SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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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.
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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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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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(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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FRIDAY, OCTOBER 29, 2004
10:00 A.M. EST
PERRIGO CORPORATE OFFICE
515 EASTERN AVENUE
ALLEGAN, MICHIGAN 49010
The purpose of our 2004 Annual Meeting is to elect three directors for a
three-year term beginning at the Annual Meeting and to consider and act upon a
proposed amendment to Perrigo's Articles of Incorporation to increase the
maximum number of directors that may serve on the board from nine to eleven. The
Board of Directors recommends that you vote FOR each of the director nominees
and FOR the amendment of our Articles of Incorporation.
You can vote at the Annual Meeting in person or by proxy if you were a
shareholder of record on September 1, 2004.
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 2004 Annual Report to Shareholders is enclosed.
Sincerely,
Todd W. Kingma
Secretary
September 29, 2004
PERRIGO COMPANY
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PROXY STATEMENT
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TABLE OF CONTENTS
PAGE
----
Questions and Answers....................................... 1
Election of Directors....................................... 4
Corporate Governance........................................ 6
Board of Directors and Its Committees....................... 9
Director Compensation....................................... 11
Ownership of Perrigo Common Stock........................... 12
Section 16(a) Beneficial Ownership Reporting Compliance..... 14
Executive Compensation...................................... 14
Equity Compensation Plan Information........................ 18
Report of the Compensation Committee on Executive
Compensation............................................. 19
Company Performance......................................... 23
Amendment of Articles of Incorporation...................... 24
Report of the Audit Committee............................... 25
Independent Accountants..................................... 26
Annual Report on Form 10-K.................................. 26
The proxy statement and form of proxy are first being sent to shareholders
on or about September 29, 2004.
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 amendment of our Articles of Incorporation to increase the
maximum number of directors that may serve on the board from nine to
eleven.
WHO MAY VOTE?
Shareholders of record at the close of business on September 1, 2004, the
record date, may vote. On that date, there were 71,132,535 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 1, 2004, 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 Todd W. Kingma 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 amendment of our
Articles of Incorporation and FOR or AGAINST any other properly raised matters
at the discretion of Messrs. Schrank and Kingma.
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 AMEND OUR ARTICLES
OF INCORPORATION?
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
when you vote in person at the meeting. Abstentions and broker non-votes will
have no effect on the election of the directors.
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Amendment of Articles of Incorporation: The amendment of our Articles of
Incorporation requires that a majority of the outstanding shares of Perrigo
common stock vote in its favor. An abstention will have the effect of a vote
against the amendment. Uninstructed shares may not be voted on this matter, and
therefore, a broker non-vote also will have the effect of a vote against the
amendment.
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
2005 Annual Meeting no later than June 1, 2005. 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 2005 Annual Meeting. If you want to
do this, we must receive your written proposal on or after July 31, 2005, but on
or before August 20, 2005. 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 a director at the
2005 Annual Meeting, we must receive your nomination on or after July 31, 2005,
but on or before August 20, 2005. 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 Shareholders to the beneficial owners of
Perrigo common stock and to obtain the
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authority to execute 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, Laurie Brlas, Larry D.
Fredricks and Michael J. Jandernoa, 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 AT THE 2004 ANNUAL MEETING
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LAURIE BRLAS, 46, 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 as Senior Vice President and Corporate Controller.
LARRY D. FREDRICKS, 67, has served as a director of Perrigo since October
1996 and as Lead Independent Director since August 2004. 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, 54, 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 West Michigan, a Michigan banking corporation, and Steelcase, Inc., a
manufacturer of casegood
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products and furniture systems for the office furniture industry. Mr. Jandernoa
also serves on the Boards of the Michigan Technology Tri-Corridor (formerly Life
Science Corridor) and the Michigan Economic Development Corporation.
DIRECTORS CONTINUING UNTIL THE 2005 ANNUAL MEETING
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PETER R. FORMANEK, 61, has served as a director of Perrigo since November
1993 and served as Lead Independent Director from August 2003 to August 2004. 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 the Lead Independent Director
of The Sports Authority, a sporting goods retailer.
GARY K. KUNKLE, JR., 57, has served as a director of Perrigo since October
2002. He has served as the Vice Chairman and Chief Executive Officer of DENTSPLY
International Inc. since January 2004 and served as President and Chief
Operating Officer from January 1997 to December 2003. DENTSPLY International is
a manufacturer and marketer of products for the dental market. 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 Inc.
HERMAN MORRIS, JR., 53, has been a director of Perrigo since December 1999.
He is a partner in the Baker Donelson Bearman, Caldwell & Berkowitz law firm in
Memphis, Tennessee. He served as President and Chief Executive Officer of
Memphis Light, Gas and Water Division from August 1997 until January 2004 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.
DIRECTORS CONTINUING UNTIL THE 2006 ANNUAL MEETING
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GARY M. COHEN, 45, has been a director of Perrigo since January 2003. He
has served as President of BD Medical, 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 Advisors of the Rutgers School of
Business and as a director of the Health Industry Distributors Association
Educational Foundation.
DAVID T. GIBBONS, 61, 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. Mr. Gibbons is a director
of Robbins &
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Myers, Inc., a supplier of application-critical equipment and systems to the
global pharmaceutical, energy and industrial markets.
JUDITH A. HEMBERGER, 57, has been a director of Perrigo since January 2003.
Since January 2000, she has served as Executive Vice President and Chief
Operating Officer and as a director 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.
CORPORATE GOVERNANCE
GENERAL
We believe that good corporate governance is critical in fulfilling our
obligations to our shareholders. As part of our ongoing commitment, we have
reviewed our corporate governance policies and practices for compliance with the
provisions of the Sarbanes-Oxley Act of 2002, the rules and regulations of the
SEC and the recently adopted Nasdaq Stock Market listing standards.
Our Board of Directors has oversight responsibility for our business,
property and affairs. The Chief Executive Officer reports directly to the Board.
Members of our executive management report regularly to the Board on the
segments of the business for which each has management responsibility. Our
strategic direction is approved and authorized by the Board after considering
strategic plan recommendations made to the Board by executive management.
CORPORATE GOVERNANCE GUIDELINES
The Board of Directors has set forth its corporate governance policies and
practices in a set of Corporate Governance Guidelines. These guidelines assist
the Board in the exercise of its responsibilities and may be amended by the
Board from time to time. Our Corporate Governance Guidelines are available on
our website (http://www.perrigo.com) under the heading Investor
Relations--Corporate Governance--Corporate Governance Guidelines. The Guidelines
also are available in print to shareholders upon written request made to our
General Counsel, Todd W. Kingma, at the address shown on the cover of this proxy
statement.
CODE OF CONDUCT
The Board of Directors has adopted a Code of Conduct applicable to all of
our employees, officers and directors, including our chief executive officer and
senior financial and accounting officers. Our Code of Conduct acknowledges that
a reputation for ethical, moral and legal business conduct is one of Perrigo's
most valuable assets. The Code requires that all of our employees, officers and
directors comply with all laws and other legal requirements, avoid conflicts of
interest, protect corporate opportunities and confidential information, conduct
business in an honest and ethical manner and otherwise
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act with integrity and in the company's best interest. In addition, our Code of
Conduct acknowledges special ethical obligations for financial reporting. We
maintain a current copy of our Code of Conduct, and will promptly post any
amendments to or waivers of the Code, on our website (http://www.perrigo.com)
under the heading Investor Relations--Corporate Governance--Code of Conduct. Our
Code of Conduct is available in print to shareholders upon written request made
to our General Counsel, Todd W. Kingma, at the address shown on the cover of
this proxy statement.
DIRECTOR INDEPENDENCE
Our Corporate Governance Guidelines require that a substantial majority of
the Board consist of directors who meet the independence requirements of Nasdaq.
Accordingly, our Board conducts an annual review to determine whether each of
our directors qualifies as independent. A director will not be considered
independent unless the Board of Directors determines that the director has no
relationship that, in the opinion of the Board, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. Based on its most recent annual review, the Board of Directors has
concluded that each director, other than David T. Gibbons and Michael J.
Jandernoa, is independent as defined in the Nasdaq listing standards.
The Board has no fixed policy with respect to the combining or separating
of the offices of the Chairman of the Board and the Chief Executive Officer. The
Board believes that this issue is part of the succession planning process, and
that it is in Perrigo's best interests for the Board to make a determination
whenever it elects a new Chief Executive Officer. The independent members of the
Board of Directors meet periodically in executive session without management and
also meet in executive session with the Chief Executive Officer on an "as
needed" basis.
The Board has a Lead Independent Director. That position is filled on a
rotating basis by the directors based on seniority, with each independent
director serving as the Lead Independent Director for a one-year term. Duties of
the Lead Independent Director include presiding at all Board meetings at which
the Chairman is not present, including executive sessions; serving as liaison
between the Chairman and the independent directors; and having the authority to
call meetings of the independent directors.
COMMUNICATIONS WITH DIRECTORS
Stockholders and other interested parties may communicate with any of our
directors or with the independent directors as a group by writing to them in
care of our General Counsel, Todd W. Kingma, at the address shown on the cover
of this proxy statement. In accordance with the policy adopted by our
independent directors, any communications that allege or report fiscal
improprieties or complaints about internal accounting controls or other
accounting or auditing matters are forwarded to the Chief Financial Officer, as
appropriate. If either the Chief Financial Officer or the General Counsel
believe that the communication is significant or possibly material to Perrigo,
it is immediately sent to the Chairman of the Audit Committee and, after
consultation
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with the Chairman, may be sent to the other members of the Audit Committee. If
the communication is not immediately sent to the Audit Committee Chairman, then
it is reported to him or her on a quarterly basis. In addition, the Lead
Independent Director is advised promptly of any communications that allege
misconduct on the part of Perrigo management or that raise legal, ethical or
compliance concerns about Perrigo's policies or practices. On a regular basis,
the Lead Independent Director receives updates on other communications that
raise issues related to Perrigo's affairs, and he or she determines which of
these communications he or she would like to see. In addition, the General
Counsel maintains a log of all such communications, which is available for
review upon the request of any Board member.
DIRECTOR NOMINATIONS
Pursuant to our Corporate Governance Guidelines, the Nominating &
Governance Committee, with the involvement of our Chief Executive Officer, is
responsible for screening and recommending candidates for service as a director
and will consider recommendations offered by shareholders in accordance with our
by-laws. The Board as a whole is responsible for approving nominees. The
Nominating & Governance Committee recommends individuals as director nominees
based on various criteria, including their business and professional background,
integrity, understanding of our business and demonstrated ability to make
independent analytical inquiries. In addition, directors should be willing and
able to devote the necessary time to Board and committee duties. A director's
qualifications in meeting these criteria are considered at least each time the
director is re-nominated for Board membership.
The Nominating & Governance Committee, our Chairman of the Board and Chief
Executive Officer, our Lead Independent Director or other Board members may
identify a need to add new members to the Board to satisfy specific criteria or
simply to fill a vacancy. The Committee will initiate a search for potential
director nominees, seeking input from other Board members and senior management,
and may hire outside advisers to assist in identifying and evaluating
candidates.
Our by-laws permit shareholders to nominate candidates for consideration at
an annual meeting. The process for shareholders to submit a director candidate
in accordance with our by-laws is described in this proxy statement under
"Questions and Answers--How do I nominate a director?" Assuming that a properly
submitted shareholder recommendation for a potential nominee is received and
appropriate biographical and background information is provided, the Nominating
& Governance Committee and the Board follow the same process and apply the same
criteria as they do for candidates submitted by other sources.
STOCK OWNERSHIP
Each director is required to maintain a minimum ownership of Perrigo stock
equal to the total of his or her preceding three years' stock grants. If a
director has served less than three years, he or she must maintain a stock
ownership level equal to the restricted shares granted to him or her for service
as a director. In addition, the Chief Executive
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Officer must own shares of Perrigo stock equal in value to two times his or her
annual base salary, and each executive officer must own shares of Perrigo stock
equal in value to one times his or her annual base salary. These individuals
must attain that level of ownership within the later of three years of
appointment to his or her executive position or July 1, 2005.
ATTENDANCE AT ANNUAL MEETING
We encourage all of the members of our Board of Directors to attend our
Annual Meeting of Shareholders. While their attendance is not required, each of
our directors, except Judith A. Hemberger, attended our last annual meeting.
BOARD OF DIRECTORS AND ITS COMMITTEES
Perrigo's Board of Directors met five times during fiscal year 2004. 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. The Board of Directors has adopted a charter
for each committee. Copies of the charters are available on our website
(http://www.perrigo.com) under Investor Relations-Governance and are available
in print to shareholders upon written request made to our General Counsel, Todd
W. Kingma, at the address shown on the cover of this proxy statement. Effective
as of August 8, 2003, all committees consisted solely of independent Board
members. During fiscal year 2004, each director attended at least 75% of the
meetings of the Board and of the committees on which he or she served. L.R.
Jalenak, Jr. retired from the Board of Directors in August 2003.
AUDIT COMMITTEE
Fiscal 2004
Meetings: 6
Members: Larry D. Fredricks (Chairman)
Laurie Brlas
Herman Morris, Jr.
The Board of Directors has determined that each member of the
Audit Committee meets the audit committee independence
requirements of the Nasdaq listing standards and the rules
and regulations of the Securities and Exchange Commission. In
addition, the Board has determined that each Audit Committee
member is able to read and understand fundamental financial
statements, as required by the Nasdaq listing standards, and
that Larry D. Fredricks has the requisite attributes of an
"audit committee financial expert" under the rules of the SEC
and that such attributes were acquired through relevant
education and work experience.
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
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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. Additional information on
the Committee and its activities is set forth in the Audit
Committee Report.
COMPENSATION COMMITTEE
Fiscal 2004 Meetings:
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Members: Peter R. Formanek (Chairman)
Judith A. Hemberger
Herman Morris, Jr.
Function: Reviews and recommends compensation arrangements for the
Chief Executive Officer and non-employee directors. Reviews
and approves evaluation processes, 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 2004 Meetings:
3
Members: Larry D. Fredricks (Chairman)
Gary M. Cohen
Gary K. Kunkle, Jr.
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.
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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 $25,000 annual cash retainer fee
covering all regular and special Board meetings and the Annual Meeting of
Shareholders. Each non-employee director also receives an annual restricted
stock grant having a value on the grant date of $40,000 based upon the average
of the high and low price of our stock on that date. The restricted stock grant
is made pursuant to the company's 2003 Long-Term Incentive Plan approved by the
shareholders at the 2003 Annual Meeting of Shareholders and is intended to
directly link an element of director compensation to shareholders' interests.
One-third of the restricted shares vest fully in each director annually over the
three-year period following the grant date.
Compensation and Nominating & Governance Committee members each receive
$1,000 for each in-person committee meeting attended and $500 for each
telephonic committee meeting in which they participate, and Audit Committee
members each receive $1,500 for each in-person committee meeting attended and
$750 for each telephonic meeting in which they participate. Chairmen of the
Compensation and Nominating & Governance Committees each receive an annual
retainer of $4,000 in addition to his or her regular committee fees, and the
Chairman of the Audit Committee receives an annual retainer of $6,000 in
addition to his or her regular committee fees. We also reimburse directors for
expenses incurred in connection with attending Board and committee meetings.
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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 1, 2004. 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.
---------------------------------------------------------------------------------------------------------
SHARES OF OPTIONS
COMMON STOCK EXERCISABLE PERCENT
BENEFICIALLY OWNED WITHIN 60 DAYS TOTAL OF CLASS
---------------------------------------------------------------------------------------------------------
DIRECTORS AND NOMINEES
Laurie Brlas 3,153 5,000 8,153 *
Gary M. Cohen 3,582 5,000 8,582 *
Peter R. Formanek(1) 201,664 28,555 230,219 *
Larry D. Fredricks 14,088 32,281 46,369 *
David T. Gibbons(2) 149,897 682,502 832,399 1.2%
Judith A. Hemberger 3,582 5,000 8,582 *
Michael J. Jandernoa(3) 6,567,523 18,281 6,585,804 9.3%
Gary K. Kunkle, Jr. 3,831 -0- 3,831 *
Herman Morris, Jr.(4) 14,488 19,555 34,043 *
NAMED EXECUTIVE OFFICERS
OTHER THAN DIRECTORS
F. Folsom Bell 21,102 90,000 111,102 *
Mark P. Olesnavage(5) 437,697 293,314 731,011 1.0%
Douglas R. Schrank 32,697 99,235 131,932 *
John T. Hendrickson(6) 39,804 110,152 149,956 *
DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (14 PERSONS) (7) 7,493,108 1,388,875 8,881,983 12.3%
* Less than 1%.
(1) Shares owned include 192,576 shares owned by Mr. Formanek as Trustee for the
Formanek Investment Trust.
(2) Mr. Gibbons is also a named executive officer.
(3) Shares owned consist of 5,954,347 shares owned by the Michael J. Jandernoa
Trust, of which Mr. Jandernoa is trustee; 136,986 shares owned by the
Michael J. Jandernoa Grantor Trust Two, of which Mr. Jandernoa is trustee
and under which he has a reversionary interest; 136,986 shares owned by the
Susan M. Jandernoa Grantor Trust Two, of which Mrs. Jandernoa is trustee and
under which
12
she has a reversionary interest; and 339,204 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.
(4) Shares owned include 3,000 shares owned as custodian for Mr. Morris' minor
children.
(5) Shares owned include 56,472 shares owned by trusts for the benefit of Mr.
Olesnavage's children, of which Mr. Olesnavage is trustee.
(6) Shares owned include 266 shares owned by the Mary Hendrickson Trust, of
which Bank One is trustee.
(7) See footnotes 1 through 6.
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 71,132,535 shares
of Perrigo common stock outstanding as of September 1, 2004.
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NAME AND ADDRESS SHARES OF COMMON STOCK PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
-----------------------------------------------------------------------------------------------------
Wellington Management Company, LLP(1) 8,792,005 12.4%
75 State Street
Boston, MA 02109
Royce & Associates, LLC(2) 6,306,900 8.9%
1414 Avenue of the Americas
New York, NY 10019
Barclays plc(3) 4,393,196 6.2%
54 Lombard Street
London, England EC3P3AH
(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 3,111,575 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, 2004. Of the listed
shares, Vanguard Specialized Funds-Vanguard Health Care Fund (100 Vanguard
Boulevard, Malvern, PA 19355) beneficially owns 5,322,320 shares, as
reported in a Schedule 13G filed with the Securities and Exchange
Commission on February 5, 2004 (7.5% based on shares outstanding as of
September 1, 2004), 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
5, 2004.
(3) Barclays Global Investors, NA has sole voting and investment power as to
2,713,995 of the shares, and Barclays Global Fund Advisors has sole voting
and investment power as to 1,261,318 of the shares. This information is
based on a Schedule 13G filed with the Securities and Exchange Commission
on February 13, 2004.
13
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 2004.
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 2004. 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 COMPENSATION
David T. Gibbons (2) 2004 $567,000 $1,073,520 -- $16,331
Chairman of the Board, President and 2003 $540,000 $ 847,800 -- 125,000 $22,860
Chief Executive Officer 2002 $500,000 $ 523,334 $439,875 -- $36,349
Mark P. Olesnavage (3) 2004 $327,719 $ 376,806 -- $15,957
Executive Vice President, General 2003 $323,000 $ 312,457 -- 35,000 $13,626
Manager--Perrigo Pharmaceuticals 2002 $320,490 $ 208,304 -- 50,000 $12,977
Douglas R. Schrank (4) 2004 $301,757 $ 376,806 $226,620 $16,036
Executive Vice President, 2003 $287,388 $ 312,457 -- 45,000 $14,254
Chief Financial Officer 2002 $274,000 $ 185,496 211,140 50,000 $13,246
John T. Hendrickson (5) 2004 $301,744 $ 376,806 $226,620 $15,603
Executive Vice President, General 2003 $282,188 $ 312,457 -- 45,000 $13,691
Manager--Perrigo Consumer Healthcare 2002 $258,750 $ 208,304 -- 50,000 $12,886
F. Folsom Bell (6) 2004 $253,344 $ 239,509 -- $17,240
Executive Vice President, 2003 $247,200 $ 198,607 -- 40,000 $15,180
Business Development 2002 $237,500 $ 132,404 -- 50,000 $13,994
(1) The following amounts were deferred from salary for fiscal year 2004: Mr.
Gibbons $48,000; and Mr. Hendrickson $12,000. The following amounts were
deferred from the Management Incentive Bonus for fiscal year 2004: Mr.
Hendrickson $16,000. 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.
(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.
All Other Compensation in fiscal year 2004 consists of a $6,150 matching
contribution under our 401(k) Plan; a $9,191 contribution under our Profit
Sharing Plan and $1,073
14
representing the taxable benefit for certain premium payments made on Mr.
Gibbons' behalf by us for Group Term Life Insurance.
(3) All Other Compensation in fiscal year 2004 consists of a $6,087 matching
contribution under our 401(k) Plan; a $9,191 contribution under our Profit
Sharing Plan; and $679 representing the taxable benefit for certain premium
payments made on Mr. Olesnavage's behalf by us for Group Term Life
Insurance.
(4) All Other Compensation in fiscal year 2004 consists of a $6,200 matching
contribution under our 401(k) Plan; a $9,191 contribution under our Profit
Sharing Plan; and $699 representing the taxable benefit for certain premium
payments made on Mr. Schrank's behalf by us for Group Term Life Insurance.
At the end of fiscal year 2004, Mr. Schrank held a total of 12,000 shares of
restricted stock with an aggregate value of $226,680. These restricted
shares were issued pursuant to our Long-Term Incentive Plan and vest on July
1, 2007. Mr. Schrank receives dividends on his restricted stock to the
extent we pay dividends on our common stock.
(5) All Other Compensation in fiscal year 2004 consists of a $6,112 matching
contribution under our 401(k) Plan; a $9,191 contribution under our Profit
Sharing Plan; and $300 representing the taxable benefit for certain premium
payments made on Mr. Hendrickson's behalf by us for Group Term Life
Insurance. At the end of fiscal year 2004, Mr. Hendrickson held a total of
12,000 shares of restricted stock with an aggregate value of $226,680. These
restricted shares were issued pursuant to our Long-Term Incentive Plan and
vest on July 1, 2007. Mr. Hendrickson receives dividends on his restricted
stock to the extent we pay dividends on our common stock.
(6) All Other Compensation in fiscal year 2004 consists of a $6,069 matching
contribution under our 401(k) Plan; a $9,191 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.
15
OPTION GRANTS IN FISCAL YEAR 2004
This table gives information relating to option grants to the named
executive officers during fiscal year 2004. All of the options were granted
under our Employee Stock Option Plan. Since our stockholders approved our 2003
Long-Term Incentive Plan at last year's Annual Meeting, no further grants have
been, or will be, made under the 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 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 12.6% $13.90 Aug. 20, 2013 $1,092,704 $2,769,128
Mark P. Olesnavage 43,693 4.4% $13.90 Aug. 20, 2013 $ 381,948 $ 967,932
Douglas R. Schrank 46,034 4.7% $13.90 Aug. 20, 2013 $ 402,412 $1,019,792
John T. Hendrickson 48,375 4.9% $13.90 Aug. 20, 2013 $ 422,877 $1,071,652
F. Folsom Bell 40,000 4.0% $13.90 Aug. 20, 2013 $ 349,665 $ 886,121
(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 20, 2003.
16
OPTION EXERCISES IN FISCAL YEAR 2004 AND
FISCAL YEAR-END 2004 OPTION VALUES
This table provides information regarding the exercise of options during
fiscal year 2004 and options outstanding at the end of fiscal year 2004 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 $18.89
(the closing price of Perrigo stock on June 25, 2004, the last trading day of
fiscal year 2004) 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
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE OPTIONS AT FISCAL YEAR END FISCAL YEAR END
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
David T. Gibbons 30,000 $429,000 632,501 462,499 $8,020,934 $4,440,490
Mark P. Olesnavage 0 $ 0 266,575 134,836 $2,491,144 $ 965,012
Douglas R. Schrank 17,594 $266,791 71,027 153,509 $ 634,726 $1,135,611
John T. Hendrickson 6,333 $ 91,069 86,143 141,184 $ 612,408 $ 993,329
F. Folsom Bell 0 $ 0 49,000 132,000 $ 362,024 $ 934,793
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
$567,000 in fiscal year 2004 and, effective July 1, 2004, the Board increased
his salary to $589,700.
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 $1,073,520 under the Plan in
fiscal year 2005 for fiscal year 2004. 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 $132,780 of his fiscal year
2004 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
17
cash transition bonus of $160,000. On June 30, 2003, the restrictions lapsed on
all 95,715 shares of Mr. Gibbons' restricted stock.
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, whether vested or
unvested, and any restricted stock, 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.
EQUITY COMPENSATION PLAN INFORMATION
The table below provides information about Perrigo's common stock that may
be issued upon the exercise of options and rights under all of our equity
compensation plans as of June 26, 2004. At last year's Annual Meeting held on
October 28, 2003, shareholders approved our 2003 Long-Term Incentive Plan. Prior
to the approval of the Long-Term Incentive Plan, equity compensation grants were
made under our shareholder-approved Employee Stock Option Plan and Non-Qualified
Stock Option Plan for Directors, as well as under our Restricted Stock Plan for
Directors II and certain individual restricted stock arrangements that were not
approved by shareholders. No
18
further grants will be made pursuant to the Employee Stock Option Plan,
Non-Qualified Stock Option Plan for Directors or Restricted Stock Plan for
Directors II.
--------------------------------------------------------------------------------------------------------------
(C)
NUMBER OF SECURITIES
(A) (B) REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, PLANS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
--------------------------------------------------------------------------------------------------------------
EQUITY COMPENSATION
PLANS APPROVED BY
SHAREHOLDERS 6,049,467(1) $10.70 4,250,018(2)
--------------------------------------------------------------------------------------------------------------
EQUITY COMPENSATION
PLANS NOT APPROVED
BY SHAREHOLDERS 0 -- 0
--------------------------------------------------------------------------------------------------------------
TOTAL 6,049,467 $10.70 4,250,018
--------------------------------------------------------------------------------------------------------------
(1) Options to purchase 96,424 shares were outstanding under the 2003 Long-Term
Incentive Plan, options to purchase 5,748,750 shares were outstanding under
the Perrigo Company Employee Stock Option Plan and options to purchase
204,293 shares were outstanding under the Non-Qualified Stock Option Plan
for Directors.
(2) All of these shares are available under the 2003 Long-Term Incentive Plan.
To the extent that options granted under the Employee Stock Option Plan or
the Non-Qualified Stock Option Plan for Directors are cancelled or
forfeited, the shares attributable to those options will become available
for issuance under the 2003 Long-Term Incentive Plan.
INDIVIDUAL ARRANGEMENT
In July 2002, we granted John R. Nichols, a member of our law department,
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 2004, 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 Chief Executive Officer's salary and bonus and any stock-based
incentive awards granted to him under the 2003 Long-Term Incentive Plan are
approved by the independent directors after review and recommendation by the
Committee. The Committee reviews and approves the compensation arrangements for
all other Executive
19
Officers with respect to their salaries, bonuses and stock-based incentive
awards under the 2003 Long-Term Incentive 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.
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. The Executive
Officers are also eligible to receive grants of stock-based incentive awards
under the 2003 Long-Term Incentive Plan.
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;
20
- 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.
Stock-Based Compensation
Certain designated key management employees, including the Chief Executive
Officer and other Executive Officers are eligible to participate in the 2003
Long-Term Incentive Plan approved by the shareholders. Awards under this plan
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. The number of stock-based incentive awards granted 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 2003 Long-Term
Incentive 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 plan, is the average of the high and
low prices of our stock on the date of the grant. The Committee views the grant
of stock-based incentive awards pursuant to the 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" on page 17. Mr. Gibbons' compensation is
reviewed and adjusted annually by the independent directors based upon the same
criteria used to evaluate and determine the appropriate compensation for other
Executive Officers. For fiscal year 2004, Mr. Gibbons was paid a base salary of
$567,000 under the terms of his Employment Agreement and a bonus of $1,073,520
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 the
21
Executive Officers, including stock-based incentive awards, in fiscal year 2004
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.
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. Due to the
vesting during fiscal 2004 of 95,715 shares of non-performance-based restricted
stock granted to Mr. Gibbons in May 2000 pursuant to the terms of his employment
agreement, $1,380,832 of Mr. Gibbons' fiscal 2004 taxable compensation was not
deductible.
Peter R. Formanek, Chairman
Herman Morris, Jr.
Judith A. Hemberger
22
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 July 3, 1999 through June 26, 2004. 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 1999 through
2004 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]
-----------------------------------------------------------------------------------------------------------
7/3/1999 7/1/2000 6/30/2001 6/29/2002 6/28/2003 6/26/2004
-----------------------------------------------------------------------------------------------------------
Perrigo Company $100 $ 74 $195 $152 $185 $223
Nasdaq Stock Market (U.S.) $100 $145 $ 79 $ 54 $ 60 $ 74
Nasdaq Pharmaceutical $100 $225 $189 $111 $154 $170
23
AMENDMENT OF ARTICLES OF INCORPORATION
Article VII, paragraph 1 of our Articles of Incorporation provides that
"the number of directors of the corporation shall not be less than one (1) nor
more than nine (9), the exact number of which shall be determined from time to
time by the affirmative vote of a majority of the whole Board of Directors." The
current size of the Board of Directors is fixed at nine, and the number of
directors may not be increased above nine without stockholder approval of an
amendment to our Articles of Incorporation.
The Board of Directors believes that it is in the best interests of the
company and our stockholders to increase the maximum number of directors that
may be fixed from time to time from nine to eleven. The Board has approved, and
recommends that our stockholders approve, a proposal to amend Article VII,
paragraph 1 of our Articles of Incorporation as follows:
"1. The number of directors of the corporation shall not be less than
one (1) nor more than eleven (11), the exact number of which shall
be determined from time to time by the affirmative vote of a
majority of the whole Board of Directors."
The principal purpose of the proposed amendment to our Articles of
Incorporation is to provide our Board with more flexibility in determining the
number of directors on the Board. An increase in the maximum number of directors
that may serve on the Board will allow the Board to increase its size and add
directors with different backgrounds and experiences while at the same time
ensuring continuity on the Board. In addition, our Board currently is comprised
of seven independent directors and two non-independent directors and has
established three, three-member, independent Board committees: the Audit
Committee, the Compensation Committee and the Nominating & Governance Committee,
with some independent directors serving on more than one committee. The
amendment would enable the Board to increase the number of independent directors
and establish Board committees in a manner that would potentially permit each
independent director to dedicate his or her time to serving on only one Board
committee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
THE APPROVAL OF THE AMENDMENT OF OUR ARTICLES OF INCORPORATION.
24
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. The Board has adopted an Audit Committee
Charter, which it reviews annually based upon input from the Committee.
In connection with the June 26, 2004 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 their 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 26, 2004
filed with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
Larry D. Fredricks, Chairman
Laurie Brlas
Herman Morris, Jr.
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INDEPENDENT ACCOUNTANTS
BDO Seidman, LLP has been Perrigo's independent registered public
accounting firm since 1988. The Board has engaged BDO Seidman, LLP as our
independent registered public accountants for fiscal year 2005. 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 2004 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 2004 Fiscal Year 2003
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Audit Fees $536,000 Audit Fees $349,000
Audit-Related Fees 180,000 Audit-Related Fees 130,000
Tax Fees 38,000 Tax Fees 19,000
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Total $754,000 Total $498,000
Audit-related fees in 2003 and 2004 were for benefit plan audits and due
diligence services, and in 2004 were also for internal control review services.
Tax fees related primarily to tax compliance services.
The Audit Committee maintains 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 by our independent auditors, subject to the de
minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of
the Securities Exchange Act of 1934 that are approved by the Audit Committee
prior to the completion of our audit. The Chairman of the Audit Committee, or
any other member or members designated by the Audit Committee, is 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.
ANNUAL REPORT ON FORM 10-K
A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 26,
2004, 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 TODD W. KINGMA, SECRETARY, PERRIGO COMPANY, 515 EASTERN AVENUE, ALLEGAN,
MICHIGAN 49010.
26
(PERRIGO LOGO)
[PERRIGO LOGO] ----------------------------------------------
c/o National City Bank VOTE BY TELEPHONE
Corporate Trust Operations ----------------------------------------------
Locator 5352
P.O. Box 92301 Have your proxy card available when you call
Cleveland, OH 44193-0900 the TOLL-FREE NUMBER 1-800-542-1160 using a
Touch-Tone phone. You will be prompted to
enter your control number and then you can
follow the simple prompts that will be
presented to you to record your vote.
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VOTE BY INTERNET
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Have your proxy card available when you access
the website HTTP://WWW.VOTEFAST.COM. You will
be prompted to enter your control number and
then you can follow the simple prompts that
will be presented to you to record your vote.
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VOTE BY MAIL
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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 THURSDAY OCTOBER 28, 2004 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. \/
.................................................................................
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 29, 2004.
The undersigned hereby appoints Douglas R. Schrank and Todd W. Kingma, 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 1, 2004, at the Annual Meeting of Shareholders to be
held on October 29, 2004 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: , 2004
--------------------------------
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. \/
.................................................................................
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 2007.
Nominees: (01) Laurie Brias (02) Larry D. Fredricks (03) Michael J. Jandernoa
/ / 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 proposed amendment of the Company's Articles of Incorporation
to increase the maximum number of directors that may serve on the Board.
/ / 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.