SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
Perrigo Company
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[PERRIGO LOGO]
PERRIGO COMPANY
515 EASTERN AVENUE
ALLEGAN, MICHIGAN 49010
TELEPHONE: (269) 673-8451
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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TUESDAY, OCTOBER 28, 2003
10:00 A.M. EST
PERRIGO CORPORATE OFFICE
515 EASTERN AVENUE
ALLEGAN, MICHIGAN 49010
The purpose of our 2003 Annual Meeting is to elect three directors for a
three-year term beginning at the Annual Meeting and to approve the Perrigo
Company 2003 Long-Term Incentive Plan. The Board of Directors recommends that
you vote FOR each of the director nominees and FOR the approval of the Plan.
You can vote at the Annual Meeting in person or by proxy if you were a
shareholder of record on September 2, 2003.
It is important that your shares are represented at the Annual Meeting
whether or not you plan to attend. To be certain that your shares are
represented, we ask that you sign, date and return the enclosed proxy card or
proxy voting instruction form as soon as possible or vote by telephone or
Internet by following the instructions on the proxy card. Whatever method you
choose, please vote as soon as possible. You may revoke your proxy at any time
prior to the Annual Meeting.
Our 2003 Annual Report to Shareholders is enclosed.
Sincerely,
John R. Nichols
Secretary
September 26, 2003
PERRIGO COMPANY
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PROXY STATEMENT
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TABLE OF CONTENTS
PAGE
----
Questions and Answers....................................... 1
Election of Directors....................................... 4
Board of Directors and Its Committees....................... 6
Director Compensation....................................... 7
Ownership of Perrigo Common Stock........................... 9
Section 16(a) Beneficial Ownership Reporting Compliance..... 11
Executive Compensation...................................... 11
Equity Compensation Plan Information........................ 15
Report of the Compensation Committee on Executive
Compensation............................................. 16
Company Performance......................................... 19
Approval of 2003 Long-Term Incentive Plan................... 20
Report of the Audit Committee............................... 27
Independent Accountants..................................... 28
Annual Report on Form 10-K.................................. 28
Audit Committee Charter..................................... A-1
The proxy statement and form of proxy are first being sent to shareholders
on or about September 26, 2003.
QUESTIONS AND ANSWERS
Following are questions often asked by shareholders of publicly held
companies. We hope that the answers will assist you in casting your vote.
WHAT AM I VOTING ON?
We are soliciting your vote on:
1. The election of three directors for a three-year term beginning at
the Annual Meeting; and
2. The approval of our 2003 Long-Term Incentive Plan.
WHO MAY VOTE?
Shareholders of record at the close of business on September 2, 2003, the
record date, may vote. On that date, there were 70,006,921 shares of Perrigo
common stock outstanding.
HOW MANY VOTES DO I HAVE?
Each share of Perrigo common stock that you own entitles you to one vote.
HOW DO I VOTE?
You may vote your shares in any of the following four ways:
1. By mail: complete the proxy card or voting
instruction form and sign, date and return
it in the enclosed envelope.
2. By telephone: call the toll-free number on the proxy
card, enter the control number on the
proxy card and follow the recorded
instructions.
3. By Internet: go to the website listed on the proxy
card, enter the control number on the
proxy card and follow the instructions
provided.
4. In person: attend the Annual Meeting, where ballots
will be provided.
You may also vote by telephone or over the Internet if you hold your shares
through a bank or broker that offers either of those options. If you choose to
vote in person at the Annual Meeting and your shares are held in the name of
your broker, bank or other nominee, you need to bring an account statement or
letter from the nominee indicating that you were the beneficial owner of the
shares on September 2, 2003, the record date for voting.
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HOW DOES DISCRETIONARY VOTING AUTHORITY APPLY?
If you sign, date and return your proxy card or vote by telephone or
Internet, your vote will be cast as you direct. If you do not indicate how you
want to vote, you give authority to Douglas R. Schrank and John R. Nichols to
vote for the items discussed in these proxy materials and on any other matter
that is properly raised at the Annual Meeting. In that event, your proxy will be
voted FOR the election of each director nominee, FOR the approval of the 2003
Long-Term Incentive Plan and FOR or AGAINST any other properly raised matters at
the discretion of Messrs. Schrank and Nichols.
MAY I REVOKE MY PROXY?
You may revoke your proxy at any time before it is exercised in one of four
ways:
1. Notify our Secretary in writing before the Annual Meeting that you
are revoking your proxy. The notice should be sent to our address on
the cover of this proxy statement.
2. Submit another proxy with a later date.
3. Vote by telephone or Internet after you have given your proxy.
4. Vote in person at the Annual Meeting.
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
Your shares are likely registered differently or are in more than one
account. You should sign and return all proxy cards to guarantee that all of
your shares are voted.
WHAT CONSTITUTES A QUORUM?
The presence, in person or by proxy, of the holders of a majority of
Perrigo shares entitled to vote at the Annual Meeting constitutes a quorum. You
will be considered part of the quorum if you return a signed and dated proxy
card, if you vote by telephone or Internet, or if you attend the Annual Meeting.
Abstentions and broker non-votes are counted as "shares present" at the
Annual Meeting for purposes of determining whether a quorum exists. A broker
non-vote occurs when a broker submits a proxy that does not indicate a vote for
a proposal because he or she does not have voting authority and has not received
voting instructions from you.
WHAT VOTE IS REQUIRED TO ELECT THE DIRECTOR NOMINEES AND TO APPROVE THE 2003
LONG-TERM INCENTIVE PLAN?
Election of Directors: A plurality of the votes cast will elect
directors. This means that the three nominees who receive the highest number of
votes will be elected. If you do not want to vote your shares for a particular
nominee, you may indicate that by following the instructions on the proxy card
or by withholding authority as prompted during telephone or Internet voting or
in person at the meeting. Abstentions and broker non-votes will have no effect
on the election of the directors.
2
Approval of the 2003 Long-Term Incentive Plan: The Plan must be approved
by a majority of the votes cast by the holders of shares entitled to vote on
this proposal. Abstentions and broker non-votes will not be treated as votes
cast in determining approval of the Plan and, therefore, will not have the
effect of a vote for or against the proposal.
HOW DO I SUBMIT A SHAREHOLDER PROPOSAL FOR NEXT YEAR'S ANNUAL MEETING?
You must submit a proposal to be included in our proxy statement for the
2004 annual meeting of shareholders no later than May 29, 2004. Your proposal
must be in writing and must comply with the proxy rules of the Securities and
Exchange Commission. You may also submit a proposal that you do not want
included in the proxy statement but that you want to raise at the 2004 annual
meeting. If you want to do this, we must receive your written proposal on or
after July 30, 2004, but on or before August 19, 2004. If you submit your
proposal after the deadline, then Securities and Exchange Commission rules
permit the individuals named in the proxies solicited by Perrigo's Board of
Directors for that meeting to exercise discretionary voting power as to that
proposal but they are not required to do so.
To be properly brought before an annual meeting, our by-laws require that
your proposal include: (1) your name and address as they appear on our stock
records; (2) a brief description of the business you want to bring before the
meeting; (3) the reasons for conducting the business at the meeting; (4) any
interest you have in the business you want to bring before the meeting; and (5)
the number of shares of Perrigo common stock that you own beneficially and of
record. You should send any proposal to our Secretary at our address on the
cover of this proxy statement.
HOW DO I NOMINATE A DIRECTOR?
If you wish to nominate an individual for election as director at the 2004
annual meeting, we must receive your nomination on or after July 30, 2004, but
on or before August 19, 2004. In addition, our by-laws require that for each
person you propose to nominate you provide: (1) your name and address as they
appear on our stock records; (2) the number of shares of Perrigo common stock
that you own beneficially and of record; (3) the nominee's written statement
that he or she is willing to be named in the proxy statement as a nominee and to
serve as a director if elected; and (4) any other information regarding the
nominee that would be required by the Securities and Exchange Commission to be
included in a proxy statement had Perrigo's Board of Directors nominated that
individual. You should send your proposed nomination to our Secretary at our
address on the cover of this proxy statement.
WHO PAYS TO PREPARE, MAIL AND SOLICIT THE PROXIES?
Perrigo will pay all of the costs of preparing and mailing the proxy
statement and soliciting the proxies. We will ask brokers, dealers, banks,
voting trustees and other nominees and fiduciaries to forward the proxy
materials and our Annual Report to the beneficial owners of Perrigo common stock
and to obtain the authority to execute
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proxies. We will reimburse them for their reasonable expenses upon request. In
addition to mailing proxy materials, our directors, officers and employees may
solicit proxies in person, by telephone or otherwise. These individuals will not
be specially compensated.
ELECTION OF DIRECTORS
Nine directors currently serve on our Board of Directors. The directors are
divided into three classes. At this Annual Meeting, you will be asked to elect
three directors. Each director will serve for a term of three years, until a
qualified successor director has been elected, or until he or she resigns or is
removed by the Board. The remaining six directors will continue to serve on the
Board as described below. The nominees for this year, Gary M. Cohen, David T.
Gibbons and Judith A. Hemberger, are currently Perrigo directors.
We will vote your shares as you specify on the enclosed proxy card or
during telephone or Internet voting. If you do not specify how you want your
shares voted, we will vote them FOR the election of the nominees. If unforeseen
circumstances (such as death or disability) make it necessary for the Board of
Directors to substitute another person for any of the nominees, we will vote
your shares FOR that other person. The Board of Directors does not anticipate
that any nominee will be unable to serve. The nominees have provided the
following information about themselves.
NOMINEES FOR ELECTION AS DIRECTORS AT THE ANNUAL MEETING IN 2003
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GARY M. COHEN, 44, has been a director of Perrigo since January 2003. He
has served as President of BD Medical Systems, one of three business segments of
Becton Dickinson and Company, since May 1999, and as Executive Vice President of
Becton Dickinson from July 1998 to May 1999. From October 1997 to June 1998, Mr.
Cohen served as President, Becton Dickinson Europe and Worldwide Sample
Collection. He has been an executive officer of Becton Dickinson since October
1996. Mr. Cohen presently serves as a member of the Board of Advisers of the
Rutgers School of Business and as a director of the Healthcare Industry
Distributors Association Educational Foundation.
DAVID T. GIBBONS, 60, has been a director of Perrigo since June 2000. He
has served as the President and Chief Executive Officer of Perrigo since May
2000 and as Chairman of the Board since August 2003. He served as President of
Rubbermaid Europe from August 1997 to April 1999 and as President of Rubbermaid
Home Products from December 1995 to August 1997. Prior to joining Rubbermaid,
Mr. Gibbons served in a variety of general management, sales and marketing
positions during his 27-year career with 3M Company.
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JUDITH A. HEMBERGER, 56, has been a director of Perrigo since January 2003.
Since January 2000, she has served as Executive Vice President and Chief
Operating Officer of Pharmion Corporation, a global specialty pharmaceutical
company that she co-founded. She served as Vice President of Business and
Planning of Avax Technologies, Inc., a development-stage biotechnology company,
from July 1998 to December 1999. She was Senior Vice President, Global
Regulatory Affairs of Hoechst Marion Roussell from December 1994 to June 1998.
DIRECTORS CONTINUING UNTIL 2004 ANNUAL MEETING
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LAURIE BRLAS, 45, has been a director of Perrigo since August 2003. Since
April 2000, she has served as Senior Vice President and Chief Financial Officer
of STERIS Corporation, a provider of infection prevention, decontamination and
health science technologies, products and services. From September 1995 through
March 2000, Ms. Brlas held various positions with Office Max, Inc., most
recently Senior Vice President and Corporate Controller.
LARRY D. FREDRICKS, 66, has served as a director of Perrigo since October
1996. Mr. Fredricks is currently an independent financial consultant.
Previously, Mr. Fredricks was Director--Financial Counseling Services with
Deloitte & Touche LLP from November 1997 through May 2000. He was Executive Vice
President and Chief Financial Officer of First Michigan Bank Corp., a multi-bank
holding company, from January 1995 through October 1997.
MICHAEL J. JANDERNOA, 53, has been a director of Perrigo since January
1981. He served as Perrigo's Chief Executive Officer from February 1988 through
April 2000 and as Chairman of the Board from October 1991 to August 2003. Mr.
Jandernoa also served as Perrigo's President from January 1983 to February 1986,
from April 1988 to October 1991, from September 1995 to November 1998 and from
November 1999 through April 2000. Prior to January 1983, Mr. Jandernoa served in
various executive capacities with Perrigo since 1979. He is a director of Fifth
Third Bank, a Michigan banking corporation, and Steelcase, Inc., a manufacturer
of casegood products and furniture systems for the office furniture industry.
Mr. Jandernoa also serves on the Boards of the Michigan Life Science Corridor
and the Michigan Economic Development Corporation.
DIRECTORS CONTINUING UNTIL 2005 ANNUAL MEETING
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PETER R. FORMANEK, 60, has served as a director of Perrigo since November
1993 and as Lead Independent Director since August 2003. He is a private
investor and was co-founder and President of AutoZone, Inc., a specialty
retailer of automotive parts and accessories, from September 1986 until his
retirement in May 1994. Mr. Formanek is a director of Borders Group, Inc., a
retailer of books and music, and the Lead Independent Director of The Sports
Authority, a sporting goods retailer.
GARY K. KUNKLE, JR., 56, has served as a director of Perrigo since October
2002. He has served as the President and Chief Operating Officer of DENTSPLY
International
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Inc., a manufacturer and marketer of products in the dental market, since
January 1997. He has been a director of that company since April 2002. From
January 1994 to December 1996, he served as President of Vistakon, a division of
Johnson & Johnson.
HERMAN MORRIS, JR., 52, has been a director of Perrigo since December 1999.
He has served as President and Chief Executive Officer of Memphis Light, Gas and
Water Division since August 1997 and was interim President and Chief Executive
Officer from January 1997 until August 1997. Mr. Morris was General Counsel of
Memphis Light, Gas and Water Division from February 1989 to January 1997.
BOARD OF DIRECTORS AND ITS COMMITTEES
Perrigo's Board of Directors met five times during fiscal year 2003. In
addition to meetings of the full Board, directors attended meetings of Board
committees. The Board of Directors has standing Audit, Compensation and
Nominating & Governance Committees. Effective as of August 8, 2003, all
committees consisted solely of independent Board members. During fiscal year
2003, each director attended at least 75% of the meetings of the Board and of
the committees on which he served, except that Gary Cohen missed one Board
meeting. Richard G. Hansen retired from the Board of Directors and the
Nominating & Governance Committee in January 2003. L.R. Jalenak, Jr. retired
from the Board of Directors in August 2003.
AUDIT COMMITTEE
Fiscal 2003
Meetings: 7
Members: Fiscal Year 2003 to August 7, 2003 Effective August 8, 2003
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Larry D. Fredricks (Chairman) Larry D. Fredricks (Chairman)
Peter R. Formanek Laurie Brlas
L.R. Jalenak, Jr. Herman Morris, Jr.
Herman Morris, Jr.
Function: The Audit Committee is directly responsible for the
compensation and oversight of the work of the independent
auditor in the preparation and issuance of audit reports and
related work, including the resolution of any disagreements
between management and the independent auditor regarding
financial reporting. The Audit Committee monitors our
accounting and financial reporting principles and policies
and our internal audit controls and procedures. The Board has
adopted an Audit Committee Charter, which specifies the
composition and responsibilities of the Committee. The
charter is attached to this proxy statement as Appendix A.
Additional information on the Committee and its activities is
set forth in the Audit Committee Report.
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COMPENSATION COMMITTEE
Fiscal 2003
Meetings: 1
Members: Fiscal Year 2003 to August 7, 2003 Effective August 8, 2003
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Peter R. Formanek (Chairman) Peter R. Formanek (Chairman)
L.R. Jalenak, Jr. Judith A. Hemberger
Herman Morris, Jr. Herman Morris, Jr.
Function: Reviews and recommends compensation arrangements for the
Chief Executive Officer and non-employee directors. Reviews
and approves evaluation process, compensation structure and
annual compensation for officers, including salaries, bonuses
and incentive and equity compensation. Administers Perrigo's
incentive and other long-term employee compensation plans.
NOMINATING & GOVERNANCE COMMITTEE
Fiscal 2003
Meetings: 6
Members: Fiscal Year 2003 to August 7, 2003 Effective August 8, 2003
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Michael J. Jandernoa (Chairman) Larry D. Fredricks (Chairman)
Larry D. Fredricks Gary M. Cohen
Gary K. Kunkle, Jr. (effective Gary K. Kunkle, Jr.
January 24, 2003)
Function: Assists the Board in identifying qualified individuals to
become Board members and recommends to the Board the director
nominees for the next annual meeting of shareholders,
including consideration of shareholder nominations for
election to the Board submitted in accordance with the
procedures discussed above under "How do I nominate a
director?" Develops and recommends to the Board the Corporate
Governance Guidelines applicable to Perrigo. Leads the Board
in its annual review of Board performance. Makes
recommendations to the Board with respect to assignment of
individual directors to various committees.
DIRECTOR COMPENSATION
ANNUAL RETAINER AND ATTENDANCE FEES
Directors who are Perrigo employees receive no fees for their services as
directors. Non-employee directors receive a $21,000 annual retainer fee covering
all regular and special Board meetings and the Annual Shareholders' meeting, of
which $11,000 is paid in cash. The balance of this fee is paid on the date of
each annual meeting of directors in the form of a restricted stock grant to each
of these directors having a value of
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$10,000 based upon the average of the high and low price of our stock on that
date. The restricted stock grant is made pursuant to a restricted stock plan for
directors and is intended to directly link an element of director compensation
to shareholders' interests. If shareholders approve the 2003 Long-Term Incentive
Plan (which is described in this proxy statement under "Approval of 2003
Long-Term Incentive Plan"), directors instead will receive these restricted
stock grants pursuant to that plan.
Prior to January 23, 2003, committee members also received $1,000 for each
in-person committee meeting attended and $500 for each telephonic committee
meeting in which they participated. Committee chairmen received $2,000 for each
in-person committee meeting they attended and $1,000 for each telephonic
committee meeting in which they participated. Effective as of January 24, 2003,
the Chairman of the Audit Committee receives $3,000 for each committee meeting
attended and the other members of the Audit Committee each receive $1,500 for
each committee meeting attended. Effective on the same date, the Chairman of
each of the Nominating & Governance and the Compensation Committee receives
$2,500 for each committee meeting attended and the members of each of these
committees receive $1,250 for each committee meeting attended. Fees for all
telephonic meetings held after January 23, 2003 are one-half of the above
amounts. We also reimburse directors for expenses incurred in connection with
attending Board and committee meetings.
OPTIONS TO PURCHASE PERRIGO COMMON STOCK
Currently, non-employee directors are eligible to participate in our
Non-Qualified Stock Option Plan for Directors, which ties a further portion of
director compensation to shareholder interests. The Board administers the Plan,
which provides for the issuance of options covering up to 525,000 shares of
Perrigo common stock at a purchase price per share at least equal to the fair
value of the stock on the grant date. Newly elected directors receive options
under the Plan to purchase 5,000 Perrigo shares, and continuing directors
annually receive options to purchase shares having a fair value on the date of
the grant of $25,000. Fair value is determined on the basis of a Black-Scholes
calculation. If the 2003 Long-Term Incentive Plan is approved, no further awards
will be granted under the Non-Qualified Stock Option Plan for Directors, and
non-employee directors instead would receive these or other awards under the
Long-Term Incentive Plan.
OTHER ARRANGEMENTS WITH DIRECTORS
We entered into a Consulting Agreement dated July 31, 2002 with Michael
Jandernoa, under which Mr. Jandernoa provided consulting and advisory services
as requested by the Chief Executive Officer for a monthly fee of $5,000
commencing in May 2002. In addition, we reimbursed Mr. Jandernoa for his office
space and secretarial service costs incurred during the term of the agreement up
to a maximum total reimbursement of $46,667. We also reimbursed Mr. Jandernoa
for properly documented expenses incurred by him in connection with his
consulting services. This agreement terminated on June 30, 2003.
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OWNERSHIP OF PERRIGO COMMON STOCK
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table shows how much Perrigo common stock the directors,
nominees, named executive officers, and all directors, nominees and executive
officers as a group beneficially owned as of September 8, 2003. The named
executive officers are the individuals listed in the Summary Compensation Table.
Beneficial ownership is a technical term broadly defined by the Securities
and Exchange Commission to mean more than ownership in the usual sense. In
general, beneficial ownership includes any shares a shareholder can vote or
transfer and stock options that are exercisable currently or become exercisable
within 60 days. Except as otherwise noted, the shareholders named in this table
have sole voting and investment power for all shares shown as beneficially owned
by them.
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SHARES OF OPTIONS
COMMON STOCK EXERCISABLE PERCENT
BENEFICIALLY OWNED WITHIN 60 DAYS TOTAL OF CLASS
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DIRECTORS AND NOMINEES
Laurie Brlas (1) 167 -- 167 *
Gary M. Cohen (1) 596 5,000 5,596 *
Peter R. Formanek (2) 206,702 36,555 243,257 *
Larry D. Fredricks (3) 11,102 24,613 35,715 *
David T. Gibbons (4) 119,898 450,001 569,899 *
Judith A. Hemberger (1) 596 5,000 5,596 *
Michael J. Jandernoa (5) 6,615,329 10,613 6,625,942 9.5%
Gary K. Kunkle, Jr. (1) 845 -- 845 *
Herman Morris, Jr. (6) 11,502 19,555 31,057 *
NAMED EXECUTIVE OFFICERS
OTHER THAN DIRECTORS
F. Folsom Bell 21,071 57,000 78,071 *
Mark P. Olesnavage (7) 435,481 248,432 683,913 *
Douglas R. Schrank 31,197 58,811 90,008 *
John T. Hendrickson (8) 17,470 68,000 85,470 *
DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (13 PERSONS) (9) 7,471,956 983,580 8,455,536 11.9%
* Less than 1%.
(1) Shares owned consist of restricted stock awarded to these individuals in
their capacity as a director.
(2) Shares owned include 200,600 shares owned by Mr. Formanek as Trustee for the
Formanek Investment Trust; and 845 shares of restricted stock awarded to Mr.
Formanek in his capacity as a director.
(3) Shares owned include 1,563 shares of restricted stock awarded to Mr.
Fredricks in his capacity as a director.
(4) Mr. Gibbons is also a named executive officer.
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(5) Shares owned consist of 5,956,035 shares (including 1,563 shares of
restricted stock owned by Mr. Jandernoa in his capacity as a director) owned
by the Michael J. Jandernoa Trust, of which Mr. Jandernoa is trustee;
183,104 shares owned by the Michael J. Jandernoa Grantor Trust Two, of which
Mr. Jandernoa is trustee and under which he has a reversionary interest;
183,104 shares owned by the Susan M. Jandernoa Grantor Trust Two, of which
Mrs. Jandernoa is trustee and under which she has a reversionary interest;
and 293,086 shares owned by the Susan M. Jandernoa Trust, of which Mrs.
Jandernoa is trustee. Mr. Jandernoa's address is c/o Perrigo Company, 333
Bridge Street, NW, Suite 800, Grand Rapids, MI 49504.
(6) Shares owned include 3,000 shares owned as custodian for Mr. Morris' minor
children; and 845 shares of restricted stock awarded to Mr. Morris in his
capacity as a director.
(7) Shares owned include 56,472 shares owned by trusts for the benefit of Mr.
Olesnavage's children, of which Mr. Olesnavage is trustee.
(8) Shares owned include 266 shares owned by the Mary Hendrickson Trust, of
which Bank One is trustee.
(9) See footnotes 1 through 8.
OTHER PRINCIPAL SHAREHOLDERS
This table shows all shareholders other than directors, nominees and named
executive officers that we know to be beneficial owners of more than 5% of
Perrigo common stock. The percent of class owned is based on 70,013,421 shares
of Perrigo common stock outstanding as of September 8, 2003.
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NAME AND ADDRESS AMOUNT OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
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Wellington Management Company, LLP (1) 8,220,860 11.7%
75 State Street
Boston, MA 02109
Royce & Associates, LLC (2) 5,380,000 7.7%
1414 Avenue of the Americas
New York, NY 10019
(1) Wellington Management Company, LLP, an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940, does not have sole
voting or investment power with respect to any of these shares, has shared
voting power as to 2,523,830 shares and shared investment power as to all
of the shares. This information is based on a Schedule 13G filed with the
Securities and Exchange Commission on February 12, 2003. Of the listed
shares, Vanguard Specialized Funds--Vanguard Health Care Fund (100 Vanguard
Boulevard, Malvern, PA 19355) beneficially owns 5,322,320 shares (7.6%), as
reported in a Schedule 13G filed with the Securities and Exchange
Commission on February 12, 2003, and has sole voting and shared investment
power as to these shares.
(2) Royce & Associates, LLC, an investment adviser registered under Section 203
of the Investment Advisers Act of 1940, has sole voting and investment
power with respect to all of the shares. This information is based on a
Schedule 13G filed with the Securities and Exchange Commission on February
4, 2003.
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SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that
Perrigo's executive officers, directors and 10% shareholders file reports of
ownership and changes of ownership of Perrigo common stock with the Securities
and Exchange Commission. Based on a review of copies of these reports provided
to us and written representations from executive officers and directors, we
believe that all filing requirements were met during fiscal year 2003.
EXECUTIVE COMPENSATION
This table summarizes the compensation of David T. Gibbons, our Chairman of
the Board, President and Chief Executive Officer, and the other four most highly
compensated executive officers of Perrigo during fiscal year 2003. These
individuals are sometimes referred to as the named executive officers.
SUMMARY COMPENSATION
LONG TERM
ANNUAL COMPENSATION
COMPENSATION (1) AWARDS
MANAGEMENT RESTRICTED SECURITIES
NAME AND INCENTIVE STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS (2) COMPENSATION
David T. Gibbons (3) 2003 $540,000 $847,800 -- 125,000 $22,860
Chairman of the Board, President 2002 $500,000 $523,334 $439,875 -- $36,349
and Chief Executive Officer 2001 $440,000 $706,935 -- 125,000 $97,137
Mark P. Olesnavage (4) 2003 $323,000 $312,457 -- 35,000 $13,626
Executive Vice President, General 2002 $320,490 $208,304 -- 50,000 $12,977
Manager--Perrigo Pharmaceuticals 2001 $312,960 $319,754 -- -- $13,385
Douglas R. Schrank (5) 2003 $287,388 $312,457 -- 45,000 $14,254
Executive Vice President, 2002 $274,000 $185,496 $211,140 50,000 $13,246
Chief Financial Officer 2001 $261,250 $284,741 -- -- $35,806
John T. Hendrickson (6) 2003 $282,188 $312,457 -- 45,000 $13,691
Executive Vice President, General 2002 $258,750 $208,304 -- 50,000 $12,886
Manager--Perrigo Consumer 2001 $241,875 $319,754 -- -- $12,224
Healthcare
F. Folsom Bell (7) 2003 $247,200 $198,607 -- 40,000 $15,180
Executive Vice President, 2002 $237,500 $132,404 -- 50,000 $13,994
Business Development 2001 $191,666 $203,245 -- 75,000 $43,672
(commencing September 1, 2000)
(1) The following amounts were deferred from salary for fiscal year 2003: Mr.
Gibbons $124,000; and Mr. Hendrickson $12,000. The following amounts were
deferred from the Management Incentive Bonus for fiscal year 2003: Mr.
Gibbons $84,780; and Mr. Hendrickson $28,000. The following
11
amounts were deferred from salary for fiscal year 2002: Mr. Gibbons
$100,000; and Mr. Hendrickson $6,000. The following amounts were deferred
from the Management Incentive Bonus for fiscal year 2002: Mr. Gibbons
$50,000; Mr. Olesnavage $166,644; and Mr. Hendrickson $28,000.
(2) Under the terms of Mr. Gibbons' employment agreement, he was entitled to
receive options to purchase 125,000 shares for fiscal year 2002. These
options were issued to him in May 2001 prior to the end of fiscal year 2001.
Messrs. Olesnavage, Schrank and Hendrickson were each awarded options to
purchase 90,000 for fiscal year 2001, but these options were issued in May
2000 prior to the end of fiscal year 2000.
(3) At the end of fiscal year 2003, Mr. Gibbons held a total of 120,715 shares
of restricted stock with an aggregate value of $1,909,712. Of these
restricted shares, 25,000 were issued to Mr. Gibbons by the Board in August
2001 in consideration for his employment in fiscal year 2001 and vested on
August 14, 2003. The remainder of these restricted shares was issued to Mr.
Gibbons under the terms of his employment agreement and vested on June 30,
2003 as described in this proxy statement under the heading "Employment
Agreement with Chief Executive Officer." Mr. Gibbons received dividends on
his restricted stock paid by Perrigo on its common stock in fiscal year
2003. All Other Compensation in fiscal year 2003 consists of a $6,000
matching contribution under our 401(k) Plan; a $7,056 contribution under our
Profit Sharing Plan; $1,635 representing the taxable benefit for certain
premium payments made on Mr. Gibbons' behalf by us for Group Term Life
Insurance; and $8,169 reimbursed to Mr. Gibbons in fiscal year 2003 for
household storage expenses incurred during the year.
(4) All Other Compensation in fiscal year 2003 consists of a $6,000 matching
contribution under our 401(k) Plan; a $7,056 contribution under our Profit
Sharing Plan; and $570 representing the taxable benefit for certain premium
payments made on Mr. Olesnavage's behalf by us for Group Term Life
Insurance.
(5) All Other Compensation in fiscal year 2003 consists of a $6,208 matching
contribution under our 401(k) Plan; a $7,056 contribution under our Profit
Sharing Plan; and $990 representing the taxable benefit for certain premium
payments made on Mr. Schrank's behalf by us for Group Term Life Insurance.
(6) All Other Compensation in fiscal year 2003 consists of a $6,340 matching
contribution under our 401(k) Plan; a $7,056 contribution under our Profit
Sharing Plan; and $295 representing the taxable benefit for certain premium
payments made on Mr. Hendrickson's behalf by us for Group Term Life
Insurance.
(7) All Other Compensation in fiscal year 2003 consists of a $6,144 matching
contribution under our 401(k) Plan; a $7,056 contribution under our Profit
Sharing Plan; and $1,980 representing the taxable benefit for certain
premium payments made on Mr. Bell's behalf by us for Group Term Life
Insurance.
OPTION GRANTS IN FISCAL YEAR 2003
This table gives information relating to option grants to the named
executive officers during fiscal year 2003. All of the options were granted
under our Employee Stock Option Plan. The potential realizable value is
calculated based on the term of the option at its time of grant, 10 years. The
calculation assumes that the fair market value on the date of grant appreciates
at the indicated rate compounded annually for the entire term of the option and
that the option is exercised at the exercise price and sold on the last
12
day of its term at the appreciated price. Stock price appreciation of 5% and 10%
is assumed under the rules of the Securities and Exchange Commission. We cannot
assure you that the actual stock price will appreciate over the 10-year option
term at the assumed levels or any other defined level.
INDIVIDUAL GRANTS
PERCENT OF
TOTAL POTENTIAL REALIZABLE
NUMBER OF OPTIONS VALUE AT ASSUMED
SECURITIES GRANTED TO ANNUAL RATES OF STOCK
UNDERLYING EMPLOYEES EXERCISE PRICE APPRECIATION FOR
OPTIONS IN FISCAL PRICE PER EXPIRATION OPTION TERM
NAME GRANTED (1) YEAR SHARE DATE 5% 10%
David T. Gibbons 125,000 13.3% $9.84 Aug. 6, 2012 $773,540 $1,960,303
Mark P. Olesnavage 35,000 3.7% $9.84 Aug. 6, 2012 $216,591 $ 548,884
Douglas R. Schrank 45,000 4.8% $9.84 Aug. 6, 2012 $278,474 $ 705,709
John T. Hendrickson 45,000 4.8% $9.84 Aug. 6, 2012 $278,474 $ 705,709
F. Folsom Bell 40,000 4.3% $9.84 Aug. 6, 2012 $247,532 $ 627,297
(1) These options vest in five equal annual installments, beginning on the first
anniversary date of the grant. The date of the grant was August 6, 2002.
OPTION EXERCISES IN FISCAL YEAR 2003 AND
FISCAL YEAR-END 2003 OPTION VALUES
This table provides information regarding the exercise of options during
fiscal year 2003 and options outstanding at the end of fiscal year 2003 for the
named executive officers. The "value realized" is calculated using the
difference between the option exercise price and the price of Perrigo common
stock on the date of exercise multiplied by the number of shares underlying the
option. The "value of unexercised in-the-money options at fiscal year end" is
calculated using the difference between the option exercise price and $15.82
(the closing price of Perrigo stock on June 27, 2003, the last trading day of
fiscal year 2003) multiplied by the number of shares underlying the option. An
option is in-the-money if the market value of Perrigo common stock is greater
than the option's exercise price.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
David T. Gibbons 0 -- 425,000 575,000 $4,164,500 $5,012,374
Mark P. Olesnavage 0 -- 215,099 142,619 $1,358,740 $ 781,193
Douglas R. Schrank 29,811 $426,002 39,811 156,285 $ 266,443 $ 896,207
John T. Hendrickson 31,477 $479,864 46,667 138,618 $ 109,571 $ 749,552
F. Folsom Bell 38,000 $535,286 16,000 125,000 $ 34,632 $ 629,715
13
EMPLOYMENT AGREEMENT WITH CHIEF EXECUTIVE OFFICER
We entered into an employment agreement with our Chief Executive Officer,
David T. Gibbons, effective May 1, 2000. The agreement has an initial term
ending June 30, 2005 and renews for consecutive one-year terms unless either
party gives 90 days' notice prior to the expiration of any term. Under the
agreement, Mr. Gibbons' base salary is reviewed at least annually by the Board
to determine if an increase is appropriate. We paid Mr. Gibbons a base salary of
$540,000 in fiscal year 2003 and, effective July 1, 2003, the Board increased
his salary to $567,000.
Mr. Gibbons is eligible to participate in the Management Incentive Bonus
Plan, under which he has a target bonus opportunity of at least 100% of his
annual salary. Mr. Gibbons was paid a bonus of $847,800 under the Plan in fiscal
year 2004 for fiscal year 2003. Pursuant to our agreement with Mr. Gibbons, a
Deferred Compensation Plan was established in June 2001 for certain key
employees, and Mr. Gibbons has elected to defer $208,780 of his fiscal year 2003
compensation until his retirement. Mr. Gibbons also was granted an option to
purchase 750,000 shares of Perrigo common stock under our Employee Stock Option
Plan at the time of his employment. Under the terms of the employment agreement,
Mr. Gibbons received options to purchase 125,000 shares of Perrigo common stock
for each of fiscal years 2002 and 2003. The options for fiscal year 2002 were
actually issued to Mr. Gibbons in May 2001 prior to the end of fiscal year 2001.
Mr. Gibbons also received 95,715 shares of restricted Perrigo common stock and a
cash transition bonus of $160,000. On June 30, 2003, the restrictions lapsed on
all 95,715 shares of Mr. Gibbons' restricted stock. Under the terms of his
employment agreement, Mr. Gibbons received certain household storage expenses
which amounted to $8,169 in fiscal year 2003.
If Mr. Gibbons dies or becomes disabled during his employment, he will
receive compensation and benefits earned to date, including payment for unused
vacation days and a pro rata management incentive bonus for the portion of the
year he was employed, and his options and restricted stock will vest in
accordance with their terms. If Mr. Gibbons resigns for "good reason" or if we
terminate his employment "without cause", each as defined in the employment
agreement, Mr. Gibbons, in addition to receiving earned compensation and
benefits and vesting of options and restricted stock, will receive a cash
payment equal to 12 months' salary. If we terminate Mr. Gibbons' employment for
cause, as defined in the employment agreement, he will receive compensation and
benefits earned to date, but will forfeit any options and restricted stock,
whether vested or unvested, as well as any unvested benefits. The employment
agreement also provides for the payment of earned compensation and benefits as
well as the automatic vesting of options and lapse of restrictions on restricted
stock following a change in control of Perrigo.
In connection with his employment, Mr. Gibbons entered into a
noncompetition and nondisclosure agreement with Perrigo. The agreement provides
that Mr. Gibbons will not compete with us during the term of his employment and,
if his employment with us terminates within five years from the date of the
employment agreement, he cannot compete with us in the store brand business for
two years thereafter. In addition, Mr. Gibbons has agreed that he will not, at
any time during or after his employment with Perrigo, disclose any confidential
information that he obtained during his employment.
14
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about Perrigo's common stock that
may be issued upon the exercise of options and rights under all of our existing
equity compensation plans as of June 28, 2003, including the Perrigo Company
Employee Stock Option Plan, the Non-Qualified Stock Option Plan for Directors,
the Restricted Stock Plan for Directors II, and individual Restricted Stock
Agreements with certain officers. The Directors' restricted stock plan and the
individual restricted stock arrangements were not approved by our shareholders.
--------------------------------------------------------------------------------------------------------------
(C)
(B) NUMBER OF SECURITIES
(A) WEIGHTED-AVERAGE REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE EXERCISE PRICE OF FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF OUTSTANDING EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, WARRANTS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS REFLECTED IN COLUMN (A))
--------------------------------------------------------------------------------------------------------------
EQUITY COMPENSATION
PLANS APPROVED BY
SHAREHOLDERS 6,248,389(1) $10.46 2,530,551(2)
--------------------------------------------------------------------------------------------------------------
EQUITY COMPENSATION
PLANS NOT APPROVED BY
SHAREHOLDERS 0 -- 9,491(3)
--------------------------------------------------------------------------------------------------------------
TOTAL 6,248,389 $10.46 2,540,042
--------------------------------------------------------------------------------------------------------------
(1) Options to purchase 6,032,703 shares were outstanding under the Perrigo
Company Employee Stock Option Plan and options to purchase 215,686 shares
were outstanding under the Non-Qualified Stock Option Plan for Directors.
(2) Of this amount, 2,295,907 shares are available under the Perrigo Company
Employee Stock Option Plan and 234,644 shares are available under the
Non-Qualified Stock Option Plan for Directors.
(3) These shares remain available for issuance under the August 2001 Restricted
Stock Plan for Directors II. An aggregate of 6,853 shares issued under that
plan and 41,000 shares issued under individual Restricted Stock Agreements
with certain of our officers continued to be subject to the restrictions
imposed under these plans as of June 28, 2003.
RESTRICTED STOCK PLAN FOR DIRECTORS
The Restricted Stock Plan for Directors was established by the Board in
November 1997 for the purpose of providing compensation to directors for their
services in the form of restricted stock grants. On the date of each annual
meeting of directors, a restricted stock grant having a value of $10,000 based
upon the average of the high and low price of our stock on that date is awarded
to each non-management director. The Restricted Stock Plan for Directors II was
established in August 2001 for the same purpose and on the same terms. Each plan
provides for the issuance of up to 25,000 shares of Perrigo common stock. These
grants are intended to directly link an element of director compensation to
shareholder interests and, as to each director, are subject to forfeiture if his
or her service as a member of the Board is terminated under certain specified
circumstances prior to the end of his or her then current three-year term as a
director. If shareholders approve the 2003 Long-Term Incentive Plan (which is
described in this
15
proxy statement under "Approval of 2003 Long-Term Incentive Plan"), no further
grants will be awarded under these plans and, instead, directors will receive
their restricted stock grants pursuant to the 2003 Long-Term Incentive Plan.
INDIVIDUAL ARRANGEMENTS
Effective May 1, 2000, we entered into an employment agreement with Mr.
Gibbons, pursuant to which Mr. Gibbons was granted 95,715 shares of restricted
common stock as described above under "Employment Agreement with Chief Executive
Officer." Under the terms of the employment agreement, these shares vested on
June 30, 2003.
In August 2001, we granted Mr. Gibbons 25,000 shares of restricted common
stock and Mr. Schrank 12,000 shares of restricted common stock, each under
individual Restricted Stock Agreements. Under the terms of the Restricted Stock
Agreements, these shares vested on August 14, 2003. In July 2002, we granted
John R. Nichols, our General Counsel, 4,000 shares of restricted common stock
under an individual Restricted Stock Agreement. Under the terms of the
Restricted Stock Agreement, these shares will vest upon Mr. Nichols' retirement
from the company.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
COMPENSATION POLICY
During fiscal year 2003, the Compensation Committee of the Board of
Directors was composed of three independent non-employee directors. The Board of
Directors has adopted a Compensation Committee Charter, which specifies the
composition and responsibilities of the Committee. The Board reviews the Charter
annually based on input from the Committee.
The Committee reviews and recommends the compensation arrangements for the
Executive Officers with respect to salaries, bonuses and option grants under the
Perrigo Company Employee Stock Option Plan.
The Committee strives to:
- motivate officers to create added value for Perrigo shareholders
through compensation incentives that are tied to Perrigo's operating
and stock market performance;
- reward officers for their individual performance as well as Perrigo's
performance;
- provide compensation and benefits at levels that enable Perrigo to
attract and retain high-quality executives; and
- align the interests of officers and directors with the interests of
Perrigo shareholders through stock ownership.
16
Perrigo's management compensation policy is intended to provide a
compensation package for Executive Officers that is generally competitive with
the compensation of executive officers of comparable manufacturing companies. In
establishing executive compensation, the Committee considers salary and bonus
information compiled by Mercer Human Resource Consulting. The Mercer
compensation data includes non-durable goods manufacturing companies, some of
which are reflected in the Nasdaq Pharmaceutical Index shown on the Performance
Graph included in this proxy statement. The Committee's objective is that the
total cash compensation for Perrigo's executive officers approximate the median
reflected in the Mercer data.
EXECUTIVE OFFICER COMPENSATION
Executive Officer compensation includes cash-based and stock-based
components. Cash-based compensation consists of base salary and an annual bonus,
if one is warranted under the criteria of the Management Incentive Bonus Plan.
In addition, Perrigo makes annual contributions under its Profit Sharing Plan
for employees with at least one year of service, including the Executive
Officers. Perrigo also makes matching contributions under its 401(k) Plan to
certain of its employees, including the Executive Officers. Stock-based
compensation consists of option grants under the Perrigo Company Employee Stock
Option Plan. If Perrigo's shareholders approve the Perrigo Company 2003
Long-Term Incentive Plan (which is described in this proxy statement under
"Approval of 2003 Long-Term Incentive Plan"), no further grants will be made
under the Employee Stock Option Plan, and these employees instead will receive
grants of stock-based incentive awards under the 2003 Long-Term Incentive Plan.
These awards may be in the form of stock options, stock appreciation rights or
stock awards, including restricted shares, performance shares, performance units
and other stock unit awards.
Cash-Based Compensation
As discussed above, the Committee considers compensation data provided by
Mercer in determining Executive Officer base salary and bonus awards under the
Management Incentive Bonus Plan. In addition, the Committee evaluates the
following factors, which are ranked in order of importance:
- company-wide performance measured by attainment of specific strategic
objectives and quantitative measures;
- individual performance;
- compensation levels at comparable manufacturing companies; and
- historical cash and equity compensation levels.
The primary quantitative measure that the Committee considers is return on
assets, although earnings per share and revenue growth are also relevant.
Qualitative factors include the quality and progress of Perrigo's marketing and
manufacturing operations and the success of strategic actions, such as
acquisitions of lines of business or introduction of new products.
17
Stock-Based Compensation
Certain designated key management employees, including the Chief Executive
Officer and other executive officers, participate in the Perrigo Company
Employee Stock Option Plan. The number of shares underlying option grants to
these employees is based on an evaluation of the officer's performance and is
subject to the approval of the Committee. Options granted under the Perrigo
Company Employee Stock Option Plan must have an exercise price at least equal to
the fair market value of Perrigo common stock on the grant date as determined by
the Committee. The fair market value, as provided in the Employee Stock Option
Plan approved by the shareholders, is the average of the high and low price of
our stock on the date of the grant. The Committee views the grant of stock based
incentive awards pursuant to a shareholder-approved plan as an effective
incentive for executive officers to create value for shareholders since the
ultimate value of these awards is directly related to the increase in the market
price of Perrigo's common stock.
CHIEF EXECUTIVE OFFICER COMPENSATION
David T. Gibbons, our Chief Executive Officer, is compensated in accordance
with the terms of an Employment Agreement entered into at the time of his
employment in May 2000. A more complete description of his compensation
arrangement can be found in this proxy statement under the heading "Employment
Agreement with Chief Executive Officer." Mr. Gibbons' compensation is reviewed
and adjusted annually by the Board based upon the same criteria used by the
Board to evaluate and determine the appropriate compensation for other Executive
Officers. For fiscal year 2003, Mr. Gibbons was paid a base salary of $540,000
under the terms of his Employment Agreement and a bonus of $847,800 under the
terms of our Management Incentive Bonus Plan.
The Committee believes that the terms of Mr. Gibbons' employment are
similar to terms granted to chief executive officers of comparable companies and
are necessary to attract and retain a chief executive officer of his stature.
SUMMARY
The Committee carefully reviews executive compensation. After reviewing
Perrigo's compensation programs, the Committee has concluded that the amounts
paid to executive officers, including stock options, in fiscal year 2003
appropriately reflect individual performance, are linked to Perrigo's financial,
operational and market results, and are generally competitive with amounts paid
to executive officers of comparable companies.
18
DEDUCTIBILITY OF COMPENSATION
Internal Revenue Code Section 162(m) limits the deductibility by Perrigo of
compensation in excess of $1,000,000 paid to each of the Chief Executive Officer
and the next four most highly paid officers. Certain "performance based
compensation" is not included in compensation counted for purposes of the limit.
The Committee's policy is to establish and maintain a compensation program that
will optimize the deductibility of compensation. The Committee, however,
reserves the right to use its judgment to authorize compensation that may not be
fully deductible where merited by the need to respond to changing business
conditions, or by an executive officer's individual performance.
Peter R. Formanek, Chairman
Herman Morris, Jr.
COMPANY PERFORMANCE
This graph shows a five-year comparison of cumulative total return for
Perrigo with the cumulative total returns for the Nasdaq Composite Index and the
Nasdaq Pharmaceutical Index from June 30, 1998 through June 28, 2003. Data
points are, for Perrigo, the last day of each fiscal year and, for the indices,
June 30 of each year. The last day of our fiscal year for the fiscal years 1998
through 2003 is noted in each of the columns below. The graph assumes an
investment of $100 at the beginning of the period and the reinvestment of any
dividends. Total returns are based on market capitalization.
[PERFORMANCE GRAPH]
-----------------------------------------------------------------------------------------------------------
6/30/1998 7/02/1999 7/01/2000 6/30/2001 6/29/2002 6/28/2003
-----------------------------------------------------------------------------------------------------------
Perrigo Company $100 $ 85 $ 63 $166 $129 $158
Nasdaq Stock Market (U.S.) $100 $147 $212 $115 $ 79 $ 87
Nasdaq Pharmaceuticals $100 $143 $322 $271 $159 $221
19
APPROVAL OF 2003 LONG-TERM INCENTIVE PLAN
The Board of Directors approved the 2003 Long-Term Incentive Plan in August
2003, subject to its approval by our shareholders. This Plan is intended to
replace the Employee Stock Option Plan, the Non-Qualified Stock Option Plan for
Directors and the Restricted Stock Plan for Directors II. The Board of Directors
believes that adopting the 2003 Plan is in the best interests of shareholders.
The 2003 Plan would permit the grant of certain types of stock awards not
permitted under the existing plans. This would allow more of our grants to be
performance-based awards. For example, the Employee Stock Option Plan does not
allow the grant of restricted stock, which would be permitted under the 2003
Plan.
If shareholders approve the 2003 Plan, no further awards may be granted
under the Employee Stock Option Plan, the Non-Qualified Stock Option Plan for
Directors or the Restricted Stock Plan for Directors II. If shareholders do not
approve the 2003 Plan, the Employee Stock Option Plan, the Non-Qualified Stock
Option Plan for Directors and the Restricted Stock Plan for Directors II will
remain in effect.
The Board recommends that you approve the Plan. The summary of the Plan
provided below describes the material features of the Plan; however, it is not
complete and, therefore, you should not rely solely on it for a detailed
description of every aspect of the Plan.
THE LONG-TERM INCENTIVE PLAN GENERALLY
The Board approved the Plan, subject to shareholder approval, on August 7,
2003. No awards may be granted under the Plan on a date that is more than ten
years after its effective date. The effective date of the Plan will be the date
of the Annual Meeting, if the shareholders approve the Plan.
Under the Plan, the Compensation Committee may grant stock-based incentives
to employees, directors and other individuals providing material services to
Perrigo. Awards under the Plan may be in the form of incentive stock options,
nonstatutory stock options, stock appreciation rights or stock awards (including
restricted shares, performance shares, performance units and other stock unit
awards).
SHARES AVAILABLE FOR THE PLAN
The number of shares of common stock that will be reserved for issuance
under the Plan will equal 2,500,000, plus the number of shares remaining
available for future grants under the Employee Stock Option Plan, the
Non-Qualified Stock Option Plan for Directors and the Restricted Stock Plan for
Directors II on the effective date of the 2003 Plan. In addition, any shares
attributable to awards that are outstanding on the effective date of the 2003
Plan under the Employee Stock Option Plan, the Non-Qualified Stock Option Plan
for Directors, and the Restricted Stock Plan for Directors II that are
cancelled, forfeited or otherwise settled without the delivery of shares on or
after the effective date will be available for awards under the 2003 Plan.
20
As of August 31, 2003, there were 1,504,510 shares available for issuance
under the Employee Stock Option Plan, 229,644 shares available for issuance
under the Non-Qualified Stock Option Plan for Directors, and 9,324 shares
available for issuance under the Restricted Stock Plan for Directors II. As of
August 31, 2003 the number of shares underlying outstanding awards under the
plans was 6,805,055 shares under the Employee Stock Option Plan, and 220,686
shares under the Non-Qualified Stock Option Plan for Directors, and the number
of shares subject to restrictions under the Restricted Stock Plan for Directors
II was 7,020. The number of available shares under these plans may change prior
to the effective date of the 2003 Plan if additional awards are granted or
forfeited under the plans between August 31, 2003 and the date of the Annual
Meeting, although we do not anticipate any significant new awards or forfeitures
during this period.
If any award under the 2003 Plan expires or is terminated on or after the
effective date of the 2003 Plan without the issuance of the shares, then the
shares subject to the award will be added to the shares available for issuance
under the 2003 Plan.
The number of shares that may be issued with respect to awards under the
Plan to any one participant in a calendar year may not exceed 400,000 shares.
The number of shares that can be issued and the number of shares subject to
outstanding awards may be adjusted in the event of a stock split, stock
dividend, recapitalization or other similar event affecting the number of shares
of Perrigo's outstanding common stock. In that event, the Compensation Committee
also may make appropriate adjustments to any stock appreciation rights,
restricted stock or performance units outstanding under the Plan.
PLAN ADMINISTRATION
The Compensation Committee administers the Plan. Subject to the specific
provisions of the Plan, the Committee determines award eligibility, timing and
the type, amount and terms of the awards. The Committee also interprets the
Plan, establishes rules and regulations under the Plan and makes all other
determinations necessary or advisable for the Plan's administration.
STOCK OPTIONS
Options under the Plan may be either "incentive stock options," as defined
under the tax laws, or nonstatutory stock options; however, only employees may
be granted incentive stock options. The per share exercise price may not be less
than the fair market value of Perrigo common stock on the date the option is
granted. The Compensation Committee may specify any period of time following the
date of grant during which options are exercisable, but the period cannot be
longer than 10 years for incentive stock options. Incentive stock options are
subject to additional limitations relating to such things as employment status,
minimum exercise price, length of exercise period, maximum value of the stock
underlying the options and a required holding period for stock received upon
exercise of the option.
21
Upon exercise, the option holder may pay the exercise price in several
ways. He or she may pay in cash, in previously acquired shares or, if permitted
by the Committee, other consideration having a fair market value equal to the
exercise price, or through a combination of the foregoing.
Except for adjustments to effect stock splits, stock dividends,
recapitalizations or similar events, in no event shall the purchase price of an
option be decreased after the grant date or surrendered in consideration of a
new option grant with a lower exercise price without shareholder approval.
STOCK APPRECIATION RIGHTS
A stock appreciation right allows its holder to receive payment from us
equal to the amount by which the fair market value of a share of Perrigo common
stock exceeds the grant price of the right on the exercise date. The grant price
may not be less than the fair market value of Perrigo common stock on the grant
date of the right.
Under the Plan, the Compensation Committee can grant the rights in
conjunction with the awarding of stock options or on a stand-alone basis. If the
Committee grants a right with an option award, then the holder can exercise the
rights at any time during the life of the related option, but the exercise will
proportionately reduce the number of his or her related stock options. The
holder can exercise stand-alone stock appreciation rights during the period
determined by the Compensation Committee. Upon the exercise of a stock
appreciation right, the holder receives cash, shares of Perrigo common stock or
other property, or a combination thereof, in the discretion of the Committee.
RESTRICTED SHARES
Restricted shares refers to shares of Perrigo common stock that are subject
to a risk of forfeiture or other restrictions on ownership for a certain period
of time. During the restricted period, the holder of restricted shares may not
sell or otherwise transfer the shares, but he or she may vote the shares and may
be entitled to any dividend or other distributions if determined by the
Committee. The restricted shares become freely transferable when the restriction
period expires.
PERFORMANCE SHARES AND PERFORMANCE UNITS
A performance share is a right to receive shares of Perrigo common stock or
equivalent value in the future, contingent on the achievement of performance or
other objectives during a specified period. A performance unit represents an
award valued by reference to property other than shares of Perrigo common stock,
as designated by the Compensation Committee, contingent on the achievement of
performance or other objectives during a specified period.
22
The Compensation Committee sets the terms and conditions of each award,
including the performance goals that its holder must attain and the various
percentages of performance unit value to be paid out upon full or partial
attainment of those goals. The Committee also determines whether the goals have
been satisfied and the form of payment, which may be in cash, Perrigo common
stock, other property or a combination thereof. Payment may be made in a lump
sum or in installments, as determined by the Committee.
OTHER STOCK UNIT AWARDS
An "other stock unit" award refers to any award, other than an option,
stock appreciation right, restricted stock, performance share or performance
unit, that is valued in whole or part by reference to shares of Perrigo common
stock. The Compensation Committee determines the terms and conditions of other
stock unit awards, including whether such awards are payable in cash, shares of
Perrigo common stock or other property. If the other stock unit award is a right
to purchase shares of Perrigo common stock, the purchase price of such shares
cannot be less than the fair market value of the shares on the date the
Committee awards the purchase right.
TERMINATION OF EMPLOYMENT
The Plan provides that upon a participant's death, disability or
retirement, all outstanding awards immediately vest, and stock options and stock
appreciation rights may be exercised by the participant, or his or her estate,
beneficiary or conservator in the case of death or disability, at any time prior
to their stated expiration dates. If the participant's employment is terminated
involuntarily for economic reasons, for example, restructurings, dispositions or
layoffs, as determined in the discretion of the Compensation Committee, he or
she may exercise any vested options or stock appreciation rights until the
earlier of 30 days following the date that is 24 months after the termination
date and the expiration date of the options or stock appreciation rights.
Unvested options, stock appreciation rights and restricted shares that are
scheduled to vest during the 24 month period following the termination date will
continue to vest as if the participant had continued to perform services during
the 24 month period. Those not scheduled to vest during the 24 month period are
forfeited on the termination date. If a participant's termination is for cause,
all outstanding awards are forfeited. In all other terminations, unvested awards
are forfeited on the termination date and the participant may exercise his or
her vested options and stock appreciation rights during the three-month period
after the termination, but not later than the expiration date of the option or
stock appreciation right. In certain circumstances, the Plan provides for
extended exercisability when a participant dies following termination.
CHANGE IN CONTROL
Regardless of the vesting requirements that otherwise apply to an award
under the Plan, all outstanding awards vest upon a change in control of Perrigo.
Generally, a change in control is defined in the Plan to mean (1) the ownership
of 50% or more of Perrigo common stock by a person who was not a shareholder on
the date the Plan was initially adopted and (2) a change in Board composition so
that a majority of the Board is comprised of individuals who are neither
incumbent members nor their nominees.
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PERFORMANCE-BASED AWARDS
The Compensation Committee may designate any award of restricted shares,
performance shares, performance units or other stock unit awards as
"performance-based compensation" for purposes of Section 162(m) of the Internal
Revenue Code. These awards will be conditioned on the achievement of one or more
performance measures based on one or any combination of the following, as
selected by the Committee: specified levels of earnings per share from
continuing operations, funds from operations, operating income, revenues, gross
margin, return on operating assets, return on equity, economic value added,
share price appreciation, total shareholder return (measured in terms of share
price appreciation and dividend growth), or cost control of Perrigo or of a
division or affiliate of Perrigo that employs the participant.
TRANSFERABILITY
The recipient of an award under the Plan generally may not pledge, assign,
sell or otherwise transfer his or her stock options, stock appreciation rights,
restricted shares or performance units other than by will or by the laws of
descent and distribution. The Compensation Committee, however, may establish
rules and procedures to allow participants in the Plan to transfer nonstatutory
stock options to immediate family members or to certain trusts or partnerships.
TAX CONSEQUENCES
The holder of an award granted under the Plan may be affected by certain
federal income tax consequences. Special rules may apply to individuals who may
be subject to Section 16(b) of the Securities Exchange Act of 1934. The
following discussion of tax consequences is based on current federal tax laws
and regulations and you should not consider it to be a complete description of
the federal income tax consequences that apply to participants in the Plan.
Accordingly, information relating to tax consequences is qualified by reference
to current tax laws.
Incentive Stock Options. There are no federal income tax consequences
associated with the grant or exercise of an incentive stock option, so long as
the holder of the option was our employee at all times during the period
beginning on the grant date and ending on the date three months before the
exercise date. The "spread" between the exercise price and the fair market value
of Perrigo common stock on the exercise date, however, is an adjustment for
purposes of the alternative minimum tax. A holder of incentive stock options
defers income tax on the stock's appreciation until he or she sells the shares.
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Upon the sale of the shares, the holder realizes a long-term capital gain
(or loss) if he or she sells the shares at least two years after the option
grant date and has held the shares for at least one year. The capital gain (or
loss) equals the difference between the sales price and the exercise price of
the shares. If the holder disposes of the shares before the expiration of these
periods, then he or she recognizes ordinary income at the time of sale (or other
disqualifying disposition) equal to the lesser of (1) the gain he or she
realized on the sale and (2) the difference between the exercise price and the
fair market value of the shares on the exercise date. This ordinary income is
treated as compensation for tax purposes. The holder will treat any additional
gain as short-term or long-term capital gain, depending on whether he or she has
held the shares for at least one year from the exercise date. If the holder does
not satisfy the employment requirement described above, then he or she
recognizes ordinary income (treated as compensation) at the time he or she
exercises the option under the tax rules applicable to the exercise of a
nonstatutory stock option. We are entitled to an income tax deduction to the
extent that an option holder realizes ordinary income.
Nonstatutory Stock Options. There are no federal income tax consequences
to us or to the recipient of a nonstatutory stock option upon grant. Upon
exercise, the option holder recognizes ordinary income equal to the spread
between the exercise price and the fair market value of Perrigo stock on the
exercise date. This ordinary income is treated as compensation for tax purposes.
The basis in shares acquired by an option holder on exercise equals the fair
market value of the shares at that time. The capital gain holding period begins
on the exercise date. We receive an income tax deduction upon the exercise of a
nonstatutory stock option in an amount equal to the spread.
Stock Appreciation Rights. There are no tax consequences associated with
the grant of stock appreciation rights. Upon exercise, the holder of stock
appreciation rights recognizes ordinary income in the amount of the appreciation
paid to him or her. This ordinary income is treated as compensation for tax
purposes. We receive a corresponding deduction in the same amount that the
holder recognizes as income.
Restricted Shares. The holder of restricted shares does not recognize any
taxable income on the shares while they are restricted. When the restrictions
lapse, the holder's taxable income (treated as compensation) equals the fair
market value of the shares. The holder may, however, avoid the delay in
computing the amount of taxable gain by filing with the Internal Revenue
Service, within 30 days after receiving the shares, an election to determine the
amount of taxable income at the time of receipt of the restricted shares.
Generally, at the time the holder recognizes taxable income with respect to
restricted shares, we will receive a deduction in the same amount.
Performance Shares, Performance Units and Other Stock Unit Awards. There
are no tax consequences associated with the grant of performance shares,
performance units or other stock unit awards. The holder recognizes ordinary
income (treated as compensation) upon a payment on the performance shares,
performance units or other stock unit awards in amount equal to the payment
received, and we receive a corresponding tax deduction.
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Excise Taxes. Under certain circumstances, the accelerated vesting of an
award in connection with a change in control of Perrigo might be deemed an
"excess parachute payment" for purposes of the golden parachute tax provisions
of Section 280G of the Internal Revenue Code. To the extent they are considered
excess parachute payments, a participant in the Plan may be subject to a 20%
excise tax and we may be unable to receive a tax deduction.
PLAN AMENDMENT AND TERMINATION
Generally, the Board of Directors may amend or terminate the Plan at any
time without shareholder approval. Without shareholder approval, however, the
Board may not: (1) increase the number of shares of Perrigo stock available for
issuance under the Plan; (2) change employees or class of employees eligible to
participate in the Plan; (3) change the minimum purchase price for any option
grant below fair market value; or (4) materially change the terms of the Plan.
In addition, if any action that the Board proposes to take will have a
materially adverse effect on the rights of any participant or beneficiary under
an outstanding award, then the affected participants or beneficiaries must
consent to the action.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
THE APPROVAL OF THE 2003 LONG-TERM INCENTIVE PLAN.
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board is responsible for, monitoring: (1)
Perrigo's accounting and financial reporting principles and policies; (2)
Perrigo's financial statements and the independent audit thereof; (3) the
qualifications, independence and performance of Perrigo's independent auditor;
and (4) Perrigo's internal audit controls and procedures. In particular, these
responsibilities include, among other things, the appointment and compensation
of Perrigo's independent auditors, reviewing with the independent auditors the
plan and scope of the audit and audit fees, monitoring the adequacy of reporting
and internal controls and meeting periodically with internal auditors and the
independent auditors. All of the members of the Audit Committee are independent,
as such term is defined in Rule 4200(a)(15) of the National Association of
Securities Dealers listing standards. In August 2003, the Board approved and
adopted an Audit Committee Charter, which is attached to this proxy statement as
Appendix A. The Board reviews the Charter annually based upon input from the
Committee.
In connection with the June 28, 2003 financial statements, the Audit
Committee: (1) reviewed and discussed the audited financial statements with
management; (2) discussed with the auditors the matters required to be discussed
by Statement on Auditing Standards (SAS) No. 61, as amended by SAS 90; and (3)
received and discussed with the auditors the written disclosures and letter from
the auditors required by Independence Standards No. 1 and has discussed with the
auditors the auditor's independence. Based upon these reviews and discussions,
the Audit Committee has recommended to the Board of Directors, and the Board of
Directors has approved, that Perrigo's audited financial statements be included
in Perrigo's Annual Report on Form 10-K for the fiscal year ended June 28, 2003
filed with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
Larry D. Fredricks, Chairman
Peter R. Formanek
Herman Morris, Jr.
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INDEPENDENT ACCOUNTANTS
BDO Seidman, LLP has been Perrigo's independent accounting firm since 1988.
The Board has engaged BDO Seidman, LLP as our independent accountants for fiscal
year 2004. Representatives of BDO Seidman, LLP will be present at the Annual
Meeting and will have the opportunity to make a statement and respond to
questions.
During fiscal years 2002 and 2003, we retained BDO Seidman, LLP to perform
auditing and other services for us and paid them the following amounts for these
services:
Fiscal Year 2002 Fiscal Year 2003
------------------ ------------------
Audit Services $358,000 Audit Services $349,000
Audit-Related Fees 48,000 Audit-Related Fees 130,000
Tax Fees 28,000 Tax Fees 19,000
-------- --------
Total $434,000 Total $498,000
Audit-related fees were for benefit plan audits and due diligence services.
Tax fees related primarily to tax compliance services. It is our current policy
that the Audit Committee pre-approves all non-audit services provided by our
independent auditors, BDO Seidman, LLP.
ANNUAL REPORT ON FORM 10-K
A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 28,
2003, INCLUDING SCHEDULES, WHICH IS ON FILE WITH THE SECURITIES AND EXCHANGE
COMMISSION, IS INCLUDED IN THE ANNUAL REPORT DELIVERED WITH THIS PROXY
STATEMENT. IF YOU WOULD LIKE A COPY OF THE EXHIBITS TO THE FORM 10-K, PLEASE
CONTACT JOHN R. NICHOLS, SECRETARY, PERRIGO COMPANY, 515 EASTERN AVENUE,
ALLEGAN, MICHIGAN 49010.
28
APPENDIX A
PERRIGO COMPANY
AUDIT COMMITTEE CHARTER
PURPOSE
The primary purpose of the Audit Committee is to assist the Board of
Directors of Perrigo Company (the "Company") in fulfilling its responsibility of
monitoring:
- the Company's accounting and financial reporting principles and
policies;
- the Company's financial statements and the independent audit thereof;
- the qualifications, independence and performance of the Company's
independent auditor; and
- the Company's internal audit controls and procedures.
COMPOSITION OF THE AUDIT COMMITTEE
The Audit Committee shall be comprised of at least three directors, each of
whom shall meet the independence and experience requirements of the National
Association of Securities Dealers, Inc., Section 10A(m)(3) of the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules and regulations of the
Securities and Exchange Commission ("SEC").
Accordingly, all of the members of the Audit Committee shall be directors
who are able to read and understand fundamental financial statements. In
addition, at least one member of the Audit Committee shall have past employment
experience in finance or accounting, requisite professional certification in
accounting, or any other comparable experience or background that results in
financial sophistication. The Board shall determine whether at least one member
of the Audit Committee qualifies as an "audit committee financial expert" as
defined by the SEC.
Audit Committee members shall not simultaneously serve on the audit
committees of more than two other public companies.
MEETINGS OF THE AUDIT COMMITTEE
The Audit Committee shall:
1. meet with management four times annually (more frequently if circumstances
dictate) to discuss the annual audited financial statements and quarterly
financial results;
2. meet separately with management, the internal auditors and the independent
auditor to discuss any matters that the Audit Committee or any of these
persons believe should be discussed privately (at least annually);
3. be permitted to request any officer or employee of the Company, the Company's
outside counsel or independent auditor to attend a meeting of the Audit
Committee or to meet with any members of, or consultants to, the Audit
Committee; and
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4. be permitted to conduct its meetings by means of a conference call or similar
communications equipment in which all persons participating in the meeting
can hear each other.
AUDIT COMMITTEE AUTHORITY AND RESPONSIBILITIES
Generally
1. The Audit Committee shall have the sole authority to appoint or replace the
Company's independent auditor. The Audit Committee shall be directly
responsible for the compensation and oversight of the work of the independent
auditor for the purpose of preparing or issuing an audit report or related
work, including the resolution of any disagreements between management and
the independent auditor regarding financial reporting. The independent
auditor is ultimately accountable to, and shall report directly to, the Audit
Committee. The Company shall provide appropriate funding, as determined by
the Audit Committee, for payment of compensation to the independent auditor
for the purpose of rendering or issuing an audit report.
2. The Audit Committee shall maintain a policy pursuant to which it reviews and
pre-approves audit and permitted non-audit services (including the fees and
terms thereof) to be provided to the Company by the independent auditor,
subject to the de minimis exceptions for non-audit services described in
Section 10A(i)(1)(B) of the Exchange Act that are approved by the Audit
Committee prior to the completion of the audit. The Chair of the Audit
Committee, or any other member or members designated by the Audit Committee,
shall be authorized to pre-approve non-audit services, provided that any
pre-approval shall be reported to the full Audit Committee at its next
scheduled meeting.
3. The Audit Committee shall prepare the report of the Audit Committee required
by the SEC to be included in the Company's annual proxy statement.
4. The Audit Committee shall review this Charter at least annually and recommend
any changes to the full Board of Directors.
5. The Audit Committee shall report its activities to the full Board of
Directors on a regular basis and make such recommendations with respect to
the matters addressed in this Charter and other matters as the Audit
Committee may deem necessary or appropriate.
6. The Audit Committee shall perform such other functions as assigned by law,
the Company's Articles of Incorporation or Bylaws, or the Board.
Financial Statement and Disclosure Matters
The Audit Committee, to the extent it deems necessary or appropriate,
shall:
1. review the annual audited financial statements with the independent auditor
and with Company management;
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2. advise management and the independent auditor that they are expected to
provide to the Audit Committee a timely analysis of significant financial
reporting issues and practices;
3. discuss with the independent auditor the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended by Statement on Auditing
Standards No. 90, relating to the conduct of the audit;
4. consider any reports or communications (and management's responses thereto)
submitted to the Audit Committee by the independent auditor;
5. review any disclosures made to the Audit Committee by the Company's CEO and
CFO during the certification process for Forms 10-K and 10-Q about any
significant deficiencies in the design or operation of internal controls or
material weaknesses therein and any corrective actions taken, and any fraud
involving management or other employees who have a significant role in the
Company's internal controls;
6. recommend to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K;
7. review the form of opinion the independent auditor proposes to render to the
Board of Directors and shareholders;
8. inquire of management and the independent auditor regarding significant
risks or exposures and assess the steps management has taken to minimize
such risks to the Company;
9. review significant changes to the Company's auditing and accounting
principles, policies, controls, procedures and practices proposed or
contemplated by the independent auditor or management;
10. obtain from the independent auditor assurance that the audit was conducted
in a manner consistent with Section 10A(b) of the Exchange Act, which sets
forth certain procedures to be followed in any audit of financial statements
required under the Exchange Act; and
11. review with the Company's General Counsel any significant legal or
regulatory matters and compliance policies that may have a material effect
on the financial statements, including material notices to or inquiries
received from governmental agencies.
The Company's Relationship with its Independent Auditor
The Audit Committee, to the extent it deems necessary or appropriate,
shall:
1. require that the independent auditor annually prepare and deliver a Statement
(consistent with Independence Standards Board Standard No. 1) as to their
independence and take appropriate action if the independence of the outside
auditor is in question;
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2. at least annually, evaluate and report to the Board regarding the Audit
Committee's assessment of the independent auditor's qualifications,
performance (including the lead partner) and independence, taking into
account the opinions of management and the internal auditors and considering
whether the auditor's quality controls are adequate and the provision of
permitted non-audit services is compatible with maintaining the auditor's
independence;
3. monitor the regular rotation of the audit partner as required by law; and
4. set clear policies compliant with applicable laws or regulations for hiring
employees or former employees of the independent auditor.
PROCEDURES FOR COMPLAINTS
The Audit Committee shall establish procedures for the receipt, retention
and treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters, and the confidential,
anonymous submission by the Company's employees of concerns regarding
questionable accounting or auditing matters.
RESOURCES AND AUTHORITY OF THE AUDIT COMMITTEE
The Audit Committee shall have the resources and authority appropriate to
discharge its responsibilities, including the authority to engage independent
auditors for special audits, reviews and other procedures and to retain
independent counsel and other advisors. The Company shall provide appropriate
funding, as determined by the Audit Committee, for payment of compensation to
any advisors employed by the Audit Committee.
LIMITATION OF THE ROLE OF THE AUDIT COMMITTEE
The Audit Committee has the authority and responsibilities described in
this Charter. Management is responsible for the preparation, presentation and
integrity of the Company's financial statements; maintenance of appropriate
accounting and financial reporting principles and policies; and maintenance of
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. The independent auditor is
responsible for planning and carrying out proper audits and reviews. Each member
of the Audit Committee shall be entitled to rely on: (i) the integrity of those
persons and organizations within the Company and outside the Company that it
receives information from; and (ii) the accuracy of information provided to the
Audit Committee by such persons or organizations (absent actual knowledge to the
contrary).
This Charter was adopted August 7, 2003.
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[PERRIGO LOGO]
APPENDIX
PERRIGO COMPANY
2003 LONG-TERM INCENTIVE PLAN
SECTION 1. PURPOSE. The purposes of the Perrigo Company 2003 Long-Term Incentive
Plan (the "Plan") are to encourage employees, directors and other persons
providing significant services to Perrigo Company and its subsidiaries to
acquire a proprietary and vested interest in the growth and performance of the
Company, to generate an increased incentive to contribute to the Company's
future success and prosperity, thus enhancing the value of the Company for the
benefit of share owners, and to enhance the ability of the Company to attract
and retain individuals of exceptional managerial talent upon whom, in large
measure, the sustained progress, growth and profitability of the Company
depends.
SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall have the
meanings set forth below:
(a) "Acquiring Person" means any person (any individual, firm,
corporation or other entity) who or which, together with all Affiliates and
Associates, has acquired or obtained the right to acquire the beneficial
ownership of fifty percent (50%) or more of the Shares then outstanding.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
(c) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Share Award, Performance Share, Performance Unit, Other Stock Unit Award, or any
other right, interest, or option relating to Shares or other securities of the
Company granted pursuant to the provisions of the Plan.
(d) "Award Agreement" shall mean any written agreement, contract, or
other instrument or document evidencing any Award granted by the Committee
hereunder and signed by both the Company and the Participant.
(e) "Beneficiary" means the person or persons to whom an Award is
transferred by his or her will or by the laws of descent and distribution of the
state in which the Participant resided at the time of his or her death.
(f) "Board" shall mean the Board of Directors of Perrigo Company.
(g) "Cause" shall mean any of the following events, as determined by
the Committee:
(1) The commission of an act which, if proven in a court of
law, would constitute a felony violation under applicable criminal
laws;
(2) A breach of any material duty or obligation imposed upon
the Participant by the Company;
1
(3) Divulging the Company's confidential information, or
breaching or causing the breach of any confidentiality agreement to
which the Participant or the Company is a party;
(4) Engaging or assisting others to engage in business in
competition with the Company;
(5) Refusal to follow a lawful order of the Participant's
superior or other conduct which the Board or the Committee determines
to represent insubordination on the part of the Participant; or
(6) Other conduct by the Participant which the Board or the
Committee, in its discretion, deems to be sufficiently injurious to the
interests of the Company to constitute cause.
(h) A "Change in Control" shall occur when (i) any Acquiring Person
(other than (A) the Company, (B) any employee benefit plan of the Company or any
Trustee of or fiduciary with respect to any such plan when acting in such
capacity, or (C) any person who, on the Effective Date of the Plan, is an
Affiliate of Perrigo Company and owning in excess of ten percent (10%) of the
outstanding Shares of Perrigo Company and the respective successors, executors,
legal representatives, heirs and legal assigns of such person), alone or
together with its Affiliates and Associates, has acquired or obtained the right
to acquire the beneficial ownership of fifty percent (50%) or more of the Shares
then outstanding, or (ii) Continuing Directors no longer constitute a majority
of the Board.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(j) "Committee" shall mean the Compensation Committee of the Board,
composed of no fewer than three directors, each of whom is a Non-Employee
Director, an "outside director" within the meaning of Section 162(m) of the Code
and an "independent director" within the meaning of applicable standards of the
National Association of Securities Dealers, Inc. ("NASD") or any national
securities exchange upon which the Shares are traded.
(k) "Company" shall mean Perrigo Company, its subsidiaries and/or
Affiliates.
(l) "Continuing Director" means any person who was a member of the
Board on the Effective Date of the Plan, and any new director thereafter elected
by the shareholders or appointed by the Board, provided such new director's
election or nomination for election by the Company's shareholders was approved
by a majority of directors who were either directors on the Effective Date or
whose election or nomination for election was previously so approved.
(m) "Covered Employee" shall mean a "covered employee" within the
meaning of Section 162(m)(3) of the Code.
2
(n) "Disability" means, with respect to an Employee, disability as
defined under the Company's long term disability insurance plan under which such
Employee is then covered and, with respect to any other Participant, has the
meaning set forth in Section 22(e)(3) of the Code, as determined by the
Committee in its sole discretion.
(o) "Effective Date" shall have the meaning set forth in Section 16
hereof.
(p) "Employee" shall mean any employee of the Company or of any
Affiliate.
(q) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
(r) "Fair Market Value" shall mean (i) with respect to a Share, the
average of the highest price and lowest price at which the Share is traded on
the date of determination, or on the most recent date on which the Share is
traded prior to that date, as reported on the NASDAQ National Market, and (ii)
with respect to any other property, the fair market value of such property
determined by such methods or procedures as shall be established from time to
time by the Committee.
(s) "Incentive Stock Option" shall mean an Option granted under Section
6 hereof that is intended to meet the requirements of Section 422 of the Code or
any successor provision thereto. Only Employees may be awarded Incentive Stock
Options.
(t) "Involuntary Termination for Economic Reasons" means that the
Participant's Termination Date occurs due to involuntary termination of
employment by the Company for economic reasons including, without limitation,
restructurings, dispositions and layoffs, as determined by the Company's Chief
Executive Officer, in his sole discretion, or by the Committee in the case of a
Participant subject to Section 16 of the Exchange Act.
(u) "Non-Employee Directors" shall mean individuals who qualify as such
within the meaning of Rule 16b-3 under the Exchange Act (or any successor
definition thereto).
(v) "Nonstatutory Stock Option" shall mean an Option granted under
Section 6 hereof that is not intended to be an Incentive Stock Option.
(w) "Option" shall mean any right granted to a Participant under the
Plan allowing such Participant to purchase Shares at such price or prices and
during such period or periods as the Committee shall determine.
(x) "Other Stock Unit Awards" shall mean Awards of Shares and other
Awards that are valued in whole or in part by reference to, or are otherwise
based on, Shares or other property, other than Awards which are Options, Stock
Appreciation Rights, Restricted Share Awards, Performance Shares or Performance
Units.
3
(y) "Participant" shall mean an Employee or director of, or a
consultant or other person providing significant services to, the Company who is
selected by the Committee to receive an Award under the Plan.
(z) "Performance Award" shall mean any Award of Performance Shares or
Performance Units pursuant to Section 9 hereof.
(aa) "Performance Period" shall mean that period established by the
Committee at the time any Performance Award is granted or at any time thereafter
during which any performance goals specified by the Committee with respect to
such Award are to be measured.
(bb) "Performance Share" shall mean any grant pursuant to Section 9
hereof of a unit valued by reference to a designated number of Shares, which
value may be paid to the Participant by delivery of such property as the
Committee shall determine, including, without limitation, cash, Shares, or any
combination thereof, upon achievement of such performance goals during the
Performance Period as the Committee shall establish at the time of such grant or
thereafter.
(cc) "Performance Unit" shall mean any grant pursuant to Section 9
hereof of a unit valued by reference to a designated amount of property other
than Shares, which value may be paid to the Participant by delivery of such
property as the Committee shall determine, including, without limitation, cash,
Shares, or any combination thereof, upon achievement of such performance goals
during the Performance Period as the Committee shall establish at the time of
such grant or thereafter.
(dd) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, Company, unincorporated organization, limited
liability company, other entity or government or political subdivision thereof.
(ee) "Prior Stock Plans" shall mean the Perrigo Company Employee Stock
Option Plan, the Perrigo Company Non-Qualified Stock Option Plan for Directors,
the Perrigo Company Restricted Stock Plan for Directors, and the Perrigo Company
Restricted Stock Plan for Directors II.
(ff) "Restricted Share" shall mean any Share issued with the
restriction that the holder may not sell, transfer, pledge, or assign such Share
and with such other restrictions as the Committee, in its sole discretion, may
impose (including, without limitation, any restriction on the right to vote such
Share, and the right to receive any cash dividends), which restrictions may
lapse separately or in combination at such time or times, in installments or
otherwise, as the Committee may deem appropriate.
(gg) "Restricted Share Award" shall mean an award of Restricted Shares
under Section 8 hereof.
(hh) "Retirement" means a Participant's Termination Date which occurs
(i) pursuant to a voluntary early retirement program approved by the Board or
the Committee, (ii) after attaining
4
age 65, (iii) after attaining age 60 with ten or more years of service with the
Company, or (iv) under other circumstances designated by Board or Committee as
retirement in accordance with the Company's then existing policies and programs.
(ii) "Shares" shall mean shares of common stock, without par value, of
Perrigo Company and such other securities of the Company as the Committee may
from time to time determine.
(jj) "Stock Appreciation Right" shall mean any right granted to a
Participant pursuant to Section 7 hereof to receive, upon exercise by the
Participant, the excess of (i) the Fair Market Value of one Share on the date of
exercise over (ii) the grant price of the right on the date of grant, or if
granted in connection with an outstanding Option on the date of grant of the
related Option, as specified by the Committee in its sole discretion, which
shall not be less than the Fair Market Value of one Share on such date of grant
of the right or the related Option, as the case may be. Any payment by the
Company in respect of such right may be made in cash, Shares, other property, or
any combination thereof, as the Committee, in its sole discretion, shall
determine.
(kk) "Ten Percent Shareholder" means a person who owns (after taking
into account the attribution rules of Section 424(b) of the Code or any
successor provision thereto) more than 10% of the combined voting power of all
classes of shares beneficial interest of the Company.
(ll) "Termination Date" means the date that a Participant both ceases
to be an Employee or director and ceases to perform any material services for
the Company, including, but not limited to, advisory or consulting services or
services as a member of the Board. Unless otherwise determined by the Committee
in its sole discretion, for purposes of the Plan, an Employee shall be
considered to have a Termination Date if his or her employer ceases to be an
Affiliate, even if he or she continues to be employed by such employer.
SECTION 3. ADMINISTRATION.
(a) AUTHORITY OF COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall have full power and authority, subject to such
orders or resolutions not inconsistent with the provisions of the Plan as may
from time to time be adopted by the Board, to: (i) select the Participants to
whom Awards may from time to time be granted hereunder; (ii) determine the type
or types of Award to be granted to each Participant hereunder; (iii) determine
the number of Shares to be covered by each Award granted hereunder; (iv)
determine the terms and conditions, not inconsistent with the provisions of the
Plan, of any Award granted hereunder; (v) determine whether, to what extent and
under what circumstances Awards may be settled in cash, Shares or other property
or canceled or suspended; (vi) determine whether, to what extent and under what
circumstances cash, Shares and other property and other amounts payable with
respect to an Award under this Plan shall be deferred either automatically or at
the election of the Participant; (vii) interpret and administer the Plan and any
instrument or agreement entered into under the Plan; (viii) establish such rules
and regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and (ix) make any other determination and
5
take any other action that the Committee deems necessary or desirable for
administration of the Plan. Decisions of the Committee shall be final,
conclusive and binding upon all persons, including the Company, any Participant,
any shareholder, and any Employee, director or consultant of the Company or of
any Affiliate.
(b) DELEGATION. The Committee may delegate to the Company's Chief
Executive Officer the authority to grant Awards to Participants, other than
Participants who are subject to Section 16 of the Exchange Act, and to determine
the terms and conditions of such Awards, subject to the limitations of the Plan
and such other limitations and guidelines as the Committee may deem appropriate.
4. DURATION OF, AND SHARES SUBJECT TO PLAN.
(a) TERM. The Plan shall remain in effect until terminated by the
Board, provided, however, that no Incentive Stock Option may be granted more
than ten (10) years after the Effective Date of the Plan.
(b) SHARES SUBJECT TO THE PLAN. The maximum number of Shares in respect
for which Awards may be granted under the Plan, subject to adjustment as
provided in Section 4(c) of the Plan, is (i) 2,500,000 Shares, plus (ii) the
number of Shares that remain available for issuance as of the Effective Date
under the Prior Stock Plans (including Shares underlying outstanding awards
under the Prior Stock Plans that are forfeited, terminated, expire unexercised
or are otherwise settled without the delivery of Shares on and after the
Effective Date). No further awards shall be made under the Prior Stock Plans on
and after the Effective Date. No Participant may be granted Awards in any one
calendar year with respect to more than 400,000 Shares.
For the purpose of computing the total number of Shares available for Awards
under the Plan, there shall be counted against the foregoing limitations the
number of Shares subject to issuance upon exercise or settlement of Awards as of
the dates on which such Awards are granted. The Shares which were previously
subject to Awards shall again be available for Awards under the Plan if any such
Awards are forfeited, terminated, expire unexercised, settled in cash or
exchanged for other Awards (to the extent of such forfeiture or expiration of
such Awards), or if the Shares subject thereto can otherwise no longer be
issued. Further, any Shares which are used as full or partial payment to the
Company by a Participant of the purchase price of Shares upon exercise of an
Option shall again be available for Awards under the Plan. The number of Shares
that are forfeited, expire unexercised or are otherwise settled without the
delivery of Shares under the Prior Stock Plans on and after the Effective Date
shall again be available for Awards under this Plan.
Shares which may be issued under the Plan may be either authorized and unissued
shares or issued shares which have been reacquired by the Company. No fractional
shares shall be issued under the Plan.
(c) CHANGES IN SHARES. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split, reverse stock
split, spin off or similar
6
transaction or other change in corporate structure affecting the Shares, such
adjustments and other substitutions shall be made to the Plan and to Awards as
the Committee in its sole discretion deems equitable or appropriate, including
without limitation such adjustments in the aggregate number, class and kind of
Shares which may be delivered under the Plan, in the aggregate or to any one
Participant, in the number, class, kind and option or exercise price of Shares
subject to outstanding Options, Stock Appreciation Rights or other Awards
granted under the Plan, and in the number, class and kind of Shares subject to,
Awards granted under the Plan (including, if the Committee deems appropriate,
the substitution of similar options to purchase the shares of, or other awards
denominated in the shares of, another company) as the Committee may determine to
be appropriate in its sole discretion, provided that the number of Shares or
other securities subject to any Award shall always be a whole number.
SECTION 5. ELIGIBILITY. Any Employee, director, consultant or other person
providing material services to the Company shall be eligible to be selected as a
Participant.
SECTION 6. STOCK OPTIONS. Options may be granted hereunder to Participants
either alone or in addition to other Awards granted under the Plan. Any Option
granted under the Plan shall be evidenced by an Award Agreement in such form as
the Committee may from time to time approve. Any such Option shall be subject to
the following terms and conditions and to such additional terms and conditions,
not inconsistent with the provisions of the Plan, as the Committee shall deem
desirable:
(a) OPTION PRICE. The purchase price per Share purchasable under an
Option shall be determined by the Committee in its sole discretion; provided
that (i) such purchase price shall not be less than the Fair Market Value of the
Share on the date of the grant of the Option, and (ii) such purchase price for
an Incentive Stock Option granted to a Ten Percent Shareholder shall be not less
than 110% of the Fair Market Value of the Share on the date of grant of the
Option.
(b) OPTION PERIOD. The term of each Option shall be fixed by the
Committee in its sole discretion; provided that (i) no Incentive Stock Option
shall be exercisable after the expiration of ten years from the date the Option
is granted, and (ii) no Incentive Stock Option granted to a Ten Percent
Shareholder shall be exercisable after the expiration of five years from the
date the Option is granted.
(c) EXERCISABILITY. Options shall be exercisable at such time or times
as determined by the Committee at or subsequent to grant. Unless otherwise
determined by the Committee at or subsequent to grant, no Incentive Stock Option
shall be exercisable during the year ending on the day before the first
anniversary date of the granting of the Incentive Stock Option.
(d) METHOD OF EXERCISE. Subject to the other provisions of the Plan and
any applicable Award Agreement, any Option may be exercised by the Participant
in whole or in part at such time or times, and the Participant may make payment
of the option price in such form or forms, including, without limitation,
payment by delivery of cash, Shares or other consideration (including, where
permitted by law and the Committee, Awards) having a Fair Market Value on
7
the exercise date equal to the total option price, or by any combination of
cash, Shares and other consideration as the Committee may specify in the
applicable Award Agreement.
(e) INCENTIVE STOCK OPTIONS. In accordance with rules and procedures
established by the Committee, the aggregate Fair Market Value (determined as of
the time of grant) of the Shares with respect to which Incentive Stock Options
held by any Participant which are exercisable for the first time by such
Participant during any calendar year under the Plan (and under any other benefit
plans of the Company or of any parent or subsidiary corporation of the Company)
shall not exceed $100,000 or, if different, the maximum limitation in effect at
the time of grant under Section 422 of the Code, or any successor provision, and
any regulations promulgated thereunder. The terms of any Incentive Stock Option
granted hereunder shall comply in all respects with the provisions of Section
422 of the Code, or any successor provision, and any regulations promulgated
thereunder. An Incentive Stock Option must be exercised within three months
following the Participant's termination of employment with the Company, or
within twelve months if such termination is by reason of death or Disability. If
for any reason an Option intended to be an Incentive Stock Option fails to
satisfy the requirements of Section 422 of the Code, such Option will
automatically convert to a Nonstatutory Stock Option.
(f) REPRICING. Except for adjustments pursuant to Section 4(c)
(relating to adjustments to shares), the purchase price for any outstanding
Option granted under the Plan may not be decreased after the date of grant nor
may an outstanding Option granted under the Plan be surrendered to the Company
as consideration for the grant of a new Option with a lower exercise price,
without the approval of the Company's shareholders.
SECTION 7. STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be granted
hereunder to Participants either alone or in addition to other Awards granted
under the Plan and may, but need not, relate to a specific Option granted under
Section 6. The provisions of Stock Appreciation Rights need not be the same with
respect to each recipient. Any Stock Appreciation Right related to a
Nonstatutory Stock Option may be granted at the same time such Option is granted
or at any time thereafter before exercise or expiration of such Option. Any
Stock Appreciation Right related to an Incentive Stock Option must be granted at
the same time such Option is granted, and may be exercised only if and when the
Fair Market Value of the Shares subject to the Incentive Stock Option exceeds
the aggregate purchase price for the Option. In the case of any Stock
Appreciation Right related to any Option, the Stock Appreciation Right or
applicable portion thereof shall terminate and no longer be exercisable upon the
termination or exercise of the related Option, except that a Stock Appreciation
Right granted with respect to less than the full number of Shares covered by a
related Option shall not be reduced until the exercise or termination of the
related Option exceeds the number of shares not covered by the Stock
Appreciation Right. Any Option related to any Stock Appreciation Right shall no
longer be exercisable to the extent the related Stock Appreciation Right has
been exercised. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it shall deem appropriate.
SECTION 8. RESTRICTED SHARES.
8
(a) ISSUANCE. Restricted Share Awards may be issued hereunder to
Participants, for no cash consideration or for such minimum consideration as may
be required by applicable law, either alone or in addition to other Awards
granted under the Plan. The provisions of Restricted Share Awards need not be
the same with respect to each recipient.
(b) REGISTRATION. Any Restricted Shares issued hereunder may be
evidenced in such manner as the Committee in its sole discretion shall deem
appropriate, including, without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock certificate is
issued in respect of Restricted Shares awarded under the Plan, such certificate
shall be registered in the name of the Participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award.
(c) FORFEITURE. Except as set forth in Section 11 or otherwise
determined by the Committee at the time of grant, upon a Participant's
Termination Date for any reason during the restriction period, all Restricted
Shares still subject to restriction shall be forfeited by the Participant and
reacquired by the Company; provided that the Committee may, in its sole
discretion, when it finds that a waiver would be in the best interests of the
Company, waive in whole or in part any or all remaining restrictions with
respect to such Participant's Restricted Shares, except for Restricted Share
Awards that are intended to comply with the performance-based compensation
requirements of Section 13. Unrestricted Shares, evidenced in such manner as the
Committee shall deem appropriate, shall be issued to the grantee promptly after
the period of forfeiture, as determined or modified by the Committee, shall
expire.
SECTION 9. PERFORMANCE AWARDS. Performance Awards may be issued hereunder to
Participants, for no cash consideration or for such minimum consideration as may
be required by applicable law, either alone or in addition to other Awards
granted under the Plan. The performance criteria to be achieved during any
Performance Period and the length of the Performance Period shall be determined
by the Committee upon the grant of each Performance Award. Except as provided in
Section 12, Performance Awards will be distributed only after the end of the
relevant Performance Period. Performance Awards may be paid in cash, Shares,
other property or any combination thereof, in the sole discretion of the
Committee at the time of payment. The performance levels to be achieved for each
Performance Period and the amount of the Award to be distributed shall be
conclusively determined by the Committee. Performance Awards may be paid in a
lump sum or in installments following the close of the Performance Period.
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the Participants to whom and the time or times
at which such Awards shall be made, and all other conditions of the Awards. The
provisions of Performance Awards need not be the same with respect to each
recipient.
SECTION 10. OTHER STOCK UNIT AWARDS.
(a) STOCK AND ADMINISTRATION. Other Stock Unit Awards may be granted
hereunder to Participants, either alone or in addition to other Awards granted
under the Plan. Other Stock Unit Awards may be paid in Shares, other securities
of the Company, cash or any other form of property as the Committee shall
determine. Subject to the provisions of the Plan, the Committee shall have sole
and complete authority to determine the Participants to whom and
9
the time or times at which such Awards shall be made, the number of shares of
Stock to be granted pursuant to such Awards, and all other conditions of the
Awards. The provisions of Other Stock Unit Awards need not be the same with
respect to each recipient.
(b) TERMS AND CONDITIONS. Shares (including securities convertible into
Shares) granted under this Section 10 may be issued for no cash consideration or
for such minimum consideration as may be required by applicable law; Shares
(including securities convertible into Shares) purchased pursuant to a purchase
right awarded under this Section 10 shall be purchased for such consideration as
the Committee shall in its sole discretion determine, which shall not be less
than the Fair Market Value of such Shares or other securities as of the date
such purchase right is awarded.
SECTION 11. EFFECT OF TERMINATION DATE.
The Committee shall have the discretion to establish terms and conditions
relating to the effect of the Participant's Termination Date on Awards under the
Plan. Unless the Committee determines otherwise with respect to any individual
Award, the following provisions shall apply to Options, Stock Appreciation
Rights and Restricted Shares on a Participant's Termination Date.
(a) DEATH, DISABILITY, RETIREMENT. If the Participant's Termination
Date occurs for reasons of death, Disability or Retirement, (i) the restriction
period with respect to any Restricted Shares shall lapse, and (ii) the
Participant's outstanding Options and Stock Appreciation Rights shall
immediately vest in full and may thereafter be exercised in whole or in part by
the Participant (or the duly appointed fiduciary of the Participant's estate or
Beneficiary in the case of death, or conservator of the Participant's estate in
the case of Disability) at any time prior to the expiration of the respective
terms of the Options or Stock Appreciation Rights, as applicable.
(b) INVOLUNTARY TERMINATION FOR ECONOMIC REASONS. If the Participant's
Termination Date occurs by reason of Involuntary Termination for Economic
Reasons, the Participant may exercise his or her Options and Stock Appreciation
Rights, to the extent vested, at any time prior to the earlier of (i) the date
which is 30 days after the date which is 24 months after such Termination Date,
or (ii) the expiration of the respective terms of the Options or Stock
Appreciation Rights. Any Options, Stock Appreciation Rights or Restricted Shares
which are not vested at such Termination Date, but are scheduled to vest during
the 24 month period following the Termination Date, shall continue to vest
during such 24 month period according to the vesting schedule in effect prior to
such Termination Date as if the Participant had continued to provide services to
the Company during the 24 month period. Any Options, Stock Appreciation Rights
and Restricted Shares which are not scheduled to vest during such 24 month
period will be forfeited on the Termination Date.
If the Participant dies after the Termination Date while his or her
Options or Stock Appreciation Rights remain exercisable under this paragraph
(b), the duly appointed fiduciary of the Participant's estate or his or her
Beneficiary may exercise the Options and Stock Appreciation Rights (to the
extent that such Options and Stock Appreciation Rights were vested and
exercisable prior to death), at any time prior to the later of the date which is
(i) 30 days after
10
the date which is 24 months after the Participant's Termination Date, or (ii) 12
months after the date of death, but in no event later than the expiration of the
respective terms of the Options and Stock Appreciation Rights.
(c) TERMINATION DATE FOR CAUSE. If the Participant's Termination Date
occurs for reasons of Cause, at the time such notice of termination is given by
the Company (i) any Restricted Shares subject to a restriction period shall be
forfeited, and (ii) the Participant's right to exercise his or her Options and
Stock Appreciation Rights shall terminate. If within 60 days of a Participant's
Termination Date the Company discovers circumstances which would have permitted
it to terminate the Participant's employment or service for Cause, such
Termination Date shall be deemed to have occurred for reasons of Cause. Any
Shares, cash or other property paid or delivered to the Participant under the
Plan within 60 days of such Termination Date shall be forfeited and the
Participant shall be required to repay such amount to the Company.
(d) OTHER TERMINATION OF EMPLOYMENT OR SERVICE. In the event the
Participant's Termination Date occurs for reasons other than described in the
foregoing provisions of this Section 11, the Participant shall have the right to
exercise his or her Options and Stock Appreciation Rights at any time prior to
the earlier of (i) the date which is three months after such Termination Date,
or (ii) the expiration date of the respective terms of the Options or Stock
Appreciation Rights, as applicable, but only to the extent such Option or Stock
Appreciation Right, as applicable, was vested prior to such Termination Date.
Any Options or Stock Appreciation Rights which are not vested at such
Termination Date shall be forfeited on the Termination Date.
If the Participant dies after the Termination Date while his or her
Options or Stock Appreciation Rights remain exercisable under this paragraph
(d), the duly appointed fiduciary of the Participant's estate or his or her
Beneficiary may exercise the Options or Stock Appreciation Rights (to the extent
that such Options or Stock Appreciation Rights were vested and exercisable prior
to death), at any time prior to the earlier of (i) 12 months after the date of
death, or (ii) the expiration of the respective terms of the Options or Stock
Appreciation Rights, as applicable.
SECTION 12. CHANGE IN CONTROL PROVISIONS.
Notwithstanding any other provision of the Plan to the contrary, in the
event of a Change in Control:
(a) Any Options and Stock Appreciation Rights outstanding as of the
date such Change in Control is determined to have occurred, and which are not
then exercisable and vested, shall become fully exercisable and vested.
(b) The restrictions and deferral limitations applicable to any
Restricted Shares shall lapse, and such Restricted Shares shall become free of
all restrictions and limitations and become fully vested and transferable.
11
(c) All Performance Awards shall be considered to be earned and payable
in full, and any deferral or other restriction shall lapse and such Performance
Awards shall be immediately settled or distributed.
(d) The restrictions and deferral limitations and other conditions
applicable to any Other Stock Unit Awards or any other Awards shall lapse, and
such Other Stock Unit Awards or such other Awards shall become free of all
restrictions, limitations or conditions and become fully vested and transferable
to the full extent of the original grant.
SECTION 13. CODE SECTION 162(M) PROVISIONS.
(a) Notwithstanding any other provision of this Plan, if the Committee
determines at the time any Restricted Shares, Performance Awards or Other Stock
Unit Awards are granted to a Participant that such Participant is, or is likely
to be at the time he or she recognizes income for federal income tax purposes in
connection with such Award, a Covered Employee, then the Committee may provide
that this Section 13 is applicable to such Award.
(b) If an Award is subject to this Section 13, then the lapsing of
restrictions thereon and the distribution of cash, Shares or other property
pursuant thereto, as applicable, shall be subject to the achievement of one or
more objective performance goals established by the Committee, which shall be
based on the attainment of one or any combination of the following: specified
levels of earnings per share from continuing operations, funds from operations,
operating income, revenues, gross margin, return on operating assets, return on
equity, economic value added, share price appreciation, total shareholder return
(measured in terms of share price appreciation and dividend growth), or cost
control, of the Company or the Affiliate or division of the Company for or
within which the Participant is primarily employed. Such performance goals also
may be based upon the attaining specified levels of Company performance under
one or more of the measures described above relative to the performance of other
corporations. Such performance goals shall be set by the Committee within the
time period prescribed by, and shall otherwise comply with the requirements of,
Section 162(m) of the Code and the regulations thereunder.
(c) Notwithstanding any provision of this Plan other than Section 12,
with respect to any Award that is subject to this Section 13, the Committee may
not adjust upwards the amount payable pursuant to such Award, nor may it waive
the achievement of the applicable performance goals except in the case of the
death or disability of the Participant.
(d) The Committee shall have the power to impose such other
restrictions on Awards subject to this Section 13 as it may deem necessary or
appropriate to ensure that such Awards satisfy all requirements for
"performance-based compensation" within the meaning of Section 162(m)(4)(B) of
the Code or any successor thereto.
SECTION 14. AMENDMENTS AND TERMINATION.
The Board may amend, alter or discontinue the Plan at any time; provided,
however, no amendment, alteration, or discontinuation shall be made that would
impair the rights of an
12
optionee or Participant under an Award theretofore granted, without the
optionee's or Participant's consent; provided, further that, any amendment that
would (i) except as is provided in Section 4(c) of the Plan, increase the total
number of shares reserved for the purpose of the Plan, (ii) change the employees
or class of employees eligible to participate in the Plan, (iii) change the
minimum purchase price for any Option below the minimum price set forth in
Section 6(a) of the Plan, or (iv) materially (within the meaning of rules of
NASD) change the terms of the Plan, shall not be effective without the approval
of Perrigo Company's shareholders.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively; provided, that no such amendment shall impair
the rights of any Participant without his or her consent.
SECTION 15. GENERAL PROVISIONS.
(a) Unless the Committee determines otherwise with respect to an Award
other than an Incentive Stock Option, no Award, and no Shares subject to Awards
described in Section 10 which have not been issued or as to which any applicable
restriction, performance or deferral period has not lapsed, may be sold,
assigned, transferred, pledged or otherwise encumbered, except by will or by the
laws of descent and distribution; provided that, if so determined by the
Committee, a Participant may, in the manner established by the Committee,
designate a beneficiary to exercise the rights of the Participant with respect
to any Award upon the death of the Participant. Unless the Committee determines
otherwise, each Award shall be exercisable, during the Participant's lifetime,
only by the Participant or, if permissible under applicable law, by the
Participant's guardian or legal representative. Notwithstanding the foregoing,
subject to such rules as the Committee may establish, a Nonstatutory Stock
Option may be transferred by a Participant during his or her lifetime to a
trust, partnership or other entity established for the benefit of the
Participant and his or her immediate family which, for purposes of the Plan,
shall mean those persons who, at the time of such transfer, would be entitled to
inherit part or all of the estate of the Participant under the laws of intestate
succession then in effect in the state in which the Participant resides if the
Participant had died on such transfer date without a will.
(b) Subject to the provisions of Section 6(b) and Section 7, the term
of each Award shall be for such period of months or years from the date of its
grant as may be determined by the Committee.
(c) No Employee or Participant shall have any claim to be granted any
Award under the Plan nor to remain in the employment or service of the Company
and there is no obligation for uniformity of treatment of Employees or
Participants under the Plan. The Committee may, in its sole discretion,
condition eligibility for an Award on the execution of a noncompete or
similar-type agreement.
(d) The prospective recipient of any Award under the Plan shall not,
with respect to such Award, be deemed to have become a Participant, or to have
any rights with respect to such Award, until and unless such recipient shall
have executed an agreement or other instrument evidencing the Award and
delivered a fully executed copy thereof to the Company, and otherwise complied
with the then applicable terms and conditions.
13
(e) Except as provided in Section 13, the Committee shall be authorized
to make adjustments in Performance Award criteria or in the terms and conditions
of other Awards in recognition of unusual or nonrecurring events affecting the
Company or its financial statements or changes in applicable laws, regulations
or accounting principles. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem desirable to carry it into effect. In the event
the Company shall assume outstanding employee benefit awards or the right or
obligation to make future such awards in connection with the acquisition of
another corporation or business entity, the Committee may, in its discretion,
make such adjustments in the terms of Awards under the Plan as it shall deem
appropriate.
(f) The Committee shall have full power and authority to determine
whether, to what extent and under what circumstances any Award shall be canceled
or suspended.
(g) All certificates for Shares delivered under the Plan pursuant to
any Award shall be subject to such stock-transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, NASD, any stock exchange
upon which the Shares are then listed, and any applicable Federal or state
securities law, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
(h) The Committee shall be authorized to establish procedures pursuant
to which the payment of any Award may be deferred. Subject to the provisions of
this Plan and any Award Agreement, the recipient of an Award (including, without
limitation, any deferred Award) may, if so determined by the Committee, be
entitled to receive, currently or on a deferred basis, interest or dividends, or
interest or dividend equivalents, with respect to the number of shares covered
by the Award, as determined by the Committee, in its sole discretion, and the
Committee may provide that such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested.
(i) Except as otherwise required in any applicable Award Agreement or
by the terms of the Plan, recipients of Awards under the Plan shall not be
required to make any payment or provide consideration other than the rendering
of services.
(j) The Company shall be authorized to withhold from any Award granted
or payment due under the Plan the amount of any withholding taxes due in respect
of an Award or payment hereunder and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. The Committee shall be authorized to establish procedures
for election by Participants to satisfy such withholding taxes by delivery of,
or directing the Company to retain, Shares.
(k) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to shareholder
approval if such approval is otherwise required; and such arrangements may be
either generally applicable or applicable only in specific cases.
14
(l) The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan shall be determined in accordance with the
laws of the State of Michigan and applicable Federal law.
(m) If any provision of this Plan is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan, it shall be stricken and the
remainder of the Plan shall remain in full force and effect.
(n) Awards may be granted to Employees, directors or consultants of the
Company or Affiliates who are foreign nationals or employed outside the United
States, or both, on such terms and conditions different from those specified in
the Plan as may, in the judgment of the Committee, be necessary or desirable in
order to recognize differences in local law or tax policy. The Committee also
may impose conditions on the exercise or vesting of Awards in order to minimize
the Company's obligation with respect to tax equalization for Participants on
assignments outside their home country.
SECTION 16. EFFECTIVE DATE OF PLAN. The Plan shall be effective on the date that
it is approved by the Company's stockholders (the "Effective Date").
SECTION 17. TERM OF PLAN. No Award shall be granted pursuant to the Plan after
10 years from the Effective Date, but any Award theretofore granted may extend
beyond that date.
15
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Please mark, sign and date your proxy card and
return it in the POSTAGE-PAID ENVELOPE
provided or return it to: Stock Transfer Dept.
(PC), National City Bank, P.O. Box 94509,
Cleveland, OH 44101-4500.
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VOTE BY TELEPHONE VOTE BY INTERNET VOTE BY MAIL
Call TOLL-FREE using a Access the WEBSITE and Return your proxy
Touch-Tone phone: cast your vote: in the POSTAGE-PAID
1-800-542-1160 HTTP://WWW.VOTEFAST.COM envelope provided
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VOTE 24 HOURS A DAY, 7 DAYS A WEEK!
YOUR TELEPHONE OR INTERNET VOTE MUST BE RECEIVED BY 11:59 P.M. EASTERN STANDARD
TIME ON MONDAY OCTOBER 27, 2003 TO BE COUNTED IN THE FINAL TABULATION.
IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT SEND YOUR PROXY BY MAIL.
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YOUR CONTROL NUMBER IS:
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PROXY MUST BE SIGNED AND DATED BELOW.
\/ PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING. \/
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PERRIGO COMPANY PROXY
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS ON OCTOBER 28, 2003.
The undersigned hereby appoints Douglas R. Schrank and John R. Nichols, or
either of them with full power of substitution as attorneys and proxies to vote
as designated, with all powers which the undersigned would possess if personally
present, all the shares of Common Stock of Perrigo Company held of record by the
undersigned on September 2, 2003, at the Annual Meeting of Shareholders to be
held on October 28, 2003 or any adjournment thereof.
This proxy also provides voting instructions to the trustee under the Perrigo
Company Profit Sharing Plan and directs the trustee to vote all the shares of
Common Stock of Perrigo Company allocated to the undersigned's account as
indicated on the reverse side.
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Signature
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Signature
Date: , 2003
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Please sign exactly as name appears hereon.
When signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such. If a corporation,
please sign full corporate name by President
or other authorized officer. If a
partnership, please sign in partnership name
by authorized person.
For your comments:
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\/ PLEASE FOLD AND DETACH COMMENT CARD AT PERFORATION BEFORE MAILING. \/
YOUR VOTE IS IMPORTANT!
If you do not vote by telephone or Internet, please sign and date this proxy
card and return it promptly in the enclosed postage-paid envelope so your shares
may be represented at the Meeting.
PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
\/ PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING. \/
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PERRIGO COMPANY PROXY
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This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" PROPOSALS 1 AND 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.
1. Election of Directors whose three-year term of office will expire in 2006.
Nominees: (01) Gary M. Cohen (02) David T. Gibbons (03) Judith A. Hemberger
/ / FOR all nominees listed above / / WITHHOLD AUTHORITY
(except as listed to the contrary to vote for all nominees listed
below) above
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT
NOMINEE'S NAME OR NUMBER BELOW:
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2. Approval of the Company's 2003 Long-Term Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
IMPORTANT--THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.