months preceding the Date of Termination or in the twelve months
preceding the Change in Control, if greater. In addition, any pension
payable to Executive at age 55 (or upon the Date of Termination, if
Executive is then age 55 or over) shall not be reduced because it is
payable prior to age 65 or 60, as the case may be.
(ii) The length of the Severance Period will be added to Executive's
actual age for determining whether or when Executive has attained or will
attain age 55 for the purposes of Executive's eligibility to commence
receiving payments of benefits pursuant to Section 4(iv)(D)(i) above.
(E) Executive shall become eligible for all benefits, in addition to
those described in Section 4(iv)(D) above, made available immediately prior
to the Date of Termination (or, if greater, immediately prior to the date
of the Change in Control) to retirees of the Corporation, including,
without limitation, retiree medical coverage and life insurance benefits,
if at the time of termination Executive has already attained age 45, as if
Executive had at the Date of Termination satisfied the service and age
conditions for coverage under the applicable provisions of the Company's
employee benefit plans. If the Company is unable to provide Executive
coverage under such plans, it shall provide Executive with separate
comparable coverage, but in no event less than the retiree coverage in
place immediately prior to the Change in Control; provided, however, that
the retiree medical coverage provided by the Corporation shall be secondary
to any other medical coverage the Executive may then have.
(F) The Company will continue Executive's participation and coverage
for the Severance Period from the Date of Termination under all the
Company's life, medical, dental plans and other welfare benefit plans (but
excluding the Company's disability plans) ("Insurance Benefits"), and all
perquisites and fringe benefit plans and programs (other than the Company's
pension and 401(k) plans) (the perquisites and fringe benefits together
being the "Fringe Benefits") in which Executive is participating
immediately prior to such employment termination, under the same coverages
and on the same terms as in effect immediately prior to termination;
provided, however, that if his continued participation is not possible
under the general terms and provisions of such plans and programs, the
Company shall arrange to provide him with substantially similar benefits;
provided, further, that if any other Company plan, arrangement or agreement
provides for continuation of Insurance Benefits and Fringe Benefits then
the Executive shall receive such coverage under such other plan,
arrangement or agreement, and if the period of such coverage is shorter
than the Severance Period, then the Executive shall receive pursuant to
this section, such coverage for the remainder of the Severance Period.
(G) Upon the Date of Termination, to the extent that, under the terms
of any plan, any Company "restricted" stock awards or options shall
terminate or be forfeited upon or following Executive's termination of
employment without, in the case of options, the opportunity to exercise
after Notice of Termination and to sell the underlying shares immediately
after exercise without legal impediment, then the Executive (or any
permitted transferee) shall receive, within 10 days after the forfeiture or
termination of such award or option, an amount in respect of such
terminated or forfeited stock awards or options, equal to the sum of (i)
the Cashout Value (as defined below) 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.
For purposes of this Section 4(iv)(G), the "Cashout Value" of a share shall
mean the greater of (x) the average of the closing prices paid for the
Company's common stock (or any other securities to which the restricted
shares or options relate) on any national exchange on which such shares are
traded on each of the five trading days prior to and including the date of
Executive's termination of employment (or, if no such shares are traded any
of such days, the most recent date preceding Executive's termination of
employment on which such shares were traded), and (y) the closing price
paid for the Company's common stock (or any other securities to which the
restricted shares or options relate) on any such exchange on the date of
Executive's termination of employment (or, if no such shares are traded on
such day, the most recent date preceding Executive's termination of
employment on which such shares were traded). At all times that there are
options outstanding, the Company shall keep in place an effective
registration statement (on form S-8 or otherwise) and shall take any other
further action necessary to permit the sale, without restriction, by
Executive (or any permittee transferee) of shares received upon the
exercise of options.
(H) The Company shall also provide to Executive outplacement services
or executive recruiting services provided by a professional outplacement
provider or executive recruiter at a cost to the Company of not more than
10% of the Executive's base salary (not to exceed $25,000).
5. EXCISE TAXES.
(i) In the event that any payment or benefit received or to be
received by Executive pursuant to the terms of this Agreement (the
"Contract Payments") or in connection with Executive's termination of
employment or contingent upon a Change in Control of the Company pursuant
to any plan or arrangement or other agreement with the Company (or any
affiliate) ("Other Payments" and, together with the Contract Payments, the
"Payments") would be subject to the excise tax (the "Excise Tax") imposed
by Section 4999 of the Code, as determined as provided below, the Company
shall pay to Executive, at the time specified in Section 5(ii) below, an
additional amount (the "Gross-Up Payment") such that the net amount
retained by Executive, after deduction of the Excise Tax on Contract
Payments and Other Payments and any federal, state and local income or
other tax and Excise Tax upon the payment provided for by this Section
5(i), and any interest, penalties or additions to tax payable by Executive
with respect thereto, shall be equal to the total present value of the
Contract Payments and Other Payments at the time such Payments are to be
made. For purposes of determining whether any of the Payments will be
subject to the Excise Tax and the amounts of such Excise Tax, (1) the total
amount of the Payments shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall be
treated as subject to the Excise Tax, except to the extent that, in the
opinion of independent tax counsel selected by the Company's independent
auditors and reasonably acceptable to Executive ("Tax Counsel"), a Payment
(in whole or in part) does not constitute a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code, or such "excess parachute
payments" (in whole or in part) are not subject to the Excise Tax, (2) the
amount of the Payments that shall be treated as subject to the Excise Tax
shall be equal to the lesser of (A) the total amount of the Payments or (B)
the amount of "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code (after applying clause (1) hereof), and (3) the
value of any noncash benefits or any deferred payment or benefit shall be
determined by Tax Counsel in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of
the Gross-Up Payment, Executive shall be deemed to pay federal income tax
at the highest marginal rates of federal income taxation applicable to
individuals in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest effective rates of
taxation applicable to individuals as are in effect in the state and
locality of Executive's residence in the calendar year in which the Gross-
Up Payment is to be made, net of the maximum reduction in federal income
taxes that can be obtained from deduction of such state and local taxes,
taking into account any limitations applicable to individuals subject to
federal income tax at the highest marginal rates.
(ii) The Gross-Up Payments provided for in Section 5(i) hereof shall
be made upon the earlier of (i) the payment to Executive of any Contract
Payment or Other Payment or (ii) the imposition upon Executive or payment
by Executive of any Excise Tax.
(iii) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 10 business days after the
Executive is informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30 day period following the date on which the Executive
gives such notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
1) give the Company any information reasonably requested
by the Company relating to such claim;
2) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company and reasonably satisfactory to the Executive;
3) cooperate with the Company in good faith in order to
effectively contest such claim; and
4) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including, but not limited to, additional interest and
penalties and related legal, consulting or other similar fees) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or other tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses.
(iv) The Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis, and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or other tax (including interest
or penalties with respect thereto) imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and
provided, further, that if the Executive is required to extend the statute
of limitations to enable the Company to contest such claim, the Executive
may limit this extension solely to such contested amount. The Company's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority. In
addition, no position may be taken nor any final resolution be agreed to by
the Company without the Executive's consent if such position or resolution
could reasonably be expected to adversely affect the Executive (including
any other tax position of the Executive unrelated to the matters covered
hereby).
(v) As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Company or the
Tax Counsel hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies and the Executive thereafter
is required to pay to the Internal Revenue Service an additional amount in
respect of any Excise Tax, the Company or the Tax Counsel shall determine
the amount of the Underpayment that has occurred and any such Underpayment
shall promptly be paid by the Company to or for the benefit of the
Executive.
(vi) If, after the receipt by Executive of the Gross-Up Payment or an
amount advanced by the Company in connection with the contest of an Excise
Tax claim, the Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the Executive of
an amount advanced by the Company in connection with an Excise Tax claim, a
determination is made that Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest the denial of such refund prior to the
expiration of 30 days after such determination, such advance shall be
forgiven and shall not be required to be repaid.
6. SUCCESSORS; BINDING AGREEMENT.
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company is required to perform it. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness
of any such succession shall be a breach of this Agreement and shall
entitle Executive to compensation from the Company in the same amount and
on the same terms as Executive would be entitled hereunder if Executive
had terminated
Executive's employment with Good Reason following a Change in Control,
except that for purposes of implementing the foregoing, the date on which
any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company
as hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable
by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
If Executive should die while any amount would still be payable to
Executive hereunder if Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to Executive's devisee, legatee or other designee
or, if there is no such designee, to Executive's estate.
7. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid (or its international
equivalent), addressed to Five Giralda Farms, Madison, New Jersey 07940 with
respect to the Company and on the signature page with respect to Executive,
provided that all notices to the Company shall be directed to the attention of
the Senior Vice President-General Counsel of the Company, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
8. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any conditions or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal laws of the
State of New York, without regard to its conflict of law provisions. All
references to sections of the Code shall be deemed also to refer to any
successor provisions to such sections. Any payments provided for hereunder
shall be paid net of any applicable withholding required under federal, state,
local or other applicable law. The obligations of the Company under Sections 4
and 5 shall survive the expiration of the term of this Agreement.
9. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not effect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. ARBITRATION; INDEMNIFICATION. Any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement. Following any termination of employment of
the Executive (other than a termination by the Company for Cause), the Company
shall indemnify and hold harmless Executive to the fullest extent permitted
under the Company's by-laws (as in effect prior to the Change in Control) and
applicable law for any claims, costs and expenses arising out of or in
connection with Executive's employment with the Company and shall maintain
directors' and officers' liability insurance coverage for the benefit of the
Executive which provides him with coverage, if any, no less favorable than that
in effect prior to the Change in Control.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Executive shall not,
without the prior written consent of the Company, use, divulge, disclose or make
accessible to any other person, firm, partnership, corporation or other entity
any Confidential Information pertaining to the business of the Company or any of
its affiliates, except (i) while employed by the Company, in the business of and
for the benefit of the Company, or (ii) when required to do so by a court of
competent jurisdiction, by any governmental agency having supervisory authority
over the business of the Company, or by any administrative body or legislative
body (including a committee thereof) with jurisdiction to order Executive to
divulge, disclose or make accessible such information. For purposes of this
Section 12, "Confidential Information" shall mean any trade secret or other non-
public information concerning the financial data, strategic business plans,
product development (or other proprietary product data), customer lists,
marketing plans and other non-public, proprietary and confidential information
of the Company or its affiliates, that, in any case, is not otherwise available
to the public (other than by Executive's breach of the terms hereof) or known to
persons in the industry generally.
13. ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
This Agreement constitutes the entire understanding between the parties with
respect to Executive's severance pay in the event of a termination of
Executive's employment with the Company, superseding all negotiations, prior
discussions and preliminary agreements, written or oral, concerning said
severance pay; provided, however, that any payments or benefits provided in
respect of severance, or indemnification for loss of employment, pursuant to any
severance, employment or similar agreement between the Company or any of its
subsidiaries and Executive, or as required by applicable law outside the United
States, shall reduce any payments or benefits provided pursuant to this
Agreement, except that the payments or benefits provided pursuant to this
Agreement shall not be reduced below zero. Notwithstanding any provision of
this Agreement: (i) Executive shall not be required to mitigate the amount of
any payment provided by this Agreement by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided by this Agreement be
reduced by any compensation earned by Executive as the result of employment by
another employer or by retirement benefits received after the Date of
Termination or otherwise, and (ii) except as otherwise provided in this
Agreement, the obligations of the Company to make payments to Executive and to
make the arrangements, provided for herein are absolute and unconditional and
may not be reduced by any circumstances, including without limitation any set-
off, counterclaim, recoupment, defense or other right which the Company may have
against the Executive or any third party at any time.
14. FURTHER ACTION. The Company shall take any further action
necessary or desirable to implement the provisions of this Agreement or perform
its obligations hereunder (including, without limitation, amending the SERP, the
ERP, any stock option or stock bonus plan, or any other applicable plan, program
or arrangement or obtaining any necessary consents or approvals in connection
therewith).
AMERICAN HOME PRODUCTS CORPORATION
By:
Name: Rene Lewin
Title: Vice President, Human Resources
By:
Executive
Date:
Home Address:
<PAGE>
ANNEX A
List of Executive Officers
Robert Essner
Joseph J. Carr
Louis L. Hoynes, Jr.
Robert I. Levy
William J. Murray
David M. Olivier
John R. Considine
William A. Hawkins
Paul J. Jones
Rene R. Lewin
Thomas M. Nee
EXHIBIT 12
<TABLE>
American Home Products Corporation
Computation of Ratio of Earnings To Fixed Charges
(Thousands of dollars, except ratio amounts)
<CAPTION>
Years Ended December 31,
Earnings: 1997 1996 1995 1994* 1993
<S> <C> <C> <C> <C> <C>
Earnings from
continuing
operations
before taxes
on income $2,814,707 $2,755,460 $2,438,698 $2,029,760 $1,992,665
Add:
Fixed charges 518,661 605,011 705,047 155,187 91,500
Minority
interest in
earnings of
consolidated
subsidiary 12,582 32,496 5,642 5,303 4,027
Equity loss 0 0 0 1,691 0
Amoritization
of capitalized
interest 1,057 5,621 768 497 0
Less:
Minority interest
in loss of
consolidated
subsidiary 11,861 14,412 4,925 17,873 9,129
Equity income 10,840 10,431 8,129 0 0
Capitalized
interest 12,898 0 7,681 9,792 14,898
Dividends on
preferred stock
of majority-
owned subsidiary 0 0 0 0 3,436
Total earnings
as defined $3,311,408 $3,373,745 $3,129,420 $2,164,773 $2,060,729
Fixed Charges:
Interest and
amortization
of debt
expense $461,370 $571,414 $665,021 $116,661 $47,871
Capitalized
interest 12,898 0 7,681 9,792 14,898
Interest
factor of
rental
expense (a) 44,393 33,597 32,345 28,734 25,295
Dividends on
preferred
stock of
majority-
owned subsidiary 0 0 0 0 3,436
Total fixed
charges as
defined $518,661 $605,011 $705,047 $155,187 $91,500
Ratio of earnings
to fixed
charges 6.4 5.6 4.4 13.9 22.5
* - The 1994 results include one month of results of American Cyanamid
Company which was acquired by American Home Products Corporation
effective December 1, 1994. Assuming the acquisition took place
January 1, 1994, the pro forma ratio of earnings to fixed charges
would be 2.9 for the year ended December 31, 1994.
(a)- A 1/3 factor was utilized to compute the portion of rental
expenses deemed representative of the interest factor.
</TABLE>
American Home Products Corporation
1997 Annual Report
[Logo]
AHP
INNOVATION
American Home Products
is focused on finding
breakthrough medical
therapies in areas of
critical need and on
developing innovative
crop protection
products. AHP is
expressing its
dedication through a
continuing commitment to
basic and developmental
research.
<PAGE>
American Home Products Corporation
American Home Products continues to enhance its role as a world leader in the
discovery, development, manufacturing and marketing of health care and
agricultural products that improve the quality of life for people all around the
globe. The Company is intensively focused on innovation as the critical factor
in the achievement of our mission. AHP's investment in scientific discovery and
development, which exceeded $1.5 billion in 1997, enables the Company to bring a
continuous flow of important new products to the worldwide market. The
productivity of our R&D efforts is reflected in an expanding pipeline of
promising new products.
AHP's health care product franchise is one of the strongest in the
industry and includes broad lines of widely recognized ethical pharmaceuticals,
vaccines, nutritionals and over-the-counter (OTC) medications. In the United
States, AHP's prescription medications are dispensed more frequently than those
of any other pharmaceutical company. Our OTC medications and vitamin and mineral
supplements represent one of the largest consumer health care franchises in the
world, led by highly recognized, premier brands. AHP's agricultural products
give us a leadership position in expanding global markets for herbicides and
insecticides. Our animal health care business has become one of the world's
leading providers of veterinary pharmaceuticals and biologicals.
2 Chairman's Report to Shareholders
6 AHP at a Glance
8 Special Report: Innovation
16 Pharmaceutical Products Pipeline
18 Principal Products -- United States
19 Financial Section
45 Corporate Data
46 Principal Officers
IBC Board of Directors
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996
- --------------------------------------------------------------------------------
(In thousands except per share amounts)
<S> <C> <C>
Net sales.......................................... $14,196,026 $14,088,326
Net income......................................... 2,043,123 1,883,403
Basic earnings per share........................... 3.16 2.96
Diluted earnings per share......................... 3.11 2.92
Dividends per common share......................... 1.66 1.565
Total assets....................................... 20,825,111 20,785,343
Stockholders' equity............................... 8,175,252 6,962,092
</TABLE>
[Graphs Omitted]
1
<PAGE>
Chairman's Report to Shareholders
[Photo Omitted]
John R. Stafford
Chairman, President and Chief Executive Officer
Overall, 1997 was a good year for American Home Products Corporation. We
achieved record sales and earnings, and, for the 46th consecutive year, we
increased the annual dividend to shareholders. Our product portfolio was
strengthened and expanded through the introduction of a number of innovative
health care and agricultural products, and we sharpened our focus through the
selected divestiture of non-core businesses. In particular, we completed the
sale of Storz Instrument Company in December 1997 for $380 million, and we sold
our Sherwood-Davis & Geck medical devices business for $1.77 billion in February
1998. In early March 1998, we announced the Board of Directors' approval of a
two-for-one split of the Company's common stock, subject to shareholder approval
of an increase in the number of authorized shares of common stock from 1.2
billion to 2.4 billion at our Annual Meeting to be held on April 23, 1998.
In September, we voluntarily recalled two drugs that were prescribed for
the treatment of obesity: Pondimin (fenfluramine HCl) and Redux (dexfenfluramine
HCl). The decision to recall these drugs was the prudent course of action in
light of new, preliminary information from the U.S. Food and Drug Administration
(FDA) suggesting the potential of heart valve abnormalities in some patients who
had used one or the other of these drugs and in other patients who had used an
off-label combination of fenfluramine and phentermine (the latter drug was not
manufactured or marketed by the Company). The recall has received a great deal
of attention from the media regarding lawsuits filed in federal and state courts
alleging, among other things, valvular heart disease caused by the use of
fenfluramine HCl, dexfenfluramine HCl or fenfluramine HCl in combination with
phentermine.
Closely related to the litigation process are the scientific
investigations and studies initiated by the Company, which are ongoing and which
should provide some answers to the questions that have been raised about the
products. A number of clinical studies are under way, and some initial
scientific data will become available during the first half of 1998.
You can be assured that the Company will vigorously defend itself in the
litigation, and we remain confident that we have always acted reasonably and
responsibly in this matter.
Review of 1997
In 1997, net sales totaled $14.2 billion. After adjusting for businesses
acquired or divested in 1997 and 1996, net sales increased 5 percent. Net income
and basic earnings per share for 1997 were $2.0 billion and $3.16 compared with
$1.9 billion and $2.96 for 1996. These results included the following special
items that are more fully discussed in the financial section of this report: in
1996, a gain on the sale of the American Home Foods business and special charges
related to the purchase of the remaining equity interest in Genetics Institute,
Inc.; and, in 1997, special charges for
2
<PAGE>
the one-time costs associated with the voluntary market withdrawal of our
antiobesity products. Excluding these special items, net income for 1997
increased 15 percent, and basic earnings per share increased 13 percent compared
with the prior year.
Innovation: the Key to Future Growth
The global pharmaceutical market is more complicated than ever, and we face
strong competitors in every market we serve. However, AHP has been meeting this
challenge through the Company's focus on innovation. The power of innovation is
such that it speeds exciting new products to market, molds a company into a
formidable competitor, motivates talented employees to perform at consistently
high levels and creates a culture defined by and dedicated to best-of-class
success. One tangible measure of the power of our innovation: in 1997, we
received market clearance for eight new pharmaceutical products in the United
States as well as registration approvals for many products internationally.
To further our position in the worldwide pharmaceutical arena, American
Home Products must grow globally. With the industry cost of bringing a new drug
to market now exceeding $500 million, it is essential to leverage our research
investment by maximizing the market potential for every new product. This
requires coordinated product development and marketing strategies, strong
finances and an efficient structure to muster our considerable resources to meet
competitive challenges around the world.
No better example of meeting competitive challenges exists than Premarin
and the Premarin family of products, which, this year, broke the $1 billion
sales mark in the United States. The future for Premarin -- the most prescribed
medication in the United States -- remains highly promising. Research continues
to reveal new ways in which conjugated estrogens can contribute to the
well-being and longevity of postmenopausal women. Additionally, in May 1997, the
FDA ruled that all generic versions of Premarin must be shown to contain the
same active ingredients as Premarin. This decision recognizes that, at this
time, there can be no synthetic generic substitution for Premarin, a product
made from a naturally derived blend of hormones.
Research and Development
Our Company's future growth depends upon identifying, developing and marketing
innovative new products for use around the world. In the 11 years I have been
privileged to serve as AHP's Chairman, our investment in research and
development has grown steadily, and, in 1997, it exceeded $1.5 billion. Of this
amount, more than $1.2 billion was devoted to pharmaceuticals and biotechnology.
<TABLE>
====================================
<S> <C>
- -----------------------------
United States 58%
- -----------------------------
22%
- -----------------------------
Canada and Latin America 11%
- -----------------------------
Asia and Australia 9%
- -----------------------------
====================================
Net Sales by Geographic
Segment (on a pro forma basis)
</TABLE>
R&D spending alone will not guarantee success unless it is productive. At
AHP, both increased investment and R&D productivity are operative as we are
bringing to market an exceptional array of pharmaceutical products. At year-end
1997, more than 50 compounds, each with the opportunity to generate substantial
returns, were moving through various stages of the research, development and
approval process. In the United States, the percentage of total pharmaceutical
sales from AHP products on the market less than five years grew to 33 percent in
1997 and will climb further in 1998.
Included among the promising new products awaiting near-term registration
and marketing are:
Enbrel: This breakthrough treatment for advanced rheumatoid arthritis was
developed by Immunex Corporation, a leading biotechnology company in which
AHP is the majority shareholder.
Pneumococcal Conjugate Vaccine: This vaccine, in Phase III development, is
designed to protect young people against invasive pneumococcal diseases
such as meningitis, bacteremia and pneumococcal otitis media.
Rapamune: Now in Phase III trials, this agent has demonstrated the ability
to prevent or significantly reduce organ rejection in kidney transplant
patients.
Sonata: A New Drug Application (NDA) for this non-benzodiazepine sedative,
developed for use in the treatment of insomnia, was filed with the FDA in
December 1997 and was accepted in February 1998.
These products and others are reviewed in greater detail in a special section
within this report entitled "Innovation."
3
<PAGE>
Our internal R&D efforts are being supplemented by important new strategic
alliances established in 1997. These include a collaborative research agreement
with ArQule, Inc. to help optimize chemical leads for discovery research; a
licensing agreement with 3-Dimensional Pharmaceuticals, Inc. for development of
oral thrombin inhibitors; and a licensing collaboration agreement with CoCensys,
Inc. for the development of a novel compound for the anxiolytic market.
Ethical Pharmaceuticals
Worldwide pharmaceutical sales increased again during 1997, keyed by a strong
year in the U.S. marketplace. Sales were driven by higher demand for the
Premarin family of products, Effexor and Cordarone. Adding to these positive
results were new product introductions in the United States, including:
Alesse: Introduced in March 1997, this low-dose oral contraceptive
represents a new option for the many women who choose the pill as their
form of contraception. It represents the lowest dose combination of
levonorgestrel and ethinyl estradiol marketed in the United States.
BENEFIX: This biotechnology product received FDA market clearance in
February 1997 as the only recombinant treatment for Hemophilia B.
Duract: Receiving FDA market clearance in July 1997, Duract is a potent
non-narcotic analgesic for the management of short-term pain, providing
relief in a broad range of pain states. It has achieved rapid success in
the marketplace, with more than 1 million prescriptions written in the
first six months.
Effexor XR: A once-a-day dosing alternative for our highly successful
antidepressant Effexor, this simple dosing form, approved in October 1997,
promotes patient compliance. Registration for the use of Effexor XR as a
treatment for generalized anxiety disorder was submitted to the FDA in
January 1998.
Neumega: After receiving market clearance in November 1997, this platelet
growth factor was launched nationally in January 1998.
Consumer Health Care
Our worldwide consumer health care business again was led by increased sales of
Advil and Centrum. Overall sales gains were offset, in part, by divestiture of
several non-core products. Brand recognition and market penetration remain the
cornerstones of our over-the-counter medicine business, and Whitehall-Robins
Healthcare remained a leader in three leading OTC categories: analgesics;
vitamin and mineral supplements; and respiratory products, paced by Advil,
Centrum, Robitussin and Dimetapp.
<TABLE>
====================================
<C> <S>
-----------------------------
61% Pharmaceuticals
-----------------------------
15% Consumer Health Care
-----------------------------
15% Agricultural Products
-----------------------------
9% Medical Devices
-----------------------------
====================================
Net Sales by Segment
(on a pro forma basis)
</TABLE>
Agricultural Products
Cyanamid Agricultural Products is the third-largest crop protection product
marketer in the United States and one of the largest in the world. In 1997,
Cyanamid achieved record sales, driven by an especially strong performance in
Latin America. In addition, Cyanamid continued its leadership position in the
U.S., Canadian and Latin American soybean herbicide markets.
Cyanamid launched Raptor, a broad-spectrum soybean herbicide that will
expand our market into areas where crop rotation restrictions formerly were
present. An innovator in developing herbicide-tolerant crops, Cyanamid
Agricultural Products extended its leadership in this segment with the launch of
Lightning, a simple, one-pass, residual weed control product for corn, and with
the launch of Odyssey, in Canada, for canola.
Animal Health Care
Our Fort Dodge Animal Health business posted strong 1997 results, in part due to
the acquisition of the worldwide animal health business of Solvay S.A. This
acquisition provided an opportunity for greater penetration of international
markets, particularly Western Europe and the Far East, as well as a competitive
entry into the swine and poultry biological markets.
Similar to our pharmaceutical business, Fort Dodge continued a tradition
of innovation with the launch of Cydectin Pour-On, a new generation product to
combat cattle parasites, which was approved for use in the United States in
early 1998. Launched in 1997 was Quest, the first totally
4
<PAGE>
new equine dewormer and boticide in more than a decade. Both products'
moxidectin formulations offer numerous advantages over traditional deworming
agents. Additionally, Dicural will be launched in the United States for canine
urinary tract infections and in Europe for poultry applications.
Industry Developments
As I told you in my Chairman's Report to Shareholders in our 1994 Annual Report,
I believe that, over time, the health care products industry will continue to
consolidate with fewer, larger -- which, in some cases, means stronger --
companies dominating the global marketplace. Our acquisition of American
Cyanamid in 1994 was part of that trend. We will continue to examine appropriate
opportunities if and when they arise, with our overall objective being the
enhancement of value for our shareholders.
The Board of Directors, Management and Employees
Robert Essner, formerly President of Wyeth-Ayerst Laboratories, was elected to
the Board of Directors and was promoted to Executive Vice President of AHP.
Robert I. Levy, M.D., formerly President of Wyeth-Ayerst Research, was elected
Senior Vice President, Science and Technology of AHP. L. Patrick Gage, Ph.D.,
formerly President of Genetics Institute, was named President, Wyeth-Ayerst
Research.
Among other key management actions, Bernard Poussot was named President,
Wyeth-Ayerst Global Pharmaceuticals; Joseph M. Mahady was named President,
Wyeth-Ayerst Global Pharmaceuticals-North America; Kenneth J. Martin was named
President, Whitehall-Robins Healthcare; and Howard L. Minigh, Ph.D., was named
President, Global Agricultural Products. William A. Hawkins was elected Vice
President, Medical Device and Specialty Pharmaceutical Divisions, and Bruce
Fadem was elected Vice President and Chief Information Officer of AHP upon the
retirement of Edward A. Schefer. Marily H. Rhudy was elected Vice President,
Public Affairs. Additionally, Tuan Ha-Ngoc was elected Vice President, Strategic
Development of AHP. David A. Low, President, Sherwood-Davis & Geck, retired in
May 1997 after 31 years of dedicated service.
1997 was a year in which we made impressive strides in research and
development and global marketing as we continued our growth as a world-class
pharmaceutical company focused on the development of superior products that
improve the quality of life for people around the world.
It is important to recognize that our accomplishments manifest the
intelligence, creativity and extraordinary commitment of AHP employees around
the world. The Board of Directors joins me in thanking them for their efforts
and commends them for the results they have achieved.
/s/ John R. Stafford
John R. Stafford
Chairman, President and Chief Executive Officer
March 5, 1998
5
<PAGE>
American Home Products Corporation
AHP at a Glance
As a result of our corporate commitment to innovation, the productivity of our
growing investment in research and development, and our marketing strength,
American Home Products today has one of the strongest product and brand
portfolios of any company in our industry. Around the world, American Home
Products is recognized and trusted for quality and cost-effective
pharmaceutical, OTC, agricultural and animal health care products.
Ethical Pharmaceuticals, Vaccines and Nutritionals
================================================================================
Women's Health Care
Wyeth-Ayerst's research, products and educational initiatives benefit millions
of women. A leader in oral contraception and the world's largest provider of
hormone replacement therapy, Wyeth-Ayerst's products include Lo/Ovral, Triphasil
and Premarin, the most prescribed medication in the United States. During 1997,
Wyeth-Ayerst introduced Alesse, a low-dose, levonorgestrel-containing oral
contraceptive formulation, in the United States.
[Graphic Omitted]
================================================================================
Cardiovascular Therapies
Wyeth-Ayerst is focused on improving cardiovascular health through research
initiatives and product innovation aimed at advancing the treatment of
cardiovascular diseases, including arrhythmia and hypertension. The Company's
anti-hypertensives include products such as Verelan and Ziac. Our
anti-arrhythmic franchise, which includes Cordarone and Cordarone I.V., leads
the U.S. market, reflecting recognition of Cordarone's important role in the
management of life-threatening ventricular arrhythmias.
[Graphic Omitted]
================================================================================
Mental Health Products
Wyeth-Ayerst offers various important anti-anxiety products as well as the
fast-growing antidepressant, Effexor. Effexor XR, a new, once-daily formulation,
was introduced in 1997 and has demonstrated the same unique efficacy profile of
Effexor with more convenient dosing.
[Graphic Omitted]
================================================================================
Vaccines
Wyeth-Lederle Vaccines and Pediatrics is a major supplier of vaccines that
prevent childhood and adult diseases, including: whooping cough, diphtheria,
poliomyelitis, meningitis, pneumonia and influenza. Important products include:
HibTITER, a major contributor to the reduction of diseases in children caused by
the Haemophilus influenzae type b organism; Orimune, the only oral polio vaccine
sold in the United States; and Acel-Imune for infants, a vaccine launched in
early 1997 that provides advanced protection against whooping cough, diphtheria
and tetanus.
[Graphic Omitted]
================================================================================
Oncology / Hematology
Anti-cancer agents from AHP are used by oncologists throughout the world. In the
United States, Novantrone and Leukine, marketed by Immunex Corporation, are
important products widely used in cancer treatment. AHP's oncology and
hematology franchises were strengthened in 1997 by the introduction of two new
products -- Neumega, the first approved platelet growth factor, and BeneFix, the
only recombinant clotting factor treatment for Hemophilia B.
[Graphic Omitted]
6
<PAGE>
================================================================================
Pain and Inflammation
Wyeth-Ayerst's solid position in the pain and inflammation category was
strengthened in 1997 with the introduction of Duract and Synvisc. Duract -- a
potent non-narcotic analgesic for the short-term management of pain -- achieved
quick success in the United States. Synvisc, licensed from BioMatrix, is a new
treatment designed to alleviate pain associated with osteoarthritis of the knee
by restoring and supplementing the natural elastic properties of synovial joint
fluid.
[Graphic Omitted]
================================================================================
Anti-Infectives
Wyeth-Ayerst offers important antibiotic products that are used to treat
infectious diseases globally. Our anti-infective franchise includes Minocin,
Pipracil, Suprax and Zosyn. Zosyn continued to gain increased usage for the
treatment of nosocomial (hospital-acquired) pneumonia throughout the world.
[Graphic Omitted]
================================================================================
Nutritionals
The Wyeth-Ayerst nutritional franchise is among the leaders in the international
marketplace. Our line-up of first-age, second-age, third-age and other formulas
designed for special needs includes S-26/SMA, Promil, Progress and Nursoy and is
scientifically designed to meet the nutritional and therapeutic needs of infants
and children.
[Graphic Omitted]
================================================================================
Consumer Health Care
Leading brands such as Advil, Centrum, Dimetapp and Robitussin give
Whitehall-Robins Healthcare one of the largest global over-the-counter product
franchises, highly ranked in worldwide sales of analgesics, vitamin and mineral
supplements, and respiratory products.
[Graphic Omitted]
================================================================================
Agricultural Products
Cyanamid's growth as a leader in the global agricultural products market is
based upon innovative herbicide, insecticide, fungicide and biotechnology
products that meet increasingly stringent safety and environmental demands. In
1997, significant milestones were achieved in registrations of key new products,
both in the United States and in international markets. Significant
registrations included: Lightning, Mach 2, Odyssey, Raptor and Utopia as well as
Section 18s for Acrobat and Pirate.
[Graphic Omitted]
================================================================================
Animal Health Care
By completing the acquisition of the global animal health business of Solvay
S.A. in early 1997, Fort Dodge Animal Health has become the world's third
largest provider of animal health care products. Recognized as a leader in
pharmaceuticals and biologicals for companion animals and livestock, the Company
continued to expand its line of moxidectin-based anti-parasitic products in 1997
and early 1998, introducing Quest Gel dewormer and boticide for horses and
Cydectin Pour-On for cattle in the United States.
[Graphic Omitted]
7
<PAGE>
INNOVATION
AHP's continuing commitment to basic and developmental research
Organ transplant rejection. Rheumatoid arthritis. Rotavirus. Hemophilia.
Infectious diseases. Cancer. American Home Products is focused on a number of
the most difficult health care challenges facing the world. Focused ... and
succeeding, as evidenced by our new product introductions in 1997 and our
growing pipeline of promising new products.
Today, American Home Products is on the leading edge in pharmaceutical
research, biotechnology and genetic engineering. One measure of our commitment
to research and development is this: After growing steadily during the 1980s and
early 1990s, AHP's investment in R&D surpassed $1.5 billion in 1997, with 80
cents of every research dollar dedicated to pharmaceuticals, vaccines and
biotechnology products. In terms of results, over the past three years AHP
received 17 major product approvals in the United States and more
internationally. In terms of the true innovators -- our people -- American Home
Products today employs more than 3,600 researchers and scientists.
In the pages that follow, we introduce some of AHP's people and highlight
some of the unmet needs that have driven the most innovative thinking in the
history of our Company. We also describe some recently introduced new products
as well as some late-stage pipeline products, many of which were reviewed at our
September 1997 meeting with R&D analysts from major brokerage firms.
[Graphic Omitted]
Scientist Pamela McMahon, shown here examining an Analytical SDS-PAGE gel of
cell extracts, is among the many dedicated scientists and researchers worldwide
who contribute to AHP's research and development efforts.
8
<PAGE>
Rapamune(R)
Because the current rate of organ transplant rejection is unacceptably high
- ---------------------------------------------------------------------------
Although a dramatic heart-lung or liver procedure may still make headlines,
organ transplantation has become routine in cases such as kidney damage caused
by diabetes and other diseases. But while the recipient of the transplant
receives a life-saving gift, the donated organ is seen as a foreign invader,
like a bacteria or virus infection, and the body's immune system will attack it.
This results in rejection of the organ and is the major barrier to successful
transplantation. Rejection can be overcome only by immunosuppressant drugs that
reduce the body's normal immune response. However, there are only a handful of
these powerful drugs available today, and they all have limitations: Patients
still have organ rejection; patients usually must take many different drugs; and
these drugs can cause side effects of their own, including kidney damage, nerve
damage and high blood pressure. Rapamune (sirolimus rapamycin), an innovative
new immunosuppressant from Wyeth-Ayerst Research, promises to reduce the rate of
organ rejection and lower the common side effect problems associated with
existing agents. Moreover, Rapamune may permit a reduction in dosage of some of
these other drugs or their elimination altogether. This is an immense advance
for transplant patients who require lifelong immunosuppressive therapy.
below
Suren Sehgal, Ph.D., (left) Distinguished Research Fellow at Wyeth-Ayerst
Research (WAR), discovered the Rapamune molecule. Joseph S.Camardo, M.D.,
Assistant Vice President - Clinical Research at WAR, is Chairman of the Rapamune
Task Force, responsible for all aspects of the development and successful
registration of Rapamune.
[2 Graphics Omitted]
above
Barry Kahan, M.D., Ph.D., is Professor of Surgery and Director of the Division
of Immunology and Organ Transplantation at the University of Texas Health
Science Center in Houston. Dr. Kahan was the first physician in the United
States to use Rapamune in patients and has participated as an investigator in
Phases I, II and III. Currently, he has more than 200 patients involved in
clinical trials of Rapamune.
9
<PAGE>
Pneumococcal Conjugate Vaccine
Because more than 1 million annual childhood deaths cry out for an answer
- -------------------------------------------------------------------------
Streptococcus pneumoniae is a major cause of morbidity and mortality worldwide.
While pneumococcus infects people of all ages, in children it is the most
frequent cause of otitis media, pneumonia and bacteremia, as well as the
principal cause of childhood bacterial meningitis. Those most susceptible to
pneumococcal diseases are children less than two years old. The impact is
staggering in developing countries, where pneumococcus causes more than 1
million pneumonia deaths a year in children under the age of five. Additionally,
in developing countries, it causes another 140,000 deaths from a range of
related infections. Licensed pneumococcal polysaccharide vaccines are available
but are poorly immunogenic in this age group. Further, strains that are
resistant to routinely used antibiotics have emerged. Wyeth-Lederle Vaccines and
Pediatrics has developed a new protein-polysaccharide conjugate vaccine that is
immunogenic during infancy and is capable of providing long-term immunity. This
vaccine has been shown to be well-tolerated and immunogenic in multiple studies
in infants in the United States, Finland and South Africa. Two large-scale Phase
III trials evaluating the protective efficacy of the pneumococcal conjugate
vaccine against pneumococcal pneumonia, bacteremia and meningitis are under way.
A Phase III trial evaluating the efficacy of the pneumococcal conjugate vaccine
against pneumococcal otitis media also is ongoing in Finland.
below
Alan Kimura, M.D., Ph.D., is Associate Director - Clinical Research at
Wyeth-Lederle Vaccines and Pediatrics (WLVP) and is responsible for the clinical
development of the pneumococcal conjugate vaccine. Dr. Kimura is shown here with
the seed fermenter for the pneumococcal bacteria at WLVP's Pearl River, New
York, Vaccine Technology Development Center.
[2 Graphics Omitted]
above
Pediatricians Henry Shinefield, M.D., (left) and Steven Black, M.D., are
principal investigators in clinical trials of the pneumococcal conjugate vaccine
being conducted at Northern California Kaiser Permanente Hospital in Oakland,
California.
10
<PAGE>
Effexor(R) XR
Because distinguishing anxiety from depression often is difficult
-----------------------------------------------------------------
Generalized Anxiety Disorder (GAD) is a serious illness characterized by
distressing and/or disabling chronic, excessive anxiety and worry. Clinically
distinct from depression, GAD also is associated with functional impairment,
high utilization of medical services and a greater incidence of illicit drug
use. During any 12-month period, some 3 percent of the U.S. population
experiences GAD. Wyeth-Ayerst's Effexor (venlafaxine HCl), which inhibits both
serotonin and norepinephrine reuptake, has proved to be an effective
antidepressant without side effects such as fatigue. In 1997, Effexor XR, a new
extended release formulation, was approved for marketing in the United States,
the United Kingdom and six other countries for depression. Effexor XR permits
once-daily dosing instead of dosing two or three times a day. In January 1998,
Wyeth-Ayerst submitted a supplemental New Drug Application (NDA) to allow
Effexor XR to be marketed for GAD. If approved, it will be the first drug for
the treatment of both depressive disorders and GAD. It also will be the first
new drug approved for GAD in more than a decade. Since the symptoms of both
depression and anxiety commonly occur in the same patient, physicians often find
it difficult to determine which is the primary disorder -- making Effexor XR a
valuable drug that is effective both in generalized anxiety disorder and
depression.
[Graphic Omitted]
Venlafaxine, the active component in Effexor and Effexor XR, is a structurally
novel antidepressant that inhibits the brain's reuptake of serotonin and
norepinephrine.
Neumega(R)
Because a cancer patient needs optimal doses of chemotherapy
------------------------------------------------------------
Chemotherapy -- taken orally or injected -- is used to treat about half of all
cancer patients. In some cases, it's the patient's only hope for survival. But
chemotherapy often produces severe side effects, including myelosuppression, in
which bone marrow fails to produce sufficient levels of essential blood
components: red blood cells, white blood cells and platelets. Of the 600,000 to
800,000 cancer patients undergoing chemotherapy each year in the United States,
about one-quarter develop severe depletion of platelets due to their
chemotherapy. If platelet levels are abnormally low, patients are at risk of
bleeding, and their cancer treatments often are curtailed or delayed to give
platelets a chance for replenishment. Alternatives to address low platelet
levels, including transfusions, pose separate risks. Now there's new hope for
cancer patients -- Neumega (Oprelvekin), the first platelet growth factor to
enter the market worldwide. Neumega, discovered and developed by Genetics
Institute, is the recombinant form of human interleukin-11, a naturally
occurring platelet growth factor. Neumega boosts platelet levels, giving cancer
patients the opportunity to receive chemotherapy as planned. After a rapid
clinical development program, Neumega was licensed in the United States in
November 1997 -- approximately 60 months after entering clinical development --
and was launched in January 1998.
[Photo Omitted]
Michael Gordon, M.D., is Associate Professor of Medicine and Director of the
Clinical Hematology and Cytokine Program at the Indiana University School of
Medicine. Dr. Gordon, a medical oncologist, was a key investigator in the
clinical development program for Neumega.
11
<PAGE>
RotaShield(R)/Rotamune(TM)
Because rotavirus infects almost every child in the world
---------------------------------------------------------
Every year, 130 million infants and children contract rotavirus diarrhea, and
875,000 of them die from it. Rotavirus is the single largest cause of
life-threatening diarrhea in children under age two. Highly contagious,
rotavirus infects almost all children by the age of four. While rotavirus often
is perceived as a condition limited to developing countries, there are 3 million
infectious rotavirus cases a year in the United States. Symptoms of rotavirus
include diarrhea, vomiting, fever and dehydration. Dehydration can be reversed
through oral hydration therapy but if serious enough, hospitalization and
intravenous fluids are necessary. Because access to medical care is not always
readily available, a promising answer lies in an oral vaccine -- the first ever
against rotavirus -- developed through a Cooperative Research and Development
Agreement between Wyeth-Ayerst and the National Institute of Allergy and
Infectious Diseases. Now under review by the FDA, when licensed, it will be
marketed as RotaShield in the United States. Internationally, registration is
under way to market this vaccine under the name Rotamune. The vaccine is to be
given in three doses in the first year of life. A strong endorsement for the
product was received in February 1998 when a Centers for Disease Control and
Prevention advisory committee voted to recommend routine use of RotaShield, when
licensed in the United States, to prevent rotavirus gastroenteritis in infants.
In the largest and most successful trial to date of a rotavirus vaccine,
conducted in Venezuela, Rotamune reduced severe diarrheal illness by 88 percent.
Further, studies in the United States indicate that the vaccine can prevent
nearly half of all rotavirus infections, 80 percent of severe episodes and
virtually 100 percent of all cases of dehydrating rotavirus illness.
[Graphic Omitted]
In December of 1997, an FDA advisory committee concluded that Wyeth-Ayerst's
oral rotavirus vaccine is safe and effective against rotavirus gastroenteritis.
Protonix(TM)
Because even the most advanced medications require effective delivery
---------------------------------------------------------------------
The caustic effect of stomach acid on the lining of the gastrointestinal tract
can produce heartburn, gastric distress and, ultimately, ulceration. A primary
goal in the treatment of these conditions is to reduce stomach acid, thereby
removing the main erosive agent. The most effective approach for suppressing
acid is the direct inhibition of its production by the gastric "proton pump"
through the use of proton pump inhibitors (PPI). As a result, PPIs are the
largest segment of the anti-ulcerant class, recording nearly $3 billion in U.S.
sales in 1997, an increase of 45 percent over 1996. Protonix (pantoprazole),
being developed for marketing in the United States by Wyeth-Ayerst under license
from Byk Gulden, will be the first PPI available both in an oral and an
intravenous form. The intravenous formulation of Protonix represents a
significant medical advance because some patients cannot be treated with
currently available PPIs due to the severity of their disease or their inability
to take oral medications. Dosing guidance supporting the switching of patients
between the intravenous and oral formulations should ensure that Protonix will
be a valuable therapeutic tool for the medical community. NDA submissions from
Wyeth-Ayerst for Protonix, in both intravenous and oral dosage forms, are
anticipated in mid-1998. Now marketed in 48 countries outside the United States
by Byk Gulden and its partners, pantoprazole is a unique PPI with an
exceptionally clean drug interaction profile.
[Graphic Omitted]
The pantoprazole molecule, which is the active component in Protonix, binds
irreversibly to the gastric proton pump for long-lasting suppression of gastric
acid production.
12
<PAGE>
Enbrel(TM)
Because rheumatoid arthritis is a painful and disabling illness
- ---------------------------------------------------------------
You're 35 years old, and you've been diagnosed with rheumatoid arthritis (RA).
You may be unable to work within 10 years, and, for certain, you are faced with
painful, swollen joints and, perhaps, a crippling future. A disease of the
immune system that occurs more frequently in women than men, rheumatoid
arthritis affects millions of people around the world, including 2.5 million
people in the United States, one-fifth of whom suffer from advanced symptoms.
There is no known cure for rheumatoid arthritis, and current drugs do not
address the underlying cause of the disease. Equally discouraging, after a few
years, many patients no longer respond to or tolerate the side effects of
current therapies. Enbrel (TNR-001) may change the outlook for RA patients.
Enbrel is a biological immune modulator that regulates inflammation by blocking
the interaction of the proinflammatory cytokine TNF with cells that respond to
its signal. Enbrel has completed a Phase III study to evaluate its ability to
alleviate the signs and symptoms of advanced RA. In this study, the advanced RA
patients treated with Enbrel experienced a 71 percent reduction in painful joint
counts. Other research under way includes a study in children with juvenile RA
and a study in adults with RA to determine if Enbrel can modify the course of
this disease. Enbrel was discovered by Immunex Corporation in which American
Home Products owns a majority interest. Immunex and Wyeth-Ayerst have a
long-term agreement to co-develop the product globally under which Wyeth-Ayerst
has exclusive marketing rights outside of North America. In addition, under a
new agreement, Wyeth-Ayerst will promote Enbrel in North America in
collaboration with Immunex.
below
Teri G. Hall, Ph.D., (right) Wyeth-Ayerst's Project Team Leader for Enbrel, and
Immunex's Leslie Garrison, M.D., Medical Director - Clinical Development, are
part of the Joint Project Team coordinating Wyeth-Ayerst's and Immunex's global
co-development of Enbrel.
[2 Graphics Omitted]
above
Rheumatologist Larry W. Moreland, M.D., is a principal investigator in clinical
trials of Enbrel, being conducted at the University of Alabama at Birmingham.
13
<PAGE>
BENEFIX(R)
Because Hemophilia B patients are at risk
-----------------------------------------
Hemophilia B is an inherited disorder that almost exclusively affects males. Its
cause is a deficiency or defect in Factor IX, one of a number of proteins
involved in blood clotting. Although comparatively rare, its consequences are
severe. Patients with clotting factor deficiencies bleed easily, without any
provoking trauma. Even those with mild hemophilia can bleed after surgery,
dental procedures or trauma. Until now, Factor IX replacement products all have
been made from human blood using plasma pooled from many donors. This process
introduces the risk of transmitting pathogenic viruses despite treatments to
Factor IX products to reduce the probability of viral transmission. Included
among the viruses that can be transmitted through human blood are HIV, hepatitis
and parvovirus. In 1997, the FDA licensed a breakthrough alternative -- BeneFix,
(rFactor IX), which now also has been approved in Canada and Europe with
commercial launches targeted for mid-1998. A biotechnology product developed by
Genetics Institute, BeneFix is a plasma- and albumin-free product that is
genetically engineered and, for the first time, offers people with Hemophilia B
a treatment that is inherently free from the risk of blood-borne pathogens. For
Hemophilia B patients, BeneFix is more than an effective therapy -- it
represents peace of mind.
[Graphic Omitted]
The N-Terminus of the Factor IX molecule is illustrated in this
three-dimensional enhancement.
Sonata(TM)
Because a good night's sleep should be followed by a good morning
-----------------------------------------------------------------
A 1997 National Sleep Foundation Gallup Survey, "Sleepiness in America," has
found that people are far more sleep deprived than previously believed.
One-third of all adults scored at levels of sleepiness known to be hazardous,
with 6 percent scoring at severe levels of sleepiness. Nearly four in 10 of
those reporting daytime sleepiness indicate that it interfered with routine
activities. In addition, 12 percent acknowledge that daytime sleepiness
diminished their driving abilities. Despite these statistics, Americans
generally dismiss the problem, even though sleep disorders can be treated.
However, currently available hypnotics must be taken within a significant period
of time before the next morning in order to minimize the hangover effect. In
cases of long-term use, either dependence on the drug or tolerance to its
therapeutic effect may develop. Wyeth-Ayerst has developed Sonata (zaleplon), an
innovative hypnotic that offers an opportunity to overcome these problems.
Sonata permits insomnia sufferers to fall asleep rapidly and awaken refreshed,
free from any rebound insomnia or residual drug sedation the next morning. An
NDA and a Marketing Authorization Application for this product have been
submitted in the United States and Europe, respectively.
[Graphic Omitted]
Thomas Roth, Ph.D., Director of Sleep Disorders Medicine at the Henry Ford
Hospital in Detroit, was a principal investigator in clinical trials for Sonata.
14
<PAGE>
Cydectin(R)
Because raising cattle is tough enough without parasite problems
----------------------------------------------------------------
Bovine parasitism is the source of some of the most severe economic losses
encountered by cattle producers in the United States. Cattle are infected by
internal and external parasites that range from brown stomach worm (the most
common) to lungworm, mites and lice. For the past two decades, animal health
scientists have researched compounds that would combine safety and convenience
while eliminating the problems of injectable formulations, which include side
effects and injection site blemishes that can reduce meat's marketability.
Cydectin Pour-On (moxidectin) is a new, potent endectocide from Fort Dodge
Animal Health that sets a new standard for both performance and beef quality.
Approved for use in the United States in early 1998, Cydectin is the only cattle
parasite control product containing the active ingredient moxidectin, which
delivers persistent anti-parasitic activity. Cydectin Pour-On is specially
formulated to allow moxidectin to be absorbed through the skin and distributed
to areas of the animal's body affected by internal or external parasites. After
administration, moxidectin is stored in fat deposits, where it is slowly
released into the blood stream. This characteristic is responsible for its
long-lasting protection. Cydectin Pour-On can be used in all breeds of beef
cattle, and its effectiveness is not affected by rainfall. As for convenience, a
temporary purple dye provides ready recognition of treated cattle, and a large
volume application gun makes it easy to apply.
[Graphic Omitted]
A second-generation molecule from the milbemycin chemical family, Cydectin
delivers a unique combination of benefits unavailable in older avermectin
products.
Raptor(R)
Because safe weed control is essential for food crops
-----------------------------------------------------
Around the world, weeds like velvetleaf, nightshade and foxtail are known to be
the most unwelcome visitors to farmers' fields. Soybeans and other leguminous
crops, including peas, dry beans, alfalfa and lentils, are especially vulnerable
to their infestation. This is significant because these are the essential
feedstuffs upon which much of the world's livestock is dependent. Weed control
products are available, but safety to crops, the environment and people is a
concern. One effective answer is the family of products known as imidazolinones.
First introduced by Cyanamid in 1984, they are known for their efficacy on a
wide variety of weed species, are valued by farmers, and are safe to mankind and
the environment. Raptor (imazamox) is a new Cyanamid broad-spectrum herbicide
that is today's most potent and unique imidazolinone. Raptor provides contact
and residual control of all major weeds, and its unique properties allow it to
be used where other imidazolinones may not fit the cropping rotation. Raptor
controls weeds during the growing season but degrades in the soil before the
next season, offering growers outstanding followcrop flexibility. That means a
U.S. farmer can plant cotton after soybeans, a French farmer can plant
vegetables or canola after field peas and a Brazilian farmer can follow dry
beans with potatoes -- all knowing that Raptor will provide the best weed
control but will not affect the next season's crop. A global product, Raptor
registrations are planned for more than 50 countries.
[Graphic Omitted]
Raptor is Cyanamid's new broad-spectrum herbicide for worldwide use on soybeans
and other leguminous crops. Its unique soil properties allow greater followcrop
flexibility.
15
<PAGE>
American Home Products Corporation
Pharmaceutical Products Pipeline
AHP's pharmaceutical product pipeline produced eight new products in 1997:
Alesse, BENEFIX, Crinone, Duract, Effexor XR, Neumega, Normiflo and Synvisc.
Development now is proceeding for more than 50 new pharmaceutical compounds. A
number of the most promising products in post-Phase I trials are described
below. The majority of these products have worldwide market potential.
<TABLE>
<CAPTION>
X U.S.
O International
A Approved NDA NDA filed PLA PLA filed III Phase 3 II Phase 2 + U.S. and International
- ------------------------------------------------------------------------------------------------------------------------------------
Product Name Description/Indication A NDA/PLA III II
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Crinone(R) Assisted reproduction therapy regimes; dysfunctional uterine
bleeding and secondary amenorrhea O
- ------------------------------------------------------------------------------------------------------------------------------------
Duract(R) Analgesia for short-term management of acute pain X O
- ------------------------------------------------------------------------------------------------------------------------------------
Lyrelle(R)Patch Treatment of vasomotor symptoms related to menopause; 3.5 days O
- ------------------------------------------------------------------------------------------------------------------------------------
Neumega(R) Chemotherapy-induced thrombocytopenia X O
Interleukin-11 Crohn's disease X
- ------------------------------------------------------------------------------------------------------------------------------------
Novantrone(R) Metastatic breast cancer O
(Immunex) Non-Hodgkin's lymphoma (U.S. Phase I /II) O X
- ------------------------------------------------------------------------------------------------------------------------------------
Effexor(R) XR Generalized anxiety disorder; once-a-day X O
- ------------------------------------------------------------------------------------------------------------------------------------
Gestodene/EE Lowest-dose estrogen/progestin OC to be available 0
- ------------------------------------------------------------------------------------------------------------------------------------
Leukine(R) Treatment of neutropenia resulting from chemotherapy X
(Immunex) Prevention of infections in patients with advanced HIV; fungal infections X
Melanoma; flu vaccine adjuvant X
- ------------------------------------------------------------------------------------------------------------------------------------
RotaShield(R)/ROTAMUNE(TM) Vaccine for prevention of rotaviral gastroenteritis in infants +
- ------------------------------------------------------------------------------------------------------------------------------------
Sonata(TM) Non-benzodiazepine sedative/hypnotic for the treatment of +
general insomnia
- ------------------------------------------------------------------------------------------------------------------------------------
Suprax(R) Sinusitis claim X
- ------------------------------------------------------------------------------------------------------------------------------------
TETRACEL(TM) Prophylaxis against diphtheria, tetanus, pertussis and Haemophilus X
influenzae type b meningitis (acellular pertussis component)
in toddlers
- ------------------------------------------------------------------------------------------------------------------------------------
Enbrel(TM) Rheumatoid arthritis; joint venture with Immunex +
(Immunex) Juvenile rheumatoid arthritis; joint venture with Immunex X
- ------------------------------------------------------------------------------------------------------------------------------------
ERT Patch Treatment of vasomotor symptoms related to menopause; 7 days +
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
U.S.
International
A Approved NDA NDA filed PLA PLA filed III Phase 3 II Phase 2 U.S. and International
- ------------------------------------------------------------------------------------------------------------------------------------
Product Name Description/Indication A NDA/PLA III II
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HRT Patch Treatment of vasomotor symptoms related to menopause; 3.5 days +
- ------------------------------------------------------------------------------------------------------------------------------------
Protonix(TM) Oral Erosive esophagitis, H. pylori eradication X
Protonix(TM) I.V. Zollinger-Ellison Syndrome; erosive esophagitis X
- ------------------------------------------------------------------------------------------------------------------------------------
Pneumococcal Conjugate Prophylaxis against pneumococcal diseases; e.g., otitis media, +
Vaccine pneumonia, meningitis
- ------------------------------------------------------------------------------------------------------------------------------------
Prempro(TM)/Premelle(R) Secondary prevention of coronary disease +
- ------------------------------------------------------------------------------------------------------------------------------------
Rapamune(R) Immunosuppressive therapy for prophylaxis of renal transplant rejection +
Immunosuppressive therapy for prophylaxis of liver, bone marrow +
and cardiac transplant rejection
- ------------------------------------------------------------------------------------------------------------------------------------
ReFacto(R) Hemophilia A; recombinant blood-clotting factor +
- ------------------------------------------------------------------------------------------------------------------------------------
rhBMP-2* Bone repair and regeneration O X
- ------------------------------------------------------------------------------------------------------------------------------------
Trimegestone/ Treatment of vasomotor symptoms and prevention of osteoporosis O
17 (beta)-estradiol with endometrial protection
- ------------------------------------------------------------------------------------------------------------------------------------
Trimegestone/Premarin(R) Treatment of vasomotor symptoms and prevention of osteoporosis X
with endometrial protection
- ------------------------------------------------------------------------------------------------------------------------------------
Meningococcal Conjugate Prophylaxis against meningococcal group C meningitis +
Vaccine
- ------------------------------------------------------------------------------------------------------------------------------------
Fiblast(R) Stroke (Phase II/III); joint venture with Scios +
Peripheral vascular disease (Phase I / II); joint venture with Scios +
- ------------------------------------------------------------------------------------------------------------------------------------
CMA-676 Acute myelogenous leukemia; joint venture with Celltech plc +
- ------------------------------------------------------------------------------------------------------------------------------------
Minalrestat (ARI-509) Adjunct to insulin/oral hypoglycemic agents for prevention/treatment of +
diabetic complications
- ------------------------------------------------------------------------------------------------------------------------------------
rhIL-12 Novel immunomodulator (Phase I / II) +
- ------------------------------------------------------------------------------------------------------------------------------------
RSV Subunit Vaccine Prevention of respiratory syncytial virus-mediated lower respiratory +
disease for at-risk children and the elderly
- ------------------------------------------------------------------------------------------------------------------------------------
VPA-985 Hyponatremia +
- ------------------------------------------------------------------------------------------------------------------------------------
Mobist(TM) Peripheral blood progenitor cell transplantation +
(Immunex) Anti-tumor agent X
- ------------------------------------------------------------------------------------------------------------------------------------
Nuvance(TM) (Immunex) Asthma X
- ------------------------------------------------------------------------------------------------------------------------------------
Trimegestone/EE Oral contraceptive; newest progestin +
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Under evaluation by the U.S. Food and Drug Administration as a combination
device; currently in pilot studies in the United States
17
<PAGE>
American Home Products Corporation
Principal Products -- United States
Ethical
Pharmaceuticals
and Vaccines
=====================
Women's Health
Alesse
Crinone
Lo/Ovral
Nordette
Ovral
Ovrette
Premarin
Premphase
Prempro
Triphasil
- ---------------------
Cardiovascular
Cordarone
Cordarone I.V.
Inderal LA
ISMO
Isordil
Normiflo
Quinidex
Sectral
Tenex
Verelan
Ziac
- ---------------------
Mental Health
Ativan
Effexor
Effexor XR
Serax
Pain and Inflammation
Duract
Lodine XL
Naprelan
Oruvail
Synvisc
- ---------------------
Anti-Infectives
Bicillin
Minocin
Myambutol
Pipracil
Suprax
Zosyn
- ---------------------
Vaccines
Acel-Imune
FluShield
HibTITER
Orimune
Pnu-Imune 23
Tetramune
Tri-Immunol
- ---------------------
Oncology Therapies
Leukine
Neumega
Novantrone
Reglan
Thioplex
- ---------------------
Other Products
BeneFix
Diamox
Micro-K
Phenergan
Animal Health Care
=====================
Veterinary
Pharmaceuticals and
Biologicals
Cydectin
Dicural
Duramune
Fel-O-Vax
Fluvac
Ketaset
LymeVax
ProHeart
PYRAMID
Quest
Suvaxyn
Synanthic
Synovex
ToDAY
ToMORROW
Triangle
Consumer Health
Care
=====================
Analgesics and
Cough/Cold/Allergy
Advil
Advil Cold & Sinus
Anacin
Children's Advil
Dimetapp
Dristan
Junior Strength Advil
Robitussin
Vitamin and Mineral
Supplements
Caltrate
Centrum
Centrum Silver
- ---------------------
Other Products
Anbesol
Axid AR
Chap Stick
Denorex
FiberCon
Preparation H
Primatene
Agricultural Products
=====================
Herbicides
Arsenal
Assert
Cadre
Lightning
Prowl
Pursuit
Raptor
Scepter
Squadron
Steel
- ---------------------
Insecticides
Amdro
Counter
Thimet
The above principal products are identified as trademarks used by American Home
Products Corporation and its subsidiaries.
18
<PAGE>
Financial Section
Contents
Ten-Year Selected Financial Data........................................... 20
Consolidated Balance Sheets................................................ 22
Consolidated Statements of Income.......................................... 23
Consolidated Statements of Retained
Earnings and Additional Paid-in Capital.................................... 24
Consolidated Statements of Cash Flows...................................... 25
Notes to Consolidated Financial Statements................................. 26
Report of Independent Public Accountants................................... 37
Management Report on Financial Statements.................................. 37
Quarterly Financial Data................................................... 38
Market Prices of Common Stock
and Dividends.............................................................. 38
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.............................................................. 39
19
<PAGE>
American Home Products Corporation and Subsidiaries
Ten-Year Selected Financial Data
(Dollar amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
=====================================================================================================================
<S> <C> <C> <C>
Summary of Sales and Earnings
Net sales........................................................ $ 14,196,026 $ 14,088,326 $ 13,376,089
Net income(1).................................................... 2,043,123 1,883,403 1,680,418
Basic earnings per share(1)...................................... 3.16 2.96 2.71
Diluted earnings per share....................................... 3.11 2.92 2.69
Dividends per common share....................................... 1.66 1.565 1.51
=====================================================================================================================
Year-End Financial Position
Current assets................................................... $ 7,361,326 $ 7,470,419 $ 7,986,137
Current liabilities.............................................. 4,327,018 4,337,635 4,556,248
Ratio of current assets to current liabilities................... 1.70 1.72 1.75
Total assets..................................................... 20,825,111 20,785,343 21,362,923
Long-term debt................................................... 5,031,861 6,020,575 7,808,757
Average stockholders' equity..................................... 7,568,672 6,252,545 4,898,550
=====================================================================================================================
Shareholders - Outstanding Shares
Number of common shareholders.................................... 64,313 67,545 68,763
Average number of common shares outstanding
used for basic earnings per share calculation (in thousands)... 646,882 635,426 619,670
Average number of common shares outstanding used for
diluted earnings per share calculation (in thousands).......... 656,488 643,895 625,451
=====================================================================================================================
Employment Data
Number of employees at year-end.................................. 60,523 59,747 64,712
Wages and salaries............................................... $ 2,726,877 $ 2,729,662 $ 2,757,664
Benefits (including social security taxes)....................... 692,648 688,766 703,756
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See Management's Discussion and Analysis of Financial Condition and
Results of Operations for amounts related to special charges, gains on
sales of businesses and restructuring charges for the years ended December
31, 1997, 1996 and 1995.
(2) The 1994 information reflects the acquisition of American Cyanamid Company
for the one month ended December 31, 1994.
20
<PAGE>
<TABLE>
1994(2) 1993 1992 1991 1990 1989 1988
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
$ 8,966,214 $ 8,304,851 $ 7,873,687 $ 7,079,443 $ 6,775,182 $ 6,747,016 $ 6,401,454
1,528,254 1,469,300 1,460,842 1,375,273 1,230,597 1,102,158 995,461
2.49 2.37 2.33 2.18 1.96 1.77 1.61
2.48 2.35 2.31 2.16 1.94 1.75 1.60
1.47 1.43 1.33 1.1875 1.075 0.975 0.90
=========================================================================================================================
$ 7,821,246 $ 4,807,684 $ 4,552,077 $ 4,119,057 $ 3,826,075 $ 3,532,786 $ 3,256,494
4,618,086 1,584,411 1,492,717 1,270,135 1,693,852 1,108,895 1,067,599
1.69 3.03 3.05 3.24 2.26 3.19 3.05
21,674,812 7,687,353 7,141,405 5,938,797 5,637,107 5,681,487 5,492,424
9,973,240 859,278 601,934 104,710 111,430 1,895,796 100,057
4,065,295 3,719,539 3,431,568 2,987,885 2,322,623 1,651,050 1,077,462
=========================================================================================================================
71,223 72,664 73,064 71,209 69,907 70,904 70,021
614,826 621,336 628,402 631,452 628,132 623,288 618,792
617,050 626,495 633,620 636,695 633,348 628,463 623,930
=========================================================================================================================
74,759 51,399 50,653 47,938 48,700 50,816 51,464
$ 1,820,450 $ 1,654,984 $ 1,575,615 $ 1,388,397 $ 1,398,721 $ 1,391,233 $ 1,284,208
441,768 396,045 367,899 300,810 312,750 256,458 245,834
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
American Home Products Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands except share amounts)
<TABLE>
<CAPTION>
December 31, 1997 1996
===================================================================================================================
<S> <C> <C>
Assets
Cash and cash equivalents ................................................... $ 1,051,372 $ 1,322,297
Marketable securities ........................................................ 48,363 221,820
Accounts receivable less allowances (1997 - $197,155 and 1996 - $204,121)..... 2,843,099 2,541,714
Inventories................................................................... 2,412,406 2,389,369
Other current assets including deferred taxes ................................ 1,006,086 995,219
----------------------------------
Total Current Assets ....................................................... 7,361,326 7,470,419
Property, plant and equipment:
Land........................................................................ 152,942 184,200
Buildings................................................................... 2,865,501 2,675,838
Machinery and equipment .................................................... 3,703,606 3,394,628
----------------------------------
............................................................................ 6,722,049 6,254,666
Less accumulated depreciation ................................................ 2,425,143 2,217,933
----------------------------------
............................................................................ 4,296,906 4,036,733
Goodwill and other intangibles, net of accumulated amortization
(1997 - $1,863,773 and 1996 - $1,597,049)................................... 8,338,695 8,517,610
Other assets including deferred taxes......................................... 828,184 760,581
----------------------------------
Total Assets ............................................................... $ 20,825,111 $ 20,785,343
==================================
===================================================================================================================
Liabilities
Loans payable................................................................. $ 89,041 $ 76,574
Trade accounts payable ....................................................... 794,291 940,076
Accrued expenses ............................................................. 3,019,805 2,810,223
Accrued federal and foreign taxes ............................................ 423,881 510,762
----------------------------------
Total Current Liabilities .................................................. 4,327,018 4,337,635
Long-term debt................................................................ 5,031,861 6,020,575
Other noncurrent liabilities.................................................. 2,248,282 2,486,375
Postretirement benefit obligations other than pensions........................ 833,916 782,342
Minority interests ........................................................... 208,782 196,324
===================================================================================================================
Stockholders' Equity
$2 convertible preferred stock, par value $2.50 per share; 5,000,000
shares authorized........................................................... 72 79
Common stock, par value $.331/3 per share; 1,200,000,000 shares authorized
(outstanding shares: 1997 - 650,377,000 and 1996 - 639,983,000) ............ 216,792 213,328
Additional paid-in capital ................................................... 2,530,696 2,034,337
Retained earnings............................................................. 5,710,892 4,756,270
Currency translation adjustments.............................................. (283,200) (41,922)
----------------------------------
Total Stockholders' Equity.................................................. 8,175,252 6,962,092
----------------------------------
Total Liabilities and Stockholders' Equity ................................. $ 20,825,111 $ 20,785,343
==================================
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
22
<PAGE>
American Home Products Corporation and Subsidiaries
Consolidated Statements of Income
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
=========================================================================================================
<S> <C> <C> <C>
Net Sales ......................................... $ 14,196,026 $ 14,088,326 $ 13,376,089
---------------------------------------------------
Cost of goods sold................................. 4,101,309 4,449,783 4,534,320
Selling, general and administrative expenses....... 5,292,585 5,232,830 4,974,253
Research and development expenses ................. 1,558,035 1,429,056 1,354,963
Interest expense, net ............................. 370,696 433,034 514,920
Other income, net.................................. (121,306) (96,159) (98,184)
Gains on sales of businesses....................... -- (813,532) (959,845)
Special charges.................................... 180,000 697,854 436,724
Restructuring charge............................... -- -- 180,240
---------------------------------------------------
11,381,319 11,332,866 10,937,391
---------------------------------------------------
Income before federal and foreign taxes............ 2,814,707 2,755,460 2,438,698
Provision for taxes:
Federal......................................... 309,981 437,682 401,573
Foreign......................................... 461,603 434,375 356,707
---------------------------------------------------
771,584 872,057 758,280
---------------------------------------------------
Net Income ........................................ $ 2,043,123 $ 1,883,403 $ 1,680,418
===================================================
Basic Earnings per Share........................... $ 3.16 $ 2.96 $ 2.71
===================================================
Diluted Earnings per Share......................... $ 3.11 $ 2.92 $ 2.69
===================================================
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
23
<PAGE>
American Home Products Corporation and Subsidiaries
Consolidated Statements of Retained Earnings and Additional Paid-in Capital
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
================================================================================================================================
<S> <C> <C> <C>
Retained Earnings
Balance, beginning of year................................................. $4,756,270 $3,875,224 $3,120,659
Add: Net income............................................................ 2,043,123 1,883,403 1,680,418
---------------------------------------------------
6,799,393 5,758,627 4,801,077
---------------------------------------------------
Less: Cash dividends declared:
Preferred stock (per share: 1997 - 1995, $2.00)......................... 60 65 71
Common stock (per share: 1997 - 1995, $1.66, $1.565, $1.51)............. 1,073,140 993,487 934,725
---------------------------------------------------
1,073,200 993,552 934,796
Cost of treasury stock acquired (less amounts charged to capital)
and other items........................................................ 12,746 10,139 6,544
---------------------------------------------------
1,085,946 1,003,691 941,340
---------------------------------------------------
Change in unrealized gain/(loss) on marketable securities ................. (2,555) 1,334 15,487
---------------------------------------------------
Balance, end of year....................................................... $5,710,892 $4,756,270 $3,875,224
===================================================
================================================================================================================================
Additional Paid-in Capital
Balance, beginning of year ................................................ $2,034,337 $1,515,154 $1,020,658
Add: Excess over par value of common stock issued.......................... 497,438 520,355 495,323
Less: Cost of treasury stock acquired, less amounts
charged to retained earnings............................................ 1,079 1,172 827
---------------------------------------------------
Balance, end of year....................................................... $2,530,696 $2,034,337 $1,515,154
===================================================
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
24
<PAGE>
American Home Products Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
================================================================================================================================
<S> <C> <C> <C>
Operating Activities
Net income ............................................................... $ 2,043,123 $ 1,883,403 $ 1,680,418
Adjustments to reconcile net income to net cash
provided from operating activities:
Gains on sales of businesses............................................ -- (813,532) (959,845)
Special and restructuring charges....................................... 180,000 697,854 616,964
Gains on sales of other assets.......................................... (375,925) (98,809) (23,703)
Depreciation............................................................ 394,287 367,834 367,394
Amortization............................................................ 307,738 290,232 311,827
Deferred income taxes................................................... (220,214) 101,592 (145,070)
Changes in working capital, net of
businesses acquired or sold:
Accounts receivable ................................................. (329,537) 18,675 (268,445)
Inventories.......................................................... (50,927) (213,037) (111,147)
Other current assets................................................. 28,143 65,901 (102,073)
Trade accounts payable and accrued expenses ......................... (171,666) (354,132) (85,331)
Accrued federal and foreign taxes.................................... (80,873) 154,271 (110,720)
Other items, net........................................................ (28,695) 298,003 342,795
---------------------------------------------------
Net cash provided from operating activities............................... $ 1,695,454 $ 2,398,255 $ 1,513,064
===================================================
================================================================================================================================
Investing Activities
Purchases of property, plant and equipment................................ $ (830,351) $ (652,226) $ (637,501)
Purchases of businesses, net of cash acquired............................. (479,694) -- (130,000)
Purchase of remaining equity interest in Genetics Institute, Inc.
and another subsidiary................................................. -- (1,326,351) --
Proceeds from sales of businesses and other assets........................ 874,850 1,483,709 2,046,047
Proceeds from sales of/(purchases of) marketable securities, net......... 172,236 (7,924) 45,842
---------------------------------------------------
Net cash provided from/(used for) investing activities................... $ (262,959) $ (502,792) $ 1,324,388
===================================================
================================================================================================================================
Financing Activities
Net repayments of debt.................................................... $ (976,926) $ (1,783,825) $ (2,205,550)
Dividends paid............................................................ (1,073,200) (993,552) (934,796)
Purchases of treasury stock............................................... (11,335) (11,382) (7,402)
Exercise of stock options................................................. 369,561 412,197 469,763
Other items, net.......................................................... -- -- (58,502)
----------------------------------------------------
Net cash used for financing activities ................................... (1,691,900) (2,376,562) (2,736,487)
----------------------------------------------------
Effects of exchange rates on cash balances................................ (11,520) 999 5,228
---------------------------------------------------
Increase/(decrease) in cash and cash equivalents ......................... (270,925) (480,100) 106,193
Cash and cash equivalents, beginning of year.............................. 1,322,297 1,802,397 1,696,204
---------------------------------------------------
Cash and cash equivalents, end of year.................................... $ 1,051,372 $ 1,322,297 $ 1,802,397
===================================================
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
25
<PAGE>
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
1. Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of American Home Products Corporation and its
majority-owned subsidiaries (the Company). The financial statements have been
prepared in accordance with generally accepted accounting principles and
necessarily include amounts based on judgments and estimates made by management.
Description of Business: The Company is a U.S.-based multinational corporation
engaged in the discovery, development, manufacture, distribution and sale of a
diversified line of products in two primary business segments: health care and
agricultural products. Health care products include branded and generic ethical
pharmaceuticals, biologicals, nutritionals, consumer health care products,
medical devices, and animal biologicals and pharmaceuticals. Agricultural
products include crop protection and pest control products such as herbicides,
insecticides, fungicides and plant growth regulators. The Company sells its
diversified line of products to wholesalers, pharmacies, hospitals, physicians,
retailers and other health care institutions located in various markets in more
than 150 countries throughout the world. The Company is not dependent on any
single or major group of customers for its sales.
The Company is not dependent on any one patent-protected product or line
of products for a substantial portion of its sales or results of operations.
However, Premarin, the Company's conjugated estrogens product, which has not had
patent protection for many years, does contribute significantly to sales and
results of operations. See "Competition" in Management's Discussion and Analysis
of Financial Condition and Results of Operations on page 43 for further details.
Cash and Cash Equivalents, for purposes of reporting cash flows, consist
primarily of certificates of deposit, time deposits and other short-term, highly
liquid securities with original maturities of three months or less and are
stated at cost, which approximates fair value. The carrying values of cash and
cash equivalents approximate fair value due to the short-term, highly liquid
nature of the cash equivalents.
Marketable Securities consist of U.S. government or agency issues and corporate
bonds and are stated at fair value, which approximates cost. The fair values are
estimated based on quoted market prices.
Inventories are valued at the lower of cost or market. Inventories valued under
the last-in, first-out (LIFO) method amounted to $764,409,000 at December 31,
1997 and $806,661,000 at December 31, 1996. Current value exceeded LIFO value by
$73,411,000 and $63,639,000 at December 31, 1997 and 1996, respectively. The
remaining inventories are valued under the first-in, first-out (FIFO) or the
average cost method.
Inventories at December 31 consisted of:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Finished goods ............................. $ 1,042,065 $1,121,055
Work in progress ........................... 657,033 567,240
Materials and supplies ..................... 713,308 701,074
-------------------------------
$ 2,412,406 $2,389,369
===============================
</TABLE>
Property, Plant and Equipment is carried at cost. Depreciation is provided over
the estimated useful lives of the related assets, principally on the
straight-line method.
Goodwill, the excess of cost over the fair value of net assets acquired, is
being amortized on the straight-line method over various periods not exceeding
40 years. The Company continually reviews goodwill to evaluate whether changes
have occurred that would suggest goodwill may be impaired based on the estimated
undiscounted cash flows of the entity acquired over the remaining amortization
period. If this review indicates that the remaining estimated useful life of
goodwill requires revision or that the goodwill is not recoverable, the carrying
amount of the goodwill is reduced by the estimated shortfall of cash flows on a
discounted basis.
Interest Rate Swap and Foreign Currency Agreements: The Company enters into
interest rate swap and short-term foreign currency agreements to manage
specifically identifiable risks. The interest rate swap agreements lock in the
underlying U.S. treasury security rate and convert a portion of the commercial
paper from a floating rate obligation to a fixed rate obligation. The short-term
(approximately 30 days) foreign exchange forward contracts are part of the
Company's management of foreign currency exposures. The Company does not
speculate on interest or foreign currency exchange rates. The fair value of
interest rate swap and foreign currency agreements is based on market prices.
The fair value represents the estimated amount the Company would receive/pay to
terminate the agreements taking into consideration current interest or currency
exchange rates.
Amounts to be paid to the counterparties of the interest rate swap
agreements are accrued during the period to which the payments relate and are
reflected in interest expense. The fair value of the interest rate swap
agreements is not recognized in the consolidated financial statements since the
agreements are accounted for as hedges.
Foreign currency agreements are accounted for under the fair value method.
The fair value of the foreign currency agreements is carried on the balance
sheet with changes in fair value recognized in the results of operations
offsetting any gains and losses recognized on the underlying hedged
transactions.
Currency Translation: The majority of the Company's international operations are
translated into U.S. dollars using current exchange rates with translation
adjustments accumulated
26
<PAGE>
in stockholders' equity. Translation adjustments related to international
operations in highly inflationary economies are included in net income.
Earnings per Share: Effective for the year ended December 31, 1997, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 128 - "Earnings
per Share." The adoption of SFAS No. 128 requires the presentation of Basic
Earnings per Share and Diluted Earnings per Share. Basic Earnings per Share is
based on the average number of common shares outstanding during the year.
Diluted Earnings per Share is based on the average number of common shares
outstanding during the year plus the common share equivalents related to
outstanding stock options and deferred contingent common stock awards. The
computations of Basic Earnings per Share and Diluted Earnings per Share were as
follows:
<TABLE>
<CAPTION>
(In thousands except
per share amounts) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income less
preferred dividends .......... $2,043,063 $1,883,338 $1,680,347
Denominator:
Average number of
common shares ................ 646,882 635,426 619,670
------------------------------------------
Basic earnings
per share .................... $ 3.16 $ 2.96 $ 2.71
==========================================
Denominator:
Average number of
common shares ................ 646,882 635,426 619,670
Common share
equivalents of
outstanding stock
options and deferred
contingent common
stock awards ................. 9,606 8,469 5,781
------------------------------------------
Total shares ................... 656,488 643,895 625,451
------------------------------------------
Diluted earnings
per share .................... $ 3.11 $ 2.92 $ 2.69
==========================================
</TABLE>
Recently Issued Accounting Standards: In February 1998, SFAS No. 132 -
"Employers' Disclosures about Pensions and Other Postretirement Benefits" was
issued and is effective for periods beginning after December 15, 1997. In June
1997, SFAS No. 130 - "Reporting Comprehensive Income" and SFAS No. 131 -
"Disclosures about Segments of an Enterprise and Related Information" were
issued and are effective for periods beginning after December 15, 1997. SFAS No.
132 revises employers' disclosures about pension and other postretirement
benefit plans. SFAS No. 130 establishes standards for reporting comprehensive
income and its components. SFAS No. 131 establishes standards for reporting
financial and descriptive information regarding an enterprise's operating
segments. These standards increase financial reporting disclosures and will have
no impact on the Com-pany's financial position or results of operations.
Acquisitions and Divestitures
2. During 1997, 1996 and 1995, the Company acquired and divested various
businesses and other assets as follows:
In December 1997, the Company signed a definitive agreement with a
subsidiary of Tyco International Ltd. for the sale of the Sherwood-Davis & Geck
medical devices business. Under the transaction, which is subject to certain
customary closing conditions, including the receipt of necessary governmental
approvals, the Company will receive $1.77 billion in cash at closing. The
completion of the transaction is expected to take place during the first quarter
of 1998 and, excluding the gain on sale, will not have a material impact on the
Company's future results of operations. This transaction will complete the
Company's exit from the medical devices business.
In December 1997, the Company sold the stock of Storz Instrument Company
and affiliated companies, a global manufacturer and marketer of ophthalmic
products, and certain assets relating to the Storz business for $380,000,000,
resulting in a pre-tax gain of $71,861,000 ($46,710,000 after-tax).
In February 1997, the Company completed the acquisition of the worldwide
animal health business of Solvay S.A. for approximately $460,000,000. The
acquisition was accounted for under the purchase method of accounting. The
purchase price exceeded the net assets acquired by $368,303,000 and is being
amortized over periods of 10 to 25 years.
In December 1996, the Company acquired the remaining equity interest in
Genetics Institute, Inc. (G.I.) by exercising its option to purchase the
outstanding capital stock from public shareholders at $85 per share. The total
consideration paid for the remaining equity interest in G.I. was $1.279 billion.
The acquisition was accounted for under the purchase method of accounting
effective December 31, 1996 (see Note 3).
In November 1996, the Company sold a majority interest (80%) in the
American Home Foods business for approximately $1.2 billion, resulting in a
pre-tax gain of $813,532,000. Net income and basic earnings per share for 1996
included an after-tax gain of $706,279,000 or $1.11 per share related to this
transaction.
In March 1996, the Company sold Symbiosis Corp. for $148,672,000,
resulting in a pre-tax gain of $22,677,000 ($14,740,000 after-tax). Symbiosis
Corp. develops and manufactures disposable laparoscopic and endoscopic surgical
products.
In January 1995, the Company sold its South American oral health care
business for approximately $1.0 billion, resulting in a pre-tax gain of
$959,845,000. Net income and basic earnings per share for 1995 included an
after-tax gain of $623,870,000 or $1.01 per share related to this transaction.
27
<PAGE>
During 1995, the Company sold certain businesses and other assets acquired
in the American Cyanamid Company (ACY) acquisition for total pre-tax proceeds
aggregating $956,004,000. This activity included the sales of a preferred stock
investment in Cytec Industries Inc. for $395,101,000, the medicated feed
additives business for $344,500,000 and Acufex Microsurgical Inc., a
manufacturer of arthroscopic instruments and scopes, for $141,000,000. Gains on
the sales of these items reduced ACY acquisition-related goodwill.
The Company had other acquisitions and divestitures during 1997, 1996 and
1995, the effects of which, individually and in the aggregate, were not material
to the Company's consolidated financial position or results of operations. The
operations of all acquisitions and divestitures during these years, individually
and in the aggregate, were not material to the Company's consolidated financial
position or results of operations.
Restructuring and Special Charges
3. On September 15, 1997, the Company announced the voluntary market withdrawal
of fenfluramine HCl, manufactured and sold under the name Pondimin, and
dexfenfluramine HCl, marketed under the name Redux. The Company took this action
and withdrew the products on the basis of new, preliminary information regarding
heart valve abnormalities in patients using these medications. The 1997 results
of operations included special charges aggregating $180,000,000 ($117,000,000
after-tax or $0.18 per share - basic) to record the one-time costs associated
with the voluntary market withdrawal. The special charges included provisions
for product returns, notification and administrative handling fees, the
writedown of inventory and supplies, and other related costs. These costs did
not include provisions for any subsequent charges which may result from legal
actions related to these products (see Note 10).
In December 1996, the Company completed a study and evaluation of the
purchase price allocation related to the acquisition of the remaining equity
interest in G.I. (see Note 2). The purchase price exceeded the net assets
acquired by $1.057 billion, resulting in the recognition of goodwill related to
the commercial operations of $359,513,000 and a special charge of $470,000,000
for the portion of the G.I. goodwill attributable to acquired in-process
research and development. G.I. also recorded a special charge of $227,854,000
for the liquidation of its outstanding stock options as of December 31, 1996.
The goodwill recognized in this acquisition was based on the estimated future
cash flows of existing, approved products of G.I. attributed to the remaining
equity interest acquired. The total special charges related to the acquisition
of the remaining equity interest in G.I. were $697,854,000 or $1.10 per share -
basic.
Special charges aggregating $436,724,000 ($308,317,000 after-tax or $0.50
per share - basic) were recorded in 1995. The special charges included
provisions for environmental liabilities related to ACY due to changes in
estimates of $228,224,000 and provisions for other special charges of
$208,500,000, including the shutdown and discontinuance of the U.S. infant
nutritional business and other contingent liability adjustments.
In 1995, the Company recorded a restructuring charge of $180,240,000
($117,156,000 after-tax or $0.19 per share - basic) to recognize the costs of
implementing the integration plan for the ACY acquisition related to American
Home Products Corporation operations. The integration plan eliminated excess
production capacity and facilities, reduced overhead and realigned the Company's
resources to achieve its strategic objectives. The restructuring charge excluded
costs associated with ACY personnel and facilities as these costs were included
in the overall evaluation of net assets acquired from ACY.
In 1994, the Company recorded a restructuring charge of $173,697,000
($112,903,000 after-tax or $0.18 per share - basic) to recognize the costs of
consolidating the manufacturing, distribution and quality control functions for
the U.S. pharmaceutical and consumer health care businesses.
Since the implementation of the 1995 and 1994 restructuring programs, the
combined restructuring accruals have decreased by approximately $238,680,000 due
to cash expenditures primarily for severance and related personnel benefits,
production and administrative facility closure costs, and noncash charges to
reduce the carrying value of certain assets related to manufacturing operations.
Since 1994, total workforce reductions related to restructuring programs,
integration plans and the discontinuance of the U.S. infant nutritional business
have resulted in the elimination of approximately 10,100 positions worldwide.
Debt and Financing Arrangements
4. The Company's debt at December 31 consisted of:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper ............................. $2,340,357 $2,997,771
Notes payable:
6.875% notes due 1997 ...................... -- 250,000
7.70% notes due 2000 ....................... 1,000,000 1,000,000
6.50% notes due 2002 ....................... 250,000 250,000
7.90% notes due 2005 ....................... 1,000,000 1,000,000
7.25% debentures due 2023 .................. 250,000 250,000
Pollution control and industrial
revenue bonds:
3.85% - 7.00% due 1998-2020 ............... 123,900 136,990
Other debt:
1.18% - 13.30% due 1998-2009 ............... 156,645 212,388
---------------------------
5,120,902 6,097,149
Less current portion ......................... 89,041 76,574
---------------------------
$5,031,861 $6,020,575
===========================
</TABLE>
28
<PAGE>
At December 31, 1997 and 1996, the fair value of the Company's long-term
debt, excluding the interest rate swap agreements discussed below, was
$5,255,737,000 and $6,204,292,000, respectively. The fair value of the Company's
long-term debt is estimated based on market prices.
In connection with the ACY acquisition, the Company and certain of its
subsidiaries issued commercial paper, of which approximately $2.3 billion and
$3.0 billion was outstanding at December 31, 1997 and 1996, respectively. The
weighted average interest rate on the commercial paper outstanding at December
31, 1997 and 1996 was 5.76% and 5.47%, respectively. The commercial paper has
original maturities not exceeding 270 days and a weighted average remaining
maturity of 35 days as of December 31, 1997.
The commercial paper is supported by two credit agreements among the
Company and certain of its subsidiaries and a syndicate of lenders. The credit
facilities, as amended, aggregate $5.0 billion consisting of a $2.5 billion,
five-year credit facility and a $2.5 billion, 364-day credit facility which may
be renewed annually with the consent of the majority lenders for an additional
364-day period. Under the terms of the 364-day credit facility, if this facility
is utilized, the borrowing is extendible for another 364-day period at the
option of the Company.
The interest rate on borrowings under the credit facilities is based on
various rate options available to the Company. The proceeds of the credit
facilities may be used to support commercial paper and the Company's general
corporate and working capital purposes. The credit facilities contain a
financial covenant and various other customary covenants, representations,
warranties, conditions and default provisions. As of December 31, 1997, there
were no borrowings outstanding under the credit facilities. Commercial paper
outstanding at December 31, 1997 is classified as long-term debt since the
Company intends, and has the ability, to refinance these obligations through the
issuance of additional commercial paper, through the use of its credit
facilities or through the issuance of long-term debt.
In 1994, the Company entered into $4.75 billion notional amount of simple,
unleveraged interest rate swap agreements as a means of (1) locking in the
underlying U.S. treasury security rates to be paid in connection with long-term
debt issued during 1995 and long-term debt expected to be issued and (2)
converting a portion of the commercial paper issued in connection with the
acquisition of ACY from a floating rate obligation to a fixed rate obligation.
The swap agreements are contracts under which the Company pays a fixed rate of
interest and receives a floating rate of interest over the term of the swap
agreements without the exchange of the underlying notional amounts. During 1997,
the weighted average interest rates paid and received on these agreements were
7.82% and 5.57%, respectively. The swap agreements have maturities ranging from
1998 to 2005.
In 1995, the Company terminated $2.0 billion of interest rate swap
agreements in connection with a $2.0 billion issuance of five- and 10-year notes
as discussed below. In 1996 and 1997, interest rate swap agreements aggregating
$450,000,000 matured and were not replaced. At December 31, 1997 and 1996, the
fair value of the remaining $2.3 billion and $2.5 billion of interest rate swap
agreements was a payable of $98,463,000 and $113,808,000, respectively.
In 1995, the Company issued, under a $3.5 billion shelf registration
statement, $1.0 billion of 7.70% notes due February 2000 and $1.0 billion of
7.90% notes due February 2005. Net proceeds from these issuances were used to
repay commercial paper. The non-callable notes, which have semiannual interest
payments due on February 15 and August 15, are unsecured and unsubordinated. The
6.875% notes which matured on April 15, 1997 were classified as long-term as of
December 31, 1996 since the Company had both the intent and ability to refinance
these notes on a long-term basis. The 6.50% non-callable notes have semiannual
interest payments due on April 15 and October 15. The 7.25% non-callable
debentures have semiannual interest payments due on March 1 and September 1. The
non-callable notes and debentures are unsecured and unsubordinated.
The aggregate maturities of debt during the next five years as of December
31, 1997 are as follows:
<TABLE>
<CAPTION>
(In thousands)
- -------------------------------------------------------------
<S> <C>
1998 .......................................... $ 89,041
1999 .......................................... 25,762
2000 .......................................... 1,023,308
2001 .......................................... 16,081
2002 .......................................... 253,354
Thereafter .................................... 1,372,999
-----------
2,780,545
Commercial paper .............................. 2,340,357
-----------
Total debt .................................... $ 5,120,902
===========
</TABLE>
Interest payments in connection with the Company's debt obligations for
the years ended December 31, 1997, 1996 and 1995 amounted to $471,120,000,
$562,733,000 and $655,111,000, respectively.
Interest expense, net in the Consolidated Statements of Income includes
interest income of $90,674,000, $138,380,000 and $150,101,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
The Company enters into short-term foreign exchange forward contracts as
part of its management of foreign currency exposures. The Company does not
engage in speculation on foreign currency. At December 31, 1997 and 1996, the
Company had notional amounts of $977,459,000 and $724,187,000, respectively, of
foreign exchange forward contracts outstanding. At December 31, 1997 and 1996,
the fair value of the foreign exchange forward contracts was a net
29
<PAGE>
receivable of $14,368,000 and $2,845,000, respectively. As foreign exchange
rates change from period to period, the fluctuations in the fair value of the
foreign exchange forward contracts are offset by fluctuations in the fair value
of the underlying hedged transactions.
The Company believes that the risk of loss associated with the interest
rate or foreign currency agreements, from either non-performance by the
counterparties or due to fluctuations in interest or foreign exchange rates, is
not material to its financial position or results of operations.
Other Noncurrent Liabilities
5. Other noncurrent liabilities include reserves for contingencies relating to
income taxes, environmental matters, product liability and other litigation, as
well as restructuring, pension, Management Incentive Plan and other employee
benefit liabilities.
The Company has responsibility for environmental, safety and cleanup
obligations under various local, state and federal laws, including the
Comprehensive Environmental Response, Compensation and Liability Act, commonly
known as Superfund. As of December 31, 1997, the Company was a party to, or
otherwise involved in, legal proceedings directed at the cleanup of 61 Superfund
sites.
It is the Company's policy to accrue environmental cleanup costs if it is
probable that a liability has been incurred and an amount is reasonably
estimable. In many cases, future environmental-related expenditures cannot be
quantified with a reasonable degree of accuracy. Environmental expenditures that
relate to an existing condition caused by past operations that do not contribute
to current or future results of operations are expensed. As investigations and
cleanups proceed, environmental-related liabilities are reviewed and adjusted as
additional information becomes available. The aggregate environmental-related
accruals were $424,330,000 and $447,050,000 at December 31, 1997 and 1996,
respectively. As discussed in Note 3, during 1995, a provision of $228,224,000
was recorded for environmental liabilities related to ACY due to changes in
estimates. Environmental-related accruals have been recorded without giving
effect to any possible future insurance proceeds or the timing of the payments.
See Note 10 for a discussion of contingencies.
The Company's Management Incentive Plan provides for cash and deferred
contingent common stock awards to key employees. The maximum number of shares of
common stock issuable under the plan is 24,000,000, of which 18,206,570 have
been awarded through December 31, 1997. Deferred contingent common stock awards
plus accrued dividends totaling 899,197 shares were outstanding at December 31,
1997. Awards for 1997, 1996 and 1995 were $67,045,000, $60,306,000 and
$52,909,000, which included deferred contingent common stock of $14,834,000
(198,416 shares), $12,283,000 (205,581 shares) and $10,197,000 (212,542 shares),
respectively.
Employee Benefit Plans
6. Pension Plans: The Company sponsors various retirement plans for most
full-time employees. Total pension expense for 1997, 1996 and 1995 was
$146,403,000, $120,621,000 and $132,639,000, respectively. The Company sponsors
defined benefit and defined contribution plans for most domestic and certain
foreign locations. Pension plan benefits for defined benefit plans are based
primarily on participants' compensation and years of credited service. It has
been the Company's policy to fund all current and prior year service costs under
defined benefit retirement plans. Contributions to defined contribution plans
are based on a percentage of employees' compensation. Pension expense recognized
for defined contribution plans totaled $65,645,000 in 1997, $66,674,000 in 1996
and $57,992,000 in 1995.
Net periodic pension cost of defined benefit pension plans was as follows
(principally U.S. pension plans):
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost on benefits
earned during the year .......... $ 66,236 $ 58,434 $ 55,283
Interest cost on projected
benefit obligation .............. 213,055 194,056 180,859
Actual return on
plan assets ..................... (419,424) (240,809) (490,286)
Net amortization
and deferral .................... 220,891 42,266 328,791
---------------------------------------
Net periodic pension cost ......... $ 80,758 $ 53,947 $ 74,647
=======================================
</TABLE>
Net periodic pension cost was higher in 1997 compared with 1996 due
primarily to a plan amendment which revised the benefit formula of the American
Home Products Corporation Retirement Plan - U.S. from a final 10-year average to
an average of the five highest paid years within the final 10 years of service.
Net periodic pension cost was lower in 1996 compared with 1995 due primarily to
the unusually high actual return on plan assets in 1995 offset, in part, by an
increase in pension costs related to a change in mortality assumptions to
reflect increased life expectancies.
30
<PAGE>
The actuarial present value of benefit obligations and funded status of
the Company's defined benefit pension plans, as of December 31, was as follows
(principally U.S. pension plans):
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Benefit obligations:
Vested benefits ............................ $ 2,705,359 $ 2,479,139
Nonvested benefits ......................... 100,398 110,482
----------------------------
Accumulated benefit obligation ............... 2,805,757 2,589,621
Effect on benefits from projected
compensation increases ..................... 263,856 268,923
----------------------------
Projected benefit obligation ................. 3,069,613 2,858,544
Plan assets at fair value, primarily
listed stocks and bonds .................... 2,723,177 2,332,432
----------------------------
Projected benefit obligation in
excess of plan assets ...................... 346,436 526,112
Unrecognized net loss ........................ (7,400) (55,013)
Unrecognized net transition
obligation ................................. (8,713) (3,827)
Unrecognized prior service cost .............. (111,780) (134,064)
----------------------------
Net pension liability ........................ $ 218,543 $ 333,208
============================
</TABLE>
The increase in plan assets in 1997 is due primarily to a higher than
expected return on plan assets during the year and a $200,000,000 contribution
to the American Home Products Corporation Retirement Plan - U.S. The change in
the unrecognized net loss in 1997 is due primarily to the deferral of the
difference between the expected return on plan assets and the actual return on
plan assets offset, in part, by an unrecognized loss due to a decrease in the
discount rate.
Assumptions used in developing the projected benefit obligation as of
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate ................................ 7.25% 7.5% 7.5%
Rate of increase in compensation ............. 4.0% 4.0% 4.0%
Rate of return on plan assets ................ 9.5% 9.0% 9.0%
==========================
</TABLE>
Postretirement Benefits: The Company provides postretirement health care
and life insurance benefits for retired employees of most domestic locations and
Canada. Most full-time employees become eligible for these benefits after
attaining specified age and service requirements.
Net periodic postretirement health care cost included the following
components:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost on benefits
earned during the year ................ $19,494 $20,474 $15,057
Interest cost on accumulated
postretirement benefit
obligation (APBO) ..................... 70,791 68,902 61,693
Net amortization ........................ 2,280 4,436 290
---------------------------------
Net periodic postretirement
health care cost ...................... $92,565 $93,812 $77,040
=================================
</TABLE>
Net periodic postretirement health care cost was higher in 1996 compared
with 1995 due primarily to a change in mortality assumptions to reflect
increased life expectancies.
The APBO as of December 31 was as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Retirees ..................................... $ 656,138 $ 648,763
Fully eligible active participants ........... 105,642 124,131
Other active participants .................... 219,218 209,278
--------------------------
APBO ......................................... 980,998 982,172
Unrecognized net loss ........................ (89,118) (141,510)
Unrecognized prior service cost .............. (2,964) (3,320)
--------------------------
Accrued postretirement
benefit obligation ......................... 888,916 837,342
Less current portion ......................... 55,000 55,000
--------------------------
$ 833,916 $ 782,342
==========================
</TABLE>
The change in the unrecognized net loss in 1997 is due primarily to an
unrecognized gain from favorable claims experience offset, in part, by an
unrecognized net loss from changes in certain actuarial assumptions and other
actuarial losses.
Assumptions used in developing the APBO were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate ..................... 7.25% 7.5% 7.5%
Increase in per capita cost
of health care benefits
that gradually decreases
and is held constant
thereafter beginning in
2004 for 1997, 2002
for 1996 and 2003 for
1995 ........................... 8.5%-5.0% 9.0%-6.0% 10.0%-6.0%
=========================================
</TABLE>
A one percentage point increase in the assumed health care cost trend
rates would increase the APBO as of December 31, 1997 by approximately
$122,344,000, and the total of the service and interest cost components of net
periodic postretirement health care cost would increase by approximately
$13,141,000.
31
<PAGE>
Capital Stock
7. There were 1,200,000,000 shares of common stock and 5,000,000 shares of
preferred stock authorized at December 31, 1997. Of the authorized preferred
shares, there is a series of shares (28,845 outstanding) which is designated as
$2 convertible preferred stock. Each share of the $2 series is convertible at
the option of the holder into 18 shares of common stock. This series may be
called for redemption at $60 per share plus accrued dividends.
Changes in outstanding common shares during 1997, 1996 and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
(In thousands except
shares of preferred stock) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year ........... 639,983 627,400 611,962
Issued for stock options
and Management
Incentive Plan ..................... 10,558 12,746 15,584
Conversions of preferred stock
(2,588, 2,709 and 2,371
shares in 1997, 1996
and 1995, respectively) ............ 46 49 42
Purchase of shares
for treasury ....................... (210) (212) (188)
-----------------------------------
Balance, end of year ................. 650,377 639,983 627,400
===================================
</TABLE>
Stock Options
8. The Company has three Stock Option Plans and three Stock Incentive Plans.
Under the three Stock Incentive Plans, options to purchase a maximum of
30,000,000, 28,000,000 and 24,000,000 shares, respectively, may be granted at
prices not less than 100% of the fair market value at the date of option grant.
No further grants will be made under the three Stock Option Plans. At December
31, 1997, 13,227,540 shares were available for future grants under the Stock
Incentive Plans.
The plans provide for the granting of incentive stock options as defined
under the Internal Revenue Code. Under the plans, grants may be made to selected
officers and employees of non-qualified stock options with a 10-year term or
incentive stock options with a term not exceeding 10 years. The plans provide
for the granting of stock appreciation rights (SAR), which permit the optionee
to surrender an exercisable option for an amount equal to the excess of the
market price of the common stock over the option price when the right is
exercised. A pre-tax charge of $54,815,000 and $62,716,000 was incurred related
to SARs in 1996 and 1995 due to an increase in the market price of the Company's
common stock and the increased number of outstanding SARs. In 1997, outstanding
SARs were canceled and did not have an impact on the Company's results of
operations.
The Stock Incentive Plans, among other things, provide for the issuance of
up to 4,000,000 of the shares covered by the plans as restricted stock
performance awards under each plan. Restricted stock performance awards
representing 44,200, 53,500 and 52,200 units were granted in 1997, 1996 and
1995, respectively, under the plans to certain key executives. These units are
converted to shares of restricted stock based on the achievement of certain
performance criteria over a three-year period of restriction.
Transactions involving the plans are summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Option Shares 1997 Price 1996 Price 1995 Price
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding January 1 ..... 40,139,345 $38.07 47,486,784 $34.12 42,936,064 $30.23
----------- ----------- -----------
Granted ................... 13,934,385 72.40 7,970,950 53.16 20,839,500 38.33
Canceled .................. (2,059,302) 45.79 (1,117,450) 42.92 (817,080) 35.74
Exercised (1997 - $17.80 to
$53.06 per share) ....... (10,361,290) 35.86 (14,200,939) 32.95 (15,471,700) 28.92
----------- ----------- -----------
Outstanding December 31
(1997 - $17.80 to
$72.44 per share) ....... 41,653,138 49.72 40,139,345 38.07 47,486,784 34.12
=========== =========== ===========
Exercisable December 31 ... 26,736,090 38.56 30,492,611 34.27 27,203,484 30.97
=========== =========== ===========
</TABLE>
32
<PAGE>
The following table summarizes information regarding stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------- ---------------------------------
Weighted Average Weighted Average Weighted Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- -------------------------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
$17.80 to 28.72 1,498,850 1.6 years $23.95 1,498,850 $23.95
28.73 to 39.65 20,170,900 6.4 years 35.43 19,249,232 35.30
39.66 to 50.58 331,558 7.9 years 45.80 319,558 45.69
50.59 to 61.51 6,032,250 8.4 years 53.06 5,658,450 53.06
61.52 to 72.44 13,619,580 9.4 years 72.34 10,000 62.69
---------- ----------
17.80 to 72.44 41,653,138 7.5 years 49.72 26,736,090 38.56
========== ==========
</TABLE>
In April 1994, the stockholders approved the Restricted Stock Plan for
Non-Employee Directors. Under the plan, a maximum of 50,000 restricted shares
may be granted to non-employee directors at not less than 100% of the fair
market value at the date of grant. The restricted shares will not be delivered
until the end of the restricted period which does not exceed five years.
Effective January 1, 1996, the Company adopted the provisions of SFAS No.
123 -- "Accounting for Stock-Based Compensation." As permitted by the statement,
the Company has elected to continue to account for stock-based compensation
using the intrinsic value method under Accounting Principles Board Opinion No.
25. Accordingly, no compensation expense has been recognized for stock options
other than for SARs granted in tandem with stock options. If compensation
expense for the Company's stock options issued in 1997, 1996 and 1995 had been
determined based on the fair value method of accounting, as defined in SFAS No.
123, the Company's net income and net income per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(In thousands except
per share amounts) 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income less preferred dividends:
As reported ...................... $ 2,043,063 $ 1,883,338 $ 1,680,347
Pro forma ........................ $ 1,981,826 $ 1,841,092 $ 1,647,014
Basic earnings per share:
As reported ...................... $ 3.16 $ 2.96 $ 2.71
Pro forma ........................ $ 3.06 $ 2.90 $ 2.66
Diluted earnings per share:
As reported ...................... $ 3.11 $ 2.92 $ 2.69
Pro forma ........................ $ 3.02 $ 2.86 $ 2.63
=============================================
</TABLE>
The fair value of issued stock options is estimated on the date of grant
using a variant of the Black-Scholes option pricing model incorporating the
following assumptions for stock options granted in 1997, 1996 and 1995,
respectively: expected volatility (the amount by which the stock price is
expected to fluctuate) of 18.3%, 15.0% and 15.7%; expected dividend yield of
3.7%, 4.3% and 4.4%; risk-free interest rate of 6.5%, 6.4% and 6.1%; and
expected life of four years. The weighted average fair value of stock options
granted during 1997, 1996 and 1995 was $11.72, $6.83 and $4.88 per option share,
respectively.
Income Taxes
9. The provision for income taxes consisted of:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Domestic ............... $ 531,770 $ 348,649 $ 545,434
Foreign ................ 460,028 421,816 357,916
---------------------------------------------
991,798 770,465 903,350
Deferred:
Domestic ............... (221,789) 89,033 (143,861)
Foreign ................ 1,575 12,559 (1,209)
---------------------------------------------
(220,214) 101,592 (145,070)
---------------------------------------------
$ 771,584 $ 872,057 $ 758,280
=============================================
</TABLE>
33
<PAGE>
Deferred tax assets (liabilities), inclusive of valuation allowances for
certain deferred tax assets, were reflected in the Consolidated Balance Sheets
at December 31 as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Net current deferred tax assets .............. $ 721,811 $ 668,215
Net noncurrent deferred tax assets ........... 508,092 303,034
---------------------------
Net deferred tax assets ...................... $1,229,903 $ 971,249
===========================
</TABLE>
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities. Deferred tax assets result principally from the recording of
certain accruals and reserves which currently are not deductible for tax
purposes. Deferred tax liabilities result principally from the use of
accelerated depreciation for tax purposes and from temporary differences in the
recognition of gains and losses from certain investments.
The components of the Company's deferred tax assets and liabilities at
December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Product and environmental liabilities
and other operating accruals .............. $ 787,656 $ 700,736
Postretirement, pension and other
employee benefits ......................... 496,905 451,431
Net operating loss and other tax
credit carryforwards ...................... 207,664 203,464
Restructuring and
reorganization accruals ................... 201,104 225,644
Inventory reserves ......................... 188,749 178,505
Investments and advances ................... 45,838 60,123
Other ...................................... 43,089 42,123
----------------------------
Total deferred tax assets .................... 1,971,005 1,862,026
----------------------------
Deferred tax liabilities:
Investments ................................ $ (13,595) $ (249,573)
Depreciation ............................... (287,658) (268,875)
Pension benefits and other
employee benefits ......................... (77,429) (17,566)
Other ...................................... (62,996) (59,923)
----------------------------
Total deferred tax liabilities ............... (441,678) (595,937)
----------------------------
Deferred tax asset
valuation allowances ....................... (299,424) (294,840)
----------------------------
Net deferred tax assets ...................... $ 1,229,903 $ 971,249
============================
</TABLE>
Valuation allowances have been established for certain deferred tax assets
related primarily to net operating loss carryforwards and portions of other
deferred tax assets as the Company determined that it was more likely than not
that these benefits will not be realized. During 1997, the valuation allowance
increased by $4,584,000 due primarily to additional allowances related to net
operating loss carryforwards. During 1996, the valuation allowance increased by
$88,196,000 due primarily to additional allowances related to net operating loss
carryforwards resulting from the Company's acquisition of the remaining equity
interest in G.I. (see Note 2). During 1995, the valuation allowance decreased by
$44,332,000 due primarily to the reversal of allowances of $89,936,000 on
investments which were sold during the year. These decreases were offset
partially by additional allowances of $45,604,000 related primarily to net
operating loss carryforwards.
Reconciliations between the Company's effective tax rate and the U.S.
statutory rate are summarized as follows:
<TABLE>
<CAPTION>
Tax Rate 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate ........................ 35.0% 35.0% 35.0%
Effect of Puerto Rico and
Ireland manufacturing
operations ............................... (6.1) (5.6) (6.4)
Research credits ........................... (1.8) (0.6) (0.6)
ACY goodwill amortization .................. 2.7 2.8 3.3
Gain on sale of foods business ............. -- (6.4) --
Special charges related to the
acquisition of G.I ....................... -- 8.5 --
Other, net ................................. (2.4) (2.1) (0.2)
--------------------------
Effective tax rate ......................... 27.4% 31.6% 31.1%
==========================
</TABLE>
The effective tax rate decreased in 1997 due primarily to the
reinstatement of the U.S. research tax credit in 1997 and the net tax impact of
the gain on the sale of the foods business (see Note 2) and special charges
related to the acquisition of the remaining equity interest in G.I. in 1996 (see
Note 3). The tax impact related to the gain on the sale of the foods business in
1996 was due to basis differences for tax and financial reporting purposes. No
tax benefit was recorded with regard to the special charges related to the
acquisition of the remaining equity interest in G.I. in 1996 due to the
non-deductibility of the acquired in-process research and development and the
uncertainty of the realizability of G.I. net operating loss carryforwards.
34
<PAGE>
Total income tax payments, net of tax refunds, for the years ended
December 31, 1997, 1996 and 1995 amounted to $1,021,505,000, $435,069,000 and
$992,393,000, respectively.
Contingencies
10. The Company is involved in various legal proceedings, including product
liability and environmental matters of a nature considered normal to its
business. See Note 5 for a discussion of environmental matters. It is the
Company's policy to accrue for amounts related to these legal matters if it is
probable that a liability has been incurred and an amount is reasonably
estimable.
The Company has been named as a defendant in numerous legal actions, many
of which are purported class actions, relating to Pondimin and/or Redux, which
the Company estimates were used in the United States prior to their voluntary
market withdrawal by approximately 6 million people. It is likely that
additional legal actions, including purported class actions, will be filed.
These actions typically allege, among other things, that the use of Pondimin
and/or Redux, independently or in combination with the prescription drug
phentermine (which the Company does not manufacture, distribute or market),
causes certain serious conditions, including valvular heart disease. The Company
believes that it has meritorious defenses to these actions and that it has acted
properly at all times in dealing with Pondimin and Redux matters.
The Company is a defendant in numerous cases that have been consolidated
in federal district court in Illinois as Brand Name Prescription Drugs Antitrust
Litigation (MDL 997) relating to claims made by certain retail pharmacies
against the Company and other pharmaceutical manufacturers. The Company and
other pharmaceutical manufacturers also are defendants in similar litigation
brought on behalf of consumers and in some cases on behalf of pharmacies in
various state courts. In MDL 997, the Company has settled the claims in the
class action case and continues as a defendant in other cases. The Company
believes it has complied with the antitrust laws and other applicable laws and
has settled this matter in order to avoid the costs and risks of litigation. The
settlement agreement is not an admission of any violation of law. The Company
had accrued for the costs of this settlement at December 31, 1995.
The Company is self-insured against ordinary product liability risks and
has liability coverage in excess of certain limits from various insurance
carriers.
In the opinion of the Company, although the outcome of any legal
proceedings cannot be predicted with certainty, the ultimate liability of the
Company in connection with its legal proceedings will not have a material
adverse effect on the Company's financial position but could be material to the
results of operations in any one accounting period.
The Company leases certain property and equipment for varying periods
under operating leases. Future minimum rental payments under non-cancelable
operating leases with terms in excess of one year in effect at December 31, 1997
are as follows:
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------------------
<S> <C>
1998 .......................................................... $ 110,511
1999 .......................................................... 99,143
2000 .......................................................... 94,373
2001 .......................................................... 82,047
2002 .......................................................... 78,315
Thereafter .................................................... 121,173
-----------
Total rental commitments ...................................... $ 585,562
===========
</TABLE>
Rental expense for all operating leases was $133,179,000 in 1997,
$121,147,000 in 1996 and $110,143,000 in 1995.
35
<PAGE>
11. Company Data by Industry Segment
<TABLE>
<CAPTION>
(In millions)
Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales to Customers
- ------------------------------------------------------------------------------------------
Health Care Products:
Pharmaceuticals .................... $ 8,669.1 $ 7,924.0 $ 7,521.2
Consumer Health Care .............. 2,091.3 2,054.6 1,994.8
Medical Devices .................... 1,316.2 1,331.5 1,131.4
------------------------------------------------
12,076.6 11,310.1 10,647.4
Agricultural Products ................. 2,119.4 1,988.9 1,909.8
Food Products ......................... -- 789.3 818.9
------------------------------------------------
Consolidated Total .................... $ 14,196.0 $ 14,088.3 $ 13,376.1
================================================
Income before Taxes
- ------------------------------------------------------------------------------------------
Health Care Products(1)(5)(6)(7) ...... $ 2,909.2 $ 2,770.4 $ 1,989.3
Agricultural Products(7) .............. 429.9 337.7 272.5
Food Products ......................... -- 129.1 66.5
Corporate(2)(3)(4)(6) ................. (524.4) (481.7) 110.4
------------------------------------------------
Consolidated Total .................... $ 2,814.7 $ 2,755.5 $ 2,438.7
================================================
Total Assets at December 31,
- ------------------------------------------------------------------------------------------
Health Care Products .................. $ 13,256.3 $ 12,902.6 $ 12,584.8
Agricultural Products ................. 4,763.9 4,727.5 4,671.2
Food Products ......................... -- -- 485.9
Corporate ............................. 2,804.9 3,155.2 3,621.0
------------------------------------------------
Consolidated Total .................... $ 20,825.1 $ 20,785.3 $ 21,362.9
================================================
Depreciation and
Amortization Expense
- ------------------------------------------------------------------------------------------
Health Care Products(7) ............... $ 535.7 $ 483.6 $ 488.2
Agricultural Products(7) .............. 154.8 145.5 141.0
Food Products ......................... -- 15.2 23.8
Corporate ............................. 11.5 13.8 26.2
------------------------------------------------
Consolidated Total .................... $ 702.0 $ 658.1 $ 679.2
================================================
Capital Expenditures
- ------------------------------------------------------------------------------------------
Health Care Products .................. $ 704.2 $ 545.5 $ 521.4
Agricultural Products ................. 115.8 48.6 52.1
Food Products ......................... -- 9.2 26.4
Corporate ............................. 10.4 48.9 37.6
------------------------------------------------
Consolidated Total .................... $ 830.4 $ 652.2 $ 637.5
================================================
</TABLE>
Company Data by Geographic Segment
<TABLE>
<CAPTION>
(In millions)
Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales to Customers
- ------------------------------------------------------------------------------------------
United States ......................... $ 8,278.6 $ 8,334.9 $ 7,878.1
Europe and Africa ..................... 3,147.0 3,212.4 3,085.6
Canada and Latin America .............. 1,520.1 1,333.3 1,291.8
Asia and Australia .................... 1,250.3 1,207.7 1,120.6
------------------------------------------------
Consolidated Total .................... $ 14,196.0 $ 14,088.3 $ 13,376.1
================================================
Income before Taxes
- ------------------------------------------------------------------------------------------
United States(1)(2)(3)(4)(5)(6)(7) .... $ 1,578.4 $ 1,447.2 $ 681.8
Europe and Africa(5)(7) ............... 777.9 831.2 526.7
Canada and Latin America(4)(5)(7) ..... 293.2 294.0 1,080.8
Asia and Australia(5)(7) .............. 165.2 183.1 149.4
------------------------------------------------
Consolidated Total .................... $ 2,814.7 $ 2,755.5 $ 2,438.7
================================================
Total Assets at December 31,
- ------------------------------------------------------------------------------------------
United States ......................... $ 13,899.4 $ 13,730.1 $ 14,746.0
Europe and Africa ..................... 4,090.7 4,279.8 3,894.2
Canada and Latin America .............. 1,604.4 1,506.0 1,547.4
Asia and Australia .................... 1,230.6 1,269.4 1,175.3
------------------------------------------------
Consolidated Total .................... $ 20,825.1 $ 20,785.3 $ 21,362.9
================================================
</TABLE>
(1) 1997 includes the special charges of $180.0 associated with the voluntary
market withdrawal of Pondimin and Redux identified as follows: Health Care
Products - $180.0, United States - $180.0 (see Note 3).
(2) 1996 includes the gain on the sale of a majority interest in the foods
business of $813.5 identified as follows: Corporate - $813.5, United
States - $813.5 (see Note 2).
(3) 1996 includes the special charges of $697.9 identified as follows:
Corporate - $697.9, United States - $697.9 (see Note 3).
(4) 1995 includes the gain on the sale of the South American oral health care
business of $959.8 identified as follows: Corporate - $959.8, United
States - $144.9, Canada and Latin America - $814.9 (see Note 2).
(5) 1995 includes the restructuring charge of $180.2 identified as follows:
Health Care Products - $180.2, United States - $66.2, Europe and Africa -
$100.3, Canada and Latin America - $9.1, Asia and Australia - $4.6 (see
Note 3).
(6) 1995 includes the special charges of $436.7 identified as follows: Health
Care Products - $208.5, Corporate - $228.2, United States - $436.7 (see
Note 3).
(7) 1997 includes ACY goodwill amortization of $226.5 identified as follows:
Health Care Products - $130.8, Agricultural Products - $95.7, United
States - $144.6, Europe and Africa - $50.4, Canada and Latin America -
$17.3, Asia and Australia - $14.2.
1996 includes ACY goodwill amortization of $227.3 identified as follows:
Health Care Products - $131.1, Agricultural Products - $96.2, United
States - $146.0, Europe and Africa - $49.5, Canada and Latin America -
$17.5, Asia and Australia - $14.3.
1995 includes ACY goodwill amortization of $233.3 identified as follows:
Health Care Products - $134.6, Agricultural Products - $98.7, United
States - $149.8, Europe and Africa - $50.8, Canada and Latin America -
$18.0, Asia and Australia - $14.7.
36
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders of American
Home Products Corporation:
We have audited the accompanying consolidated balance sheets of American Home
Products Corporation (a Delaware corporation) and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of income, retained
earnings, additional paid-in capital and cash flows for each of the three years
in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Home Products
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
New York, N.Y.
January 27, 1998
Management Report on Financial Statements
Management has prepared and is responsible for the Company's consolidated
financial statements and related notes. They have been prepared in accordance
with generally accepted accounting principles and necessarily include amounts
based on judgments and estimates made by management. All financial information
in this Annual Report is consistent with the financial statements.
The Company maintains internal accounting control systems and related
policies and procedures designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with management's
authorization and are properly recorded, and that accounting records may be
relied upon for the preparation of financial statements and other financial
information. The design, monitoring and revision of internal accounting control
systems involve, among other things, management's judgment with respect to the
relative cost and expected benefits of specific control measures. The Company
also maintains an internal auditing function which evaluates and formally
reports on the adequacy and effectiveness of internal accounting controls,
policies and procedures.
The Company's financial statements have been audited by independent public
accountants who have expressed their opinion with respect to the fairness of
these statements.
The Audit Committee of the Board of Directors, composed of non-employee
directors, meets periodically with the independent public accountants and
internal auditors to evaluate the effectiveness of the work performed by them in
discharging their respective responsibilities and to assure their independent
and free access to the Committee.
John R. Stafford Robert G. Blount
Chairman, President and Senior Executive Vice
Chief Executive Officer President and Chief
Financial Officer
37
<PAGE>
Quarterly Financial Data
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
(In thousands except per share amounts) 1997 1997 1997 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales ....................................... $ 3,603,019 $ 3,499,758 $ 3,481,870 $ 3,611,379
Gross Profit .................................... 2,571,081 2,440,756 2,511,204 2,571,676
Net Income ...................................... 576,677 459,092 435,532(1) 571,822
Basic Earnings per Share ........................ 0.90 0.71 0.67(1) 0.88
Diluted Earnings per Share ...................... 0.89 0.70 0.66 0.87
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
1996 1996 1996 1996
- -------------------------------------------------------------------------------------------------------------------------------
Net Sales ....................................... $ 3,646,814 $ 3,489,821 $ 3,470,922 $ 3,480,769
Gross Profit .................................... 2,440,860 2,327,189 2,411,972 2,458,522
Net Income ...................................... 489,363 391,277 491,125 511,638(2)
Basic Earnings per Share ........................ 0.78 0.62 0.77 0.80(2)
Diluted Earnings per Share ...................... 0.76 0.61 0.76 0.79
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Third quarter 1997 includes the special charges aggregating $180,000
($117,000 after-tax or $0.18 per share) associated with the voluntary
market withdrawal of Pondimin and Redux.
(2) Fourth quarter 1996 includes the after-tax gain of $706,279 ($1.10 per
share) on the sale of a majority interest in the American Home Foods
business and special charges aggregating $697,854 ($1.09 per share)
related to the acquisition of the remaining equity interest in Genetics
Institute, Inc.
Market Prices of Common Stock and Dividends
<TABLE>
<CAPTION>
1997 Range of Prices* 1996 Range of Prices*
- ------------------------------------------------------------------------------------------------------
Dividends Dividends
High Low per Share High Low per Share
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter ................. $ 68.88 $ 57.63 $ 0.41 $55.25 $47.06 $ 0.385
Second Quarter ................ 80.75 57.00 0.41 56.13 50.00 0.385
Third Quarter ................. 84.88 68.38 0.41 64.88 52.63 0.385
Fourth Quarter ................ 78.81 67.44 0.43 66.50 58.63 0.410
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Prices are those of the New York Stock Exchange - Composite Transactions.
38
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following commentary should be read in conjunction with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements on pages 22
to 36.
Results of Operations
Management's discussion and analysis of results of operations for 1997 has been
presented on an as-reported basis except for sales variation explanations which
have been presented on an as-reported and a pro forma basis. The pro forma sales
results reflect businesses acquired and divested in 1997 and 1996 (except for
the divestiture of Storz Instrument Company that was completed on December 31,
1997), assuming the transactions occurred as of January 1, 1996. This activity
includes the acquisition of the worldwide animal health business of Solvay S.A.
and the divestitures of the foods business and a surgical products business.
Management's discussion and analysis of results of operations for 1996 has
been presented on an as-reported basis except for sales variation explanations
which have been presented on an as-reported and a pro forma basis. The 1996 pro
forma sales results reflect all businesses disposed of, discontinued and
acquired in 1996 and 1995, assuming all transactions occurred as of January 1,
1995. This activity includes the dispositions of the foods business, the
medicated feed additives business, the oral health care business and a surgical
products business, the discontinuance of the U.S. infant nutritional business
and the acquisition of an animal health care business. The 1996 pro forma sales
results also include revenues of the ophthalmic products business, which was
reported as "held for sale" in 1995.
Net sales increased 1% to $14.2 billion in 1997 on an as-reported basis.
On a pro forma basis, net sales increased 5%. The pro forma results reflect
higher domestic sales of pharmaceuticals and worldwide sales of agricultural
products. The increase in pro forma 1997 sales was composed of volume increases
of 6% and price increases of 2%, which were offset by unfavorable foreign
exchange of 3%. Worldwide pro forma sales of health care products increased 5%,
and agricultural products increased 7% in 1997.
Net sales increased 5% to $14.1 billion in 1996 on an as-reported basis.
On a pro forma basis, net sales increased 7%. The pro forma results reflect
higher worldwide sales of pharmaceuticals, consumer health care and agricultural
products. The increase in pro forma 1996 sales was composed of volume increases
of 6% and price increases of 2%, which were offset by unfavorable foreign
exchange of 1%. Worldwide pro forma sales of health care products increased 7%,
and agricultural products increased 4% in 1996.
The following table sets forth 1997, 1996 and 1995 worldwide net sales results
by major product category and industry segment together with the percentage
changes in "As-Reported" and "Pro Forma" worldwide net sales from prior years:
<TABLE>
<CAPTION>
1997 vs. 1996 1996 vs. 1995
----------------------- -----------------------
Years Ended December 31, As-Reported Pro Forma As-Reported Pro Forma
(Dollar amounts in millions) ------------------------------------- % Increase % Increase % Increase % Increase
Net Sales to Customers 1997 1996 1995 (Decrease) (Decrease) (Decrease) (Decrease)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Industry Segment
Health Care Products:
Pharmaceuticals $ 8,669.1 $ 7,924.0 $ 7,521.2 9% 7% 5% 9%
Consumer Health Care 2,091.3 2,054.6 1,994.8 2% 2% 3% 5%
Medical Devices 1,316.2 1,331.5 1,131.4 (1)% -- 18% --
-------------------------------------
Total Health Care Products 12,076.6 11,310.1 10,647.4 7% 5% 6% 7%
Agricultural Products 2,119.4 1,988.9 1,909.8 7% 7% 4% 4%
Food Products -- 789.3 818.9 -- -- (4)% --
-------------------------------------
Consolidated Net Sales $ 14,196.0 $ 14,088.3 $ 13,376.1 1% 5% 5% 7%
=====================================
</TABLE>
39
<PAGE>
Worldwide pharmaceutical sales increased 9% for the year ended 1997. U.S.
pharmaceutical sales increased 15% for the year ended 1997. After adjusting for
the acquisition of the animal health business of Solvay S.A. in 1997, pro forma
U.S. pharmaceutical sales increased 14% for the year ended 1997 due primarily to
higher sales of Premarin products, Effexor, Cordarone, Ziac, Naprelan
(introduced in 1996), BeneFix (introduced in 1997), Duract (introduced in 1997),
Oruvail and veterinary products offset, in part, by lower sales of Lodine and
the voluntary market withdrawal of the Company's antiobesity products. The
increase in pro forma U.S. pharmaceutical sales for the year ended 1997
consisted of unit volume growth of 11% and price increases of 3%.
International pharmaceutical sales increased 2% for the year ended 1997.
After adjusting for the acquisition of the animal health business of Solvay S.A.
in 1997, pro forma international pharmaceutical sales decreased 2% for the year
ended 1997. Higher sales of Zoton, Effexor, Premarin products and Zosyn were
offset by lower sales of other pharmaceutical products. The decrease in pro
forma international pharmaceutical sales for the year ended 1997 consisted of
unit volume growth of 3% and price increases of 1%, which were more than offset
by unfavorable foreign exchange of 6%.
Worldwide pharmaceutical sales increased 5% for the year ended 1996. U.S.
pharmaceutical sales increased 7% for the year ended 1996. U.S. sales gains were
offset, in part, by lower sales of veterinary and infant nutritional products
resulting from the sale of the medicated feed additives business in 1995 and the
discontinuance of the U.S. infant nutritional business in 1996. After adjusting
for the effects of businesses disposed of, discontinued and acquired in 1996 and
1995, pro forma U.S. pharmaceutical sales increased 11% for the year ended 1996.
The sales gains were due primarily to higher sales of the Company's antiobesity
products Pondimin and Redux (introduced in 1996), Premarin products, recombinant
Factor VIII, Naprelan (introduced in 1996), Cordarone, Ziac, Lodine, Effexor and
veterinary products offset, in part, by lower sales of other cardiovascular and
pharmaceutical products. The increase in pro forma U.S. pharmaceutical sales for
the year ended 1996 consisted of unit volume growth of 9% and price increases of
2%.
International pharmaceutical sales increased 3% for the year ended 1996.
International sales gains were impacted by lower sales of veterinary products
resulting from the sale of the medicated feed additives business in 1995. After
adjusting for the effects of businesses disposed of and acquired in 1995, pro
forma international pharmaceutical sales increased 6% for the year ended 1996.
International pharmaceutical sales gains were due primarily to higher sales of
Zoton, Effexor, veterinary products, infant nutritionals, Tazocin and Premarin
products. Launches of several pharmaceutical products in additional
international markets, in particular Effexor, contributed to the international
sales increases in 1996. The increase in pro forma international pharmaceutical
sales for the year ended 1996 consisted of unit volume growth of 8%, which was
offset by unfavorable foreign exchange of 2%.
Worldwide consumer health care sales increased 2% for the year ended 1997.
U.S. consumer health care sales decreased 1% for the year ended 1997. U.S.
results reflect higher sales of Advil and Centrum products, which were more than
offset by the effect of the disposal of several non-core products in late 1996
and early 1997 and lower sales of Orudis KT. The decrease in U.S. consumer
health care sales for the year ended 1997 consisted of unit volume declines of
3%, which were offset by price increases of 2%.
International consumer health care sales increased 9% for the year ended
1997 due primarily to higher sales of Centrum products (which were launched in
additional international markets) and Advil. The increase in international
consumer health care sales for the year ended 1997 consisted of unit volume
growth of 9% and price increases of 4%, which were offset by unfavorable foreign
exchange of 4%.
Worldwide consumer health care sales increased 3% for the year ended 1996.
U.S. consumer health care sales increased 2% for the year ended 1996. U.S. sales
gains were due primarily to introductory sales of Axid AR, Children's Advil and
Orudis KT and higher sales of Centrum products offset, in part, by lower sales
of Advil, Anacin and family planning products. The increase in U.S. consumer
health care sales for the year ended 1996 consisted of price increases of 2%.
International consumer health care sales increased 6% for the year ended
1996. After adjusting for the effect of the sale of the oral health care
business in 1995, pro forma international consumer health care sales increased
12% for the year ended 1996. International sales gains were due primarily to
higher sales of Centrum products (which were launched in additional
international markets), Advil, cough/cold products and other consumer health
care products. The increase in pro forma international consumer health care
sales for the year ended 1996 consisted of unit volume growth of 11% and price
increases of 4%, which were offset by unfavorable foreign exchange of 3%.
Worldwide medical devices sales decreased 1% for the year ended 1997.
After adjusting for the divestiture of a surgical products business in 1996, pro
forma worldwide medical devices sales for the year ended 1997 were comparable
with 1996 as higher sales of tubes and catheters were offset by lower sales of
wound closure products. Pro forma worldwide medical devices sales for the year
ended 1997 consisted of unit volume growth of 4%, which was offset by price
decreases of 1% and unfavorable foreign exchange of 3%.
Worldwide medical devices sales increased 18% for the year ended 1996 due
primarily to the ophthalmic products business being reported as "held for sale"
in 1995. When the
40
<PAGE>
sales of this business are included in 1995 and after adjusting for the
divestiture of a surgical products business in 1996, pro forma worldwide medical
devices sales were comparable to the year ended 1995. Higher sales of needles
and syringes and cardiopulmonary instrumentation were offset by lower sales of
ophthalmic products. Pro forma worldwide medical devices sales for the year
ended 1996 consisted of unit volume growth of 2%, which was offset by
unfavorable foreign exchange of 2%.
Worldwide agricultural products sales increased 7% for the year ended
1997. U.S. agricultural products sales increased 6% for the year ended 1997.
U.S. sales gains were due primarily to introductory sales of Steel and Lightning
herbicides and higher sales of Prowl and Squadron herbicides due, in part, to
increased soybean acreage. The increase in U.S. agricultural products sales for
the year ended 1997 consisted of unit volume growth of 3% and price increases of
3%. Due to the seasonality of the U.S. agricultural products business, which is
concentrated primarily in the first six months of the year, a majority of the
U.S. agricultural products sales and results of operations are realized in the
first half of the year.
International agricultural products sales increased 7% for the year ended
1997 due to higher sales of Pursuit and Scepter herbicides, particularly in
Latin America, resulting primarily from increased soybean acreage, Counter
insecticide and Acrobat fungicide offset, in part, by lower sales of other
insecticides and fungicides. International agricultural products sales for the
year ended 1997 consisted of unit volume growth of 11% and price increases of
2%, which were offset by unfavorable foreign exchange of 6%.
Worldwide agricultural products sales increased 4% for the year ended
1996. U.S. agricultural products sales increased 4% for the year ended 1996.
U.S. sales gains were due primarily to higher sales of Counter insecticide and
Prowl and Assert herbicides offset, in part, by lower sales of Prestige
herbicide. The increase in U.S. agricultural products sales for the year ended
1996 consisted of unit volume growth of 2% and price increases of 2%.
International agricultural products sales increased 4% for the year ended
1996. International sales gains were due primarily to higher sales of Stomp
(marketed as Prowl in the United States) herbicide, Fastac and Cascade
insecticides, and Acrobat and Caramba fungicides offset, in part, by the
discontinuance of a licensed herbicide product. The increase in international
agricultural products sales for the year ended 1996 consisted of unit volume
growth of 4% and price increases of 3%, which were offset by unfavorable foreign
exchange of 3%.
In November 1996, the Company completed the sale of a majority interest
(80%) in the American Home Foods business. Sales of food products decreased 4%
for the year ended 1996 due to the divestiture. Sales of the foods business were
consolidated by the Company through October 31, 1996, representing 10 months of
operating activity compared with a full year in 1995.
Cost of goods sold, as a percentage of net sales, decreased to 28.9% for
the year ended 1997 compared with 31.6% in 1996 due primarily to an overall
product mix improvement as higher sales of pharmaceuticals and agricultural
products replaced the loss of lower margin food products sales, a favorable
pharmaceutical and agricultural products sales mix, and, to a lesser extent,
cost savings and synergies. Cost savings and synergies resulted from the
restructuring and consolidation of various manufacturing and quality control
functions, primarily in the pharmaceutical business, related to the American
Cyanamid Company (ACY) acquisition and the Company's previously announced
Organizational Effectiveness and Supply Chain programs. Cost of goods sold, as a
percentage of net sales, decreased to 31.6% for the year ended 1996 compared
with 33.9% in 1995 due primarily to the combination of a favorable
pharmaceutical and agricultural products sales mix and, to a lesser extent, cost
savings and synergies.
Selling, general and administrative expenses, as a percentage of net
sales, increased to 37.3% for the year ended 1997 compared with 37.1% in 1996.
Higher marketing and selling expenses related to recent pharmaceutical and
agricultural product introductions were offset by the elimination of marketing
and selling expenses associated with the foods business. Higher general and
administrative expenses were due, in part, to increased pension costs and
additional goodwill amortization related to the Genetics Institute, Inc. (G.I.)
and Solvay S.A. animal health acquisitions. Selling, general and administrative
expenses, as a percentage of net sales, decreased to 37.1% for the year ended
1996 compared with 37.2% in 1995. Cost savings and synergies were offset, in
part, by increased marketing and selling expenses related to pharmaceutical and
consumer health care product introductions and pharmaceutical disease and health
management programs.
Research and development expenses increased 9.0% for the year ended 1997
compared with 1996 due primarily to higher pharmaceutical research and
development expenditures and operating costs related to recent pharmaceutical
research and development facility expansions. Research and development expenses
increased 5.5% for the year ended 1996 compared with 1995 as ACY
acquisition-related synergies were more than offset by increased research and
development expenditures. Pharmaceutical research and development expenditures
accounted for 80% and 78% of
41
<PAGE>
total research and development expenditures in 1997 and 1996, respectively.
Pharmaceutical research and development expenses, as a percentage of worldwide
pharmaceutical sales, exclusive of infant nutritional sales, were 16% and 15% in
1997 and 1996, respectively.
Interest expense, net decreased for the years ended 1997 and 1996 due
primarily to the reduction in long-term debt during 1997 and 1996. Average
long-term debt outstanding during 1997 and 1996 was $5,526.2 million and
$6,914.7 million, respectively.
Other income, net for the year ended 1997 included gains on the sales of
non-strategic assets, including Storz Instrument Company and affiliated
companies, investments in the common stock of certain publicly traded insurance
companies, a portion of the 20% equity interest in the foods business, and
certain generic and non-core product rights, which were substantially offset by
the settlement of a lawsuit brought by Johnson & Johnson and its wholly owned
subsidiary, Ortho Pharmaceutical Corporation, and other contingent liability
adjustments (excluding any charges which may result from legal actions related
to Pondimin and Redux). Other income, net for the year ended 1996 consisted
primarily of gains on the sales of non-strategic assets, including Symbiosis
Corp. and certain non-core product rights.
As discussed in Note 3 to the Consolidated Financial Statements, on
September 15, 1997, the Company announced the voluntary market withdrawal of
fenfluramine HCl, manufactured and sold under the name Pondimin, and
dexfenfluramine HCl, marketed under the name Redux. The Company took this action
and withdrew the products on the basis of new, preliminary information regarding
heart valve abnormalities in patients using these medications. The 1997 results
of operations included special charges aggregating $180.0 million ($117.0
million after-tax or $0.18 per share) to record the one-time costs associated
with the voluntary market withdrawal. The special charges included provisions
for product returns, notification and administrative handling fees, the
writedown of inventory and supplies, and other related costs. These costs did
not include provisions for any subsequent charges which may result from legal
actions related to these products.
As discussed in Note 10 to the Consolidated Financial Statements, the
Company has been named as a defendant in numerous legal actions, many of which
are purported class actions, relating to Pondimin and/or Redux. It is likely
that additional legal actions, including purported class actions, will be filed.
The Company believes that it has meritorious defenses to these actions and that
it has acted properly at all times in dealing with Pondimin and Redux matters.
In the opinion of the Company, although the outcome of any legal proceedings
cannot be predicted with certainty, the ultimate liability of the Company in
connection with these proceedings will not have a material adverse effect on the
Company's financial position but could be material to the results of operations
in any one accounting period.
The effective tax rate decreased to 27.4% in 1997 from 31.6% in 1996 due
primarily to the reinstatement of the U.S. research tax credit in 1997 and the
net tax impact of the gain on the sale of a majority interest in the foods
business and the special charges related to the acquisition of the remaining
equity interest in G.I. in 1996. The effective tax rate increased to 31.6% in
1996 from 31.1% in 1995 due primarily to the tax impact of the special charges
related to the acquisition of the remaining equity interest in G.I. offset, in
part, by the tax impact of the gain on the sale of a majority interest in the
foods business.
Net income and basic earnings per share for the year ended 1997 on an
as-reported basis increased 8% and 7%, respectively, above 1996 levels. Results
for the year ended 1997 included the previously discussed after-tax special
charges aggregating $117.0 million or $0.18 per share associated with the
voluntary market withdrawal of Pondimin and Redux. Net income and basic earnings
per share for the year ended 1996 included an after-tax gain on the sale of a
majority interest in the foods business of $706.3 million or $1.11 per share and
the special charges related to the acquisition of the remaining equity interest
in G.I. aggregating $697.9 million or $1.10 per share. Excluding the special
charges from 1997 results and the gain on the sale of a majority interest in the
foods business and the special charges from 1996 results, net income and basic
earnings per share for the year ended 1997 increased 15% and 13%, respectively,
over 1996 amounts. Excluding the special items from 1997 and 1996 results,
diluted earnings per share for the year ended 1997 increased 13% compared with
1996. The increases in net income, basic earnings per share and diluted earnings
per share, excluding the special items, were due primarily to higher domestic
sales of pharmaceuticals and worldwide sales of agricultural products, a
favorable pharmaceutical and agricultural products sales mix, lower interest
expense, and cost savings and synergies offset, in part, by the divestiture of
the foods business and higher pharmaceutical research and development
expenditures.
Net income and basic earnings per share for the year ended 1996 on an
as-reported basis increased 12% and 9%, respectively, above 1995 levels. Net
income and basic earnings per share for the year ended 1996 included an
after-tax gain on the sale of a majority interest in the foods business of
$706.3 million or $1.11 per share and the special charges related to the
acquisition of the remaining equity interest in
42
<PAGE>
G.I. aggregating $697.9 million or $1.10 per share. Net income and basic
earnings per share for 1995 included after-tax special charges aggregating
$308.3 million or $0.50 per share, an after-tax restructuring charge of $117.2
million or $0.19 per share and an after-tax gain of $623.9 million or $1.01 per
share from the sale of the oral health care business. Excluding the gain on the
sale of a majority interest in the foods business and the special charges from
1996 results and the special charges, restructuring charge and the gain on the
sale of the oral health care business from 1995 results, net income and basic
earnings per share for the year ended 1996 increased 27% and 23%, respectively,
over 1995 amounts. Excluding the special items from 1996 and 1995 results,
diluted earnings per share for the year ended 1996 increased 23% compared with
1995. The increases in net income, basic earnings per share and diluted earnings
per share, excluding the special items, were due primarily to higher worldwide
sales of pharmaceuticals, agricultural products and consumer health care
products, a favorable pharmaceutical and agricultural products sales mix, cost
savings and synergies, and lower interest expense offset, in part, by increased
pharmaceutical and consumer health care marketing and selling expenses and
higher pharmaceutical research and development expenditures.
The Company currently is in the process of identifying, evaluating and
implementing changes to computer systems and applications necessary to achieve a
year 2000 date conversion with no effect on customers or disruption to business
operations. These actions are necessary to ensure that the systems and
applications will recognize and process the year 2000 and beyond. Major areas of
potential business impact have been identified and are being reviewed, and
initial conversion efforts are under way. The total cost of compliance and its
effect on the Company's future results of operations are not anticipated to be
material in any given year.
Competition
The Company operates in the highly competitive health care and agrochemical
industries. The Company is not dependent on any one patent-protected product or
line of products for a substantial portion of its sales or results of
operations. However, Premarin, the Company's conjugated estrogens product, which
has not had patent protection for many years, does contribute significantly to
sales and results of operations. Premarin currently is not subject to generic
competition in the United States, and, on May 5, 1997, the U.S. Food and Drug
Administration (FDA) announced that it would not approve synthetic conjugated
estrogens products at this time because these products have not been shown to
contain the same active ingredient as Premarin. The FDA further stated that,
until the full composition of Premarin is determined, a synthetic generic
version cannot be approved although a generic product derived from the same
natural source could be approved earlier under certain circumstances. Although
the Company believes that, as a result of this announcement, Premarin is not
likely to face generic competition in the near term, the Company cannot predict
the timing or outcome of continued efforts to obtain approval for a generic
conjugated estrogens product. While the introduction of generic competition
ordinarily is expected to significantly impact the market for a brand name
product, the extent of such impact on Premarin and related products cannot be
predicted with certainty due to a number of factors, including the nature of the
product and the recently introduced combination estrogen and progestin products
in the Premarin family.
Liquidity, Financial Condition and
Capital Resources
Cash flows from operations continued to be strong in 1997. Cash flows from
operating activities of $1,695.5 million, proceeds from sales of businesses and
other assets of $874.9 million, proceeds from the exercise of stock options of
$369.6 million and proceeds from sales of marketable securities, net of $172.2
million were used principally for dividend payments of $1,073.2 million,
long-term debt reduction of $976.9 million, capital expenditures of $830.4
million and the purchase of the worldwide animal health business of Solvay S.A.
for $460.0 million. These activities resulted in a net decrease in cash and cash
equivalents during 1997. Cash flows from operating activities for the year ended
1997 were impacted by payments of $381.8 million related to certain previously
accrued long-term tax liabilities which were required to be paid in connection
with the filing of a tax claim and a $200.0 million contribution to the American
Home Products Corporation Retirement Plan - U.S. As a result, cash flows from
operating activities for the year ended 1997 are not indicative of the results
to be expected for 1998. Capital expenditures included strategic investments in
manufacturing and distribution facilities worldwide and the expansion of the
Company's research and development facilities.
The Company believes that the foreign currency risks to which it is
exposed are not reasonably likely to have a material adverse effect on the
Company's cash flows, results of operations or financial position given the
concentration of sales in the United States. No single foreign currency
accounted for more than 5% of 1997 worldwide sales. More specifically,
Asian-Pacific financial instability did not have a material
43
<PAGE>
impact on the Company's results of operations in 1997 since these operations are
not material to the Company's consolidated operations. In addition, the Company
believes that if Asian-Pacific financial instability continues, it will not have
a material impact on the Company's future results of operations.
The Company initially established credit facilities with a syndicate of
lenders to finance the ACY acquisition. The credit facilities, as amended, are
composed of a $2.5 billion, five-year credit facility and a $2.5 billion,
364-day credit facility. In 1995, the Company issued, under a $3.5 billion shelf
registration statement, $1.0 billion of 7.70% notes due February 2000 and $1.0
billion of 7.90% notes due February 2005. Net proceeds from these issuances were
used to repay commercial paper. The notes are unsecured and unsubordinated and
may not be redeemed prior to maturity. In connection with the $2.0 billion note
issue, the Company terminated $2.0 billion of the interest rate swap agreements
that previously had been entered into.
The carrying values of cash and cash equivalents approximate fair value
due to the short-term, highly liquid nature of the cash equivalents which have
original maturities of three months or less. Interest rate fluctuations would
not have a significant effect on the fair value of cash equivalents held by the
Company.
At December 31, 1997, the fair value of the Company's long-term debt,
excluding the interest rate swap agreements discussed below, was $5,255.7
million. If interest rates were to increase or decrease by one percentage point,
the fair value of the long-term debt would decrease or increase by approximately
$121.7 million.
At December 31, 1997, the fair value of the remaining $2.3 billion of
interest rate swap agreements was a payable of $98.5 million. If interest rates
were to increase or decrease by one percentage point, the payable would decrease
or increase by approximately $50.2 million.
At December 31, 1997, the fair value of the $977.5 million notional amount
of foreign exchange forward contracts was a net receivable of $14.4 million. As
foreign exchange rates change from period to period, the fluctuations in the
fair value of the foreign exchange forward contracts are offset by fluctuations
in the fair value of the underlying hedged transactions. If the value of the
U.S. dollar were to increase or decrease by 10% in relation to all foreign
currencies, the net receivable would increase or decrease by approximately $81.6
million.
The ratio of earnings to fixed charges increased to 6.4 in 1997 from 5.6
in 1996. The increase was due primarily to reduced fixed charges, which resulted
from lower interest expense due to the reduction in long-term debt, and
increased earnings from operations before taxes. The reduction in long-term debt
in 1997 was due primarily to cash flows from operating activities.
In December 1997, the Company signed a definitive agreement with a
subsidiary of Tyco International Ltd. for the sale of the Sherwood-Davis & Geck
medical devices business. Under the transaction, which is subject to certain
customary closing conditions, including the receipt of necessary governmental
approvals, the Company will receive $1.77 billion in cash at closing. The
completion of the transaction is expected to take place during the first quarter
of 1998 and, excluding the gain on sale, will not have a material impact on the
Company's future results of operations. This transaction will complete the
Company's exit from the medical devices business.
The Company's objectives are to continue to further reduce its current
debt position, including, but not limited to, additional sales of non-strategic
assets. Management is confident that cash flows from operating activities will
be adequate to repay both the principal and interest on the remaining ACY
acquisition financing without requiring the disposition of any significant
strategic core businesses or assets and, further, to allow the Company to
continue to fund its operations, pay dividends and maintain its ongoing programs
of capital expenditures, including the amount already committed at December 31,
1997 of approximately $313 million, without restricting its ability to make
further acquisitions as may be appropriate.
Company Statements for
Forward-Looking Information
This Annual Report, including management's discussion and analysis set forth
above, contains certain forward-looking statements, including statements
regarding the Company's results of operations, financial position and potential
competition. These forward-looking statements are based on current expectations.
Certain factors which could cause the Company's actual results to differ
materially from expected and historical results have been identified by the
Company in Exhibit 99 to the Company's 1996 Annual Report on Form 10-K and the
Company's 1997 Annual Report on Form 10-K which will be filed by March 31, 1998.
44
<PAGE>
American Home Products Corporation
Corporate Data
Independent Auditors
Arthur Andersen LLP
1345 Avenue of the Americas
New York, NY 10105
Executive Offices
American Home Products Corporation
Five Giralda Farms
Madison, NJ 07940
(973) 660-5000
Annual Meeting
The Annual Meeting of Shareholders will be held on Thursday, April 23, 1998, at
the Governor Morris Hotel in Morristown, New Jersey.
Form 10-K
A copy of the Company's Annual Report on Form 10-K may be obtained by any
shareholder without charge upon request to:
American Home Products Corporation
Treasurer's Department
Five Giralda Farms
Madison, NJ 07940
(973) 660-6936
Shareholder Account Information
ChaseMellon Shareholder Services, L.L.C. is the transfer agent, registrar,
dividend disbursing agent and dividend reinvestment agent for the Company.
Shareholders of record with questions about lost certificates, lost or missing
dividend checks, or notification of change of address should contact:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Center
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 565-2067
For the hearing impaired: (800) 231-5469 (TDD)
Internet address: http://www.chasemellon.com
Master Investment Plan
The plan provides shareholders of record with the opportunity to automatically
reinvest dividends or to make cash purchases of additional shares of the
Company's common stock. Inquiries should be directed to ChaseMellon Shareholder
Services, L.L.C.
Equal Employment Opportunity
Our established affirmative action and equal employment programs demonstrate our
long-standing commitment to provide job and promotional opportunities for all
qualified persons regardless of age, color, disability, national origin, race,
religion, sex, sexual orientation, status as a Vietnam-era veteran or a special
disabled veteran, or any military uniformed services obligation.
Policy on Health, Safety and
Environmental Protection
A copy of the Company's "Policy on Health, Safety and Environmental Protection"
may be obtained upon written request to: American Home Products Corporation
Department of Environment and Safety Five Giralda Farms Madison, NJ 07940
AHP on the Internet
American Home Products' Internet address is:
http://www.ahp.com
Product designations appearing in differentiated type are trademarks.
45
<PAGE>
American Home Products Corporation
Principal Officers
Principal Corporate Officers
John R. Stafford (6),(7)
Chairman, President and
Chief Executive Officer
Robert G. Blount (6),(7)
Senior Executive Vice
President
Robert Essner (6),(7)
Executive Vice President
Joseph J. Carr (6),(7)
Senior Vice President
Louis L. Hoynes, Jr. (6),(7)
Senior Vice President and
General Counsel
Robert I. Levy, M.D. (6),(7)
Senior Vice President-
Science and Technology
William J. Murray (6),(7)
Senior Vice President
David M. Olivier (6),(7)
Senior Vice President
John B. Adams
Vice President-Corporate Development
Egon E. Berg
Vice President and
Associate General Counsel
Thomas G. Cavanagh
Vice President-Investor
Relations
John R. Considine (6),(7)
Vice President-Finance
Bruce Fadem
Vice President-Corporate
Systems and Chief Information Officer
Tuan Ha-Ngoc
Vice President-Strategic
Development
William A. Hawkins (6),(7)
Vice President-Medical Device
and Specialty Pharmaceutical Divisions
Leo C. Jardot
Vice President-Government Relations
Gerald A. Jibilian
Vice President and
Associate General Counsel
Paul J. Jones (6)
Vice President and Comptroller
Rene R. Lewin (6)
Vice President-Human Resources
Thomas M. Nee (6)
Vice President-Taxes
Marily H. Rhudy
Vice President-Public Affairs
Steven A. Tasher
Vice President-Environmental
Affairs and Associate
General Counsel
Jack M. O'Connor
Treasurer
Eileen M. Lach
Secretary
Principal Division and Subsidiary Officers
Global Agricultural Products, American Cyanamid Company
Howard L. Minigh, Ph.D.(7), President
Cyanamid Agricultural Products Research
Mark W. Atwood, Ph.D.,
President
Cyanamid International Agricultural Products
Marco A. Fonseca (7), President
Fort Dodge Animal
Health Division
E. Thomas Corcoran (7),
President
Immunex Corporation*
Edward V. Fritzky, Chairman
and Chief Executive Officer
Quinton Instrument Company
Steven C. Tallman, President
Specialty Pharmaceuticals Division
David G. Strunce, President
Whitehall International, Inc.
Jean-Claude Leroux (7),
President
Whitehall-Robins Healthcare
Kenneth J. Martin (7), President
Wyeth-Ayerst Global Pharmaceuticals
Bernard Poussot (7), President
Wyeth-Ayerst Global Pharmaceuticals-
North America
Joseph M. Mahady (7), President
Wyeth-Ayerst Research
L. Patrick Gage, Ph.D. (7),
President
(6) Finance Committee
(7) Operations Committee
* AHP is majority owner
Design: Context Inc., South Norwalk, CT
Text: Charles S. Rhudy
Executive Photography: William Taufic
Location Photography: Ted Horowitz,
George Simian, Mark Tuschman
Product Photography: Jim Barber
Printing: Avanti/Case-Hoyt
[Recycle This report is printed
Logo] on recycled paper.
46
<PAGE>
Board of Directors
[Photos Omitted]
John R. Stafford (1),(5)
Chairman, President and Chief Executive Officer
Clifford L. Alexander, Jr. (2),(4),(5)
President, Alexander & Associates, Inc.
Frank A. Bennack, Jr. (1),(3),(5)
President and Chief Executive Officer,
The Hearst Corporation
Robert G. Blount (1)
Senior Executive Vice President
Robin Chandler Duke (3),(5)
National Chair, Population Action
International
Robert Essner
Executive Vice President
John D. Feerick (2),(3),(5)
Dean, Fordham University School of Law
John P. Mascotte (3),(5)
President and CEO, Blue Cross, Blue Shield
of Kansas City
Mary Lake Polan, M.D., Ph.D. (4),(5)
Professor and Chairman, Department
of Gynecology and Obstetrics, Stanford
University School of Medicine
Ivan G. Seidenberg (2),(5)
Chairman, Vice President and
Chief Operating Officer, Bell Atlantic
Corporation
John R. Torell III (4),(5)
Chairman, Torell Management Inc.
William Wrigley (2),(5)
President and Chief Executive Officer,
Wm. Wrigley Jr. Company
Directors Emeriti
- --------------------------------------
John W. Culligan
Retired - Former Chairman of the Board
William F. Laporte
Retired - Former Chairman of the Board
(1) Executive Committee
(2) Audit Committee
(3) Compensation and Benefits Committee
(4) Corporate Issues Committee
(5) Nominating Committee
<PAGE>
American Home Products Corporation
[Logo] Five Giralda Farms
Madison, New Jersey 07940
EXHIBIT 21
<TABLE>
SUBSIDIARIES OF THE REGISTRANT
DECEMBER 31, 1997
<CAPTION>
State or Country
Name of Incorporation
<S> <C>
Domestic
A.H. Robins Company, Incorporated Delaware
AHP Subsidiary Holding Corporation Delaware
American Cyanamid Company Maine
Ayerst Laboratories, Incorporated New York
Ayerst-Wyeth Pharmaceuticals Incorporated Delaware
Berdan Insurance Company Vermont
Cyanamid Agricultural de Puerto Rico, Inc. New Jersey
Cyanamid International Corporation Limited Delaware
Genetics Institute, Inc. Delaware
Immunex Corporation Washington
Lederle Parenterals, Inc. New Jersey
Lederle Piperacillin, Inc. New Jersey
MDP Holdings, Inc. Delaware
Quinton Instrument Company Washington
Route 24 Holdings, Inc. Delaware
*Sherwood Medical Company Delaware
Wyeth-Ayerst International Inc. New York
Wyeth Laboratories Inc. New York
Wyeth Nutritionals Inc. Delaware
Foreign
AHP Finance B.V. Netherlands
AHP Manufacturing B.V. Netherlands
Cyanamid Agro France
Cyanamid de Argentina S.A. Delaware
Cyanamid GmbH Germany
Cyanamid Iberica, S.A. Spain
Cyanamid (Japan) Ltd. Japan
*Cyanamid of Great Britain Limited Great Britain
Cyanamid Quimica do Brasil Ltda. Brazil
Cyanamid Taiwan Corporation Taiwan
Dimminaco AG Switzerland
John Wyeth & Brother Limited Great Britain
Laboratorios Wyeth-Whitehall Ltda. Brazil
*Nippon Sherwood Medical Industries Ltd. Japan
Wyeth (H.K.) Limited Hong Kong
Wyeth Australia Pty. Limited Australia
Wyeth-Ayerst Canada Inc. Canada
Wyeth-Lederle France
Wyeth-Lederle S.p.A. Italy
<PAGE>
State or Country
Name of Incorporation
Wyeth Lederle Portugal (Farma), Lda. Portugal
Wyeth-Pharma G.m.b.H. Germany
Wyeth Philippines, Inc. Philippines
Wyeth S.A. de C.V. Mexico
</TABLE>
*These subsidiaries and the majority of Cyanamid of Great Britain Limited's
assets were divested on February 27, 1998 as part of the Company's sale of
the Sherwood-Davis & Geck medical devices business.
There have been omitted from the above list the names of subsidiaries which,
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated January 27, 1998 included in
American Home Products Corporation's (the Company) Annual Report to
Shareholders for the year ended December 31, 1997. Furthermore, we consent
to the incorporation of our reports dated January 27, 1998 included in or made
part of this Form 10-K, into the Company's previously filed Registration
Statements on Form S-3 (File Nos. 33-45324 and 33-57339) and on Form S-8
(File Nos. 2-96127, 33-24068, 33-41434, 33-53733, 33-55449, 33-45970, 33-14458,
33-50149, 33-55456 and 333-15509).
ARTHUR ANDERSEN LLP
New York, N.Y.
March 27, 1998
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,051,372
<SECURITIES> 48,363
<RECEIVABLES> 3,040,254
<ALLOWANCES> 197,155
<INVENTORY> 2,412,406
<CURRENT-ASSETS> 7,361,326
<PP&E> 6,722,049
<DEPRECIATION> 2,425,143
<TOTAL-ASSETS> 20,825,111
<CURRENT-LIABILITIES> 4,327,018
<BONDS> 5,031,861
<COMMON> 216,792
0
72
<OTHER-SE> 7,958,388
<TOTAL-LIABILITY-AND-EQUITY> 20,825,111
<SALES> 14,196,026
<TOTAL-REVENUES> 14,196,026
<CGS> 4,101,309
<TOTAL-COSTS> 4,101,309
<OTHER-EXPENSES> 1,558,035
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 370,696
<INCOME-PRETAX> 2,814,707
<INCOME-TAX> 771,584
<INCOME-CONTINUING> 2,043,123
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,043,123
<EPS-PRIMARY> 3.16<F1>
<EPS-DILUTED> 3.11<F2>
<FN>
<F1> This amount represents Basic Earnings per Share in accordance
with the requirements of Statement of Financial Accounting
Standards No. 128 - "Earnings per Share".
<F2> This amount represents Diluted Earnings per Share in accordance
with the requirements of Statement of Financial Accounting
Standards No. 128 - "Earnings per Share".
</FN>
</TABLE>
Exhibit No. 99
Exhibit 99 to the Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1997
Cautionary Statements Regarding "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The Company may from time to time make written or verbal forward-looking
statements. Forward-looking statements may appear in periodic reports filed
with the Securities and Exchange Commission (including the Company's Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q), in press releases,
in the Company's Annual Report to Shareholders and other reports to
shareholders, and in other communications made by the Company. These
forward-looking statements can be identified by their use of words such as
"anticipates","expects", "plans", "will", "estimates", "forecasts",
"projects" and other words of similar meaning. These forward-looking
statements address various matters including the Company's financial
position, results of operations, competition, liquidity, financial condition,
capital resources, market position and product development. These
forward-looking statements are based on current expectations. The Company
undertakes no obligation to update any forward-looking statements, but
investors are advised to consult any further disclosures by the Company on
this subject in its subsequent filings pursuant to the Securities Exchange
Act of 1934. As permitted by the Private Securities Litigation Reform Act of
1995, the Company is hereby filing the following cautionary statements
identifying important factors which, among others, could cause the Company's
actual results to differ materially from expected and historical results:
Changing business conditions including inflation and fluctuations in
interest rates and foreign currency exchange rates.
Competitive factors including managed care groups, institutions and
government agencies seeking price discounts; technological advances
attained by competitors; patents granted to competitors; potential
generic competition for PREMARIN and for other health care and
agricultural products as such products mature.
Government laws and regulations affecting U.S. and international
operations, including trade, monetary and fiscal policies, taxes
(including the Section 936 income tax credit), price controls, changes
in governments and legal systems, as well as actions affecting approvals
of products and licensing.
Inherent uncertainty of pharmaceutical research, difficulties or delays
in product development and commercialization including, but not limited
- page -
to, the inability to identify viable new chemical compounds,
successfully complete clinical trials, obtain and maintain regulatory
approval for the compounds in the U.S. as well as the other countries
in which the Company conducts its business, and gain and maintain
market acceptance of approved products. Difficulties or delays in
product development can also affect the Company's other businesses.
Unexpected safety or efficacy concerns arising with respect to marketed
products, whether or not scientifically justified, leading to product
recalls, withdrawals or declining sales.
Growth in costs and expenses, including changes in product mix, and the
impact of any acquisitions or divestitures, restructuring and other
unusual items that could result from evolving business strategies,
evaluation of asset realization, and changing organizational structures.
Product liability litigation related to the Company's health care and
other products including, without limitation, litigation associated with
the Company's antiobesity products, PONDIMIN and REDUX. Other legal
factors include, without limitation, antitrust litigation,
environmental concerns and patent disputes with competitors, any of
which could preclude commercialization of products or negatively affect
the profitability of existing products.
Changes in accounting standards promulgated by the Financial Accounting
Standards Board, the Securities and Exchange Commission, and the
American Institute of Certified Public Accountants which are adverse to
the Company.
Continued consolidation in the health care and agrochemical industries
could affect the Company's competitive position.
