SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
JOHNSON & JOHNSON
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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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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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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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:
[Johnson & Johnson Logo]
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
March 16, 2005
The Annual Meeting of the Shareholders of Johnson & Johnson will be held on
Thursday April 28, 2005 at 10:00 a.m. at the Hyatt Regency Hotel, Two Albany
Street, New Brunswick, New Jersey, to:
1. Elect directors;
2. Approve the 2005 Long-Term Incentive Plan;
3. Ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors for 2005; and
4. Transact such other business as may properly come before the meeting.
Shareholders are cordially invited to attend the meeting. PLEASE NOTE OUR
ADMISSION CARD PROCEDURES:
- If you are a registered shareholder, there is a box on the proxy card
which you should mark to request an Admission Card if you plan to attend.
- If you are a registered shareholder and vote by telephone or the
Internet, there will be applicable instructions to follow when voting to
indicate if you would like to receive an Admission Card.
- If you are a shareholder whose shares are not registered in your own name
and you plan to attend, you must request an Admission Card by writing to
the Office of the Corporate Secretary, Johnson & Johnson, One Johnson &
Johnson Plaza, New Brunswick, New Jersey 08933. Evidence of your stock
ownership, which you can obtain from your bank or stockbroker, must
accompany your letter.
If you are unable to attend the meeting, you will be able to access the
meeting on the Internet. The Company will broadcast the meeting as a Webcast
through the Johnson & Johnson Web site at www.jnj.com. The Webcast will remain
available for replay for three months following the meeting. Visit the Johnson &
Johnson Web site at www.jnj.com and click on the Calendar of Events in the
Investor Relations section for details.
By order of the Board of Directors,
MICHAEL H. ULLMANN
Secretary
YOU CAN VOTE IN ONE OF THREE WAYS:
(1) Use the toll-free telephone number on your proxy card to vote by phone;
(2) Visit the Web site noted on your proxy card to vote via the Internet;
or
(3) Sign, date and return your proxy card in the enclosed envelope to vote
by mail.
Shareholders are invited to visit the Corporate Governance section of our
Web site at www.investor.jnj.com/governance.
GENERAL INFORMATION
SHAREHOLDERS ENTITLED TO VOTE. Holders of shares of the Common Stock of
the Company of record at the close of business on March 1, 2005 are entitled to
notice of and to vote at the Annual Meeting of Shareholders and at any and all
adjournments or postponements of the meeting. Each share entitles its owner to
one vote. The holders of a majority of the shares entitled to vote at the
meeting must be present in person or represented by proxy in order to constitute
a quorum for all matters to come before the meeting. On the record date there
were 2,973,666,464 shares outstanding.
Other than the election of directors, which requires a plurality of the
votes cast, each matter to be submitted to the shareholders requires the
affirmative vote of a majority of the votes cast at the meeting. For purposes of
determining the number of votes cast with respect to a particular matter, only
those cast "For" or "Against" are included. Abstentions and broker non-votes are
counted only for purposes of determining whether a quorum is present at the
meeting.
HOW TO VOTE. Shareholders of record (that is, shareholders who hold their
shares in their own name) can vote any one of three ways:
(1) By Mail: Sign, date and return your proxy card in the enclosed
postage-paid envelope. If you sign and return your proxy card but do not
give voting instructions, the shares represented by that proxy will be
voted as recommended by the Board of Directors.
(2) By Telephone: Call the toll-free number on your proxy card to vote
by phone. You will need to follow the instructions on your proxy card and
the voice prompts.
(3) By Internet: Go to the Web site listed on your proxy card to vote
through the Internet. You will need to follow the instructions on your
proxy card and the Web site. If you vote through the Internet, you may
incur telephone and Internet access charges.
If you vote by telephone or the Internet, your electronic vote authorizes
the named proxies in the same manner as if you signed, dated and returned your
proxy card. IF YOU VOTE BY TELEPHONE OR THE INTERNET, YOU SHOULD NOT RETURN YOUR
PROXY CARD.
If your shares are held in the name of a bank, broker or other holder of
record (that is, "street name"), you will receive instructions from the holder
of record that you must follow in order for your shares to be voted. Telephone
and Internet voting also will be offered to shareholders owning shares through
most banks and brokers.
PROXY SOLICITATION. The accompanying proxy is solicited by the Board of
Directors of the Company. In that connection, this Proxy Statement is being
mailed to the shareholders on or about March 16, 2005 concurrently with the
mailing of the Company's 2004 Annual Report. In addition to this solicitation by
mail, several regular employees of the Company may solicit proxies in person or
by telephone. The Company has also retained the firm of Georgeson Shareholder
Communications, Inc. to aid in the solicitation of brokers, banks and
institutional and other shareholders for a fee of approximately $12,500, plus
reimbursement of expenses. All costs of the solicitation of proxies will be
borne by the Company. On the accompanying proxy a shareholder may substitute the
name of another person in place of those persons presently named as proxies. In
order to vote, a substitute must present adequate identification to the
Secretary before the voting occurs.
CHANGING YOUR VOTE. You may change your vote at any time before the proxy
is exercised. If you voted by mail, you may revoke your proxy at any time before
it is voted by executing and delivering a timely and valid later-dated proxy, by
voting by ballot at the meeting or by giving written notice to the Secretary. If
you voted by telephone or the Internet you may also change your vote with a
timely and valid later telephone or Internet vote, as the case may be.
Attendance at the meeting will not have the effect of revoking a proxy unless
you give proper written notice of revocation to the Secretary before the proxy
is exercised or you vote by written ballot at the meeting.
2
ELECTRONIC DELIVERY OF PROXY MATERIALS AND ANNUAL REPORT. This Proxy
Statement and the Company's 2004 Annual Report are available on the Company's
Web site at www.jnj.com. Instead of receiving paper copies of next year's Proxy
Statement and Annual Report in the mail, shareholders can elect to receive an
e-mail message which will provide a link to these documents on the Web site. By
opting to access your proxy materials online, you will save the Company the cost
of producing and mailing documents to you, reduce the amount of mail you receive
and help preserve environmental resources. Johnson & Johnson shareholders who
have enrolled in the electronic proxy delivery service previously will receive
their materials online this year.
Shareholders of record may enroll in the electronic proxy and Annual Report
access service for future Annual Meetings of Shareholders by registering online
at www.econsent.com/jnj. If you vote by Internet, simply follow the prompts that
will link you to www.econsent.com/jnj. Beneficial or "street name" shareholders
who wish to enroll in electronic access service should review the information
provided in the proxy materials mailed to them by their bank or broker.
JOHNSON & JOHNSON EMPLOYEE SAVINGS PLANS. If you are an employee and hold
stock in one of the Johnson & Johnson employee savings plans, you will receive
one proxy card which covers those shares held for you in your savings plan, as
well as any other shares registered in your own name. If you vote in any of the
three ways described above by 5:00 p.m. on April 26, the Trustee of your savings
plan will vote your shares as you have directed. In accordance with the terms of
the Johnson & Johnson Savings Plan and the Johnson & Johnson Puerto Rico
Retirement Savings Plan, if you hold shares in either Plan and do not vote, the
Plan Trustee will vote your shares in direct proportion to the shares held in
that Plan for which votes will be cast. If you hold shares in any other Johnson
& Johnson employee savings plan, including the Savings Plan for Union
Represented Employees, and do not vote, the Plan Trustee will not vote your
shares. Participants in the Johnson & Johnson employee savings plans may attend
the Annual Meeting. However, shares held in those plans can only be voted as
described in this paragraph, and cannot be voted at the meeting.
REDUCE DUPLICATE MAILINGS. The Company is required to provide an Annual
Report to all shareholders who receive this Proxy Statement. If you are a
shareholder of record and have more than one account in your name or at the same
address as other shareholders of record, you may authorize the Company to
discontinue mailings of multiple Annual Reports. To do so, mark the designated
box on each proxy card for which you wish to discontinue receiving a duplicate
Annual Report. If you are voting by telephone or the Internet you can either
follow the prompts when you vote or give us instructions to discontinue mailings
of future duplicate Annual Reports.
SHAREHOLDER PROPOSALS. To be included in the Board of Directors' Proxy
Statement and proxy card for the 2006 Annual Meeting of Shareholders, a
shareholder proposal must be received by the Company on or before November 16,
2005. In addition, under the terms of the Company's By-Laws, a shareholder who
intends to present an item of business at the 2006 Annual Meeting of
Shareholders (other than a proposal submitted for inclusion in the Company's
proxy materials) must provide notice of such business to the Company on or
before November 16, 2005. Proposals and other items of business should be
directed to the attention of the Secretary at the principal office of the
Company, One Johnson & Johnson Plaza, New Brunswick, New Jersey 08933.
ITEM 1: ELECTION OF DIRECTORS
NOMINEES. There are 12 nominees for election as directors of the Company
to hold office until the next Annual Meeting and until their successors have
been duly elected and qualified.
If the enclosed proxy is properly executed and received in time for the
meeting, it is the intention of the persons named in the proxy to vote the
shares represented thereby for the persons nominated for election as directors
unless authority to vote shall have been withheld. If any nominee should refuse
or be unable to serve, an event which is not anticipated, the proxy will be
voted for such person as shall be designated by the Board of Directors to
replace such nominee or, in lieu thereof, the Board of Directors may reduce the
number of directors.
3
All of the nominees were elected to the Board at the last Annual Meeting
and all are currently serving as directors of the Company, except for Dr.
Michael M. E. Johns and Ms. Christine A. Poon, each of whom is a nominee for the
first time. In keeping with the Board's policy on retirement of directors, Dr.
Gerard Burrow and Dr. M. Judah Folkman are not standing for re-election. In
addition, as previously announced, Mr. Henry Schacht has decided not to stand
for re-election.
Following are summaries of the background, business experience and
descriptions of the principal occupations of the nominees.
[Mary Sue Coleman MARY SUE COLEMAN, Ph.D., President, University of Michigan.
Photo] Dr. Coleman, 61, was elected to the Board of Directors in
2003 and is a member of the Audit Committee and the Science
& Technology Advisory Committee. She has served as President
of the University of Michigan since August 2002, after
having served as President of the University of Iowa from
1995 to July 2002. In addition to her current position as
President, Dr. Coleman is a professor of biological
chemistry in the University of Michigan Medical School and a
professor of chemistry in the University of Michigan College
of Literature, Science and the Arts. Prior to 1995, Dr.
Coleman served as Provost and Vice President for Academic
Affairs at the University of New Mexico, Vice Chancellor for
Graduate Studies & Research and Associate Provost and Dean
of Research at the University of North Carolina at Chapel
Hill, and a member of the biochemistry faculty and an
administrator at the Cancer Center of the University of
Kentucky in Lexington. Elected to the National Academy of
Sciences' Institute of Medicine in 1997, Dr. Coleman is a
Fellow of the American Academy of Arts and Sciences and the
American Association for the Advancement of Science. Dr.
Coleman is a director of Meredith Corporation and a Trustee
of the John S. and James L. Knight Foundation and the Gerald
R. Ford Foundation.
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[James G. Cullen JAMES G. CULLEN, Retired President and Chief Operating
Photo] Officer, Bell Atlantic Corporation.
Mr. Cullen, 62, was elected to the Board of Directors in
1995 and is the Presiding Director of the Board, Chairman of
the Audit Committee and a member of the Nominating &
Corporate Governance Committee. Mr. Cullen retired as
President and Chief Operating Officer of Bell Atlantic
Corporation in 2000. He had assumed those positions in 1998,
after having been Vice Chairman since 1995 and, prior to
that, President since 1993. He was President and Chief
Executive Officer of Bell Atlantic-New Jersey, Inc. from
1989 to 1993. He is a Director of Neustar, Inc. (private
company) and Prudential Life Insurance Company and a
Director and non-executive Chairman of Agilent Technologies,
Inc.
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4
[Robert J. Darretta ROBERT J. DARRETTA, Vice Chairman, Board of Directors; Chief Financial Officer and Member,
Photo] Executive Committee.
Mr. Darretta, 58, was elected to the Board of Directors in 2002. Mr. Darretta joined the
Company in 1968 and held several accounting and finance positions before becoming Managing
Director of Ethicon Italy in 1985. He was named President of IOLAB Corporation in 1988 and
in 1995 became Treasurer of the Company. Mr. Darretta was named Vice President, Finance
and Chief Financial Officer and appointed to the Executive Committee in 1997. He was
appointed Executive Vice President in 2002 and Vice Chairman in January 2004.
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[Michael M. E. Johns MICHAEL M. E. JOHNS, M.D., Executive Vice President for Health Affairs, Emory University;
Photo] Chief Executive Officer of the Robert W. Woodruff Health Sciences Center, Emory
University; Chairman of Emory Healthcare, Emory University.
Dr. Johns, 63, has served since June 1996 as Executive Vice President for Health Affairs
and Chief Executive Officer of the Robert W. Woodruff Health Sciences Center, Emory
University; Chairman of Emory Healthcare, Emory University. As the Executive Vice
President for Health Affairs of Emory University, he oversees Emory University's
widespread academic and clinical programs in health sciences and leads strategic planning
initiatives for both patient care and research. In addition, since 1996, Dr. Johns has
served as the Chairman of the Board of Emory Healthcare, the largest health care system in
Georgia. From 1990 to 1996, Dr. Johns served as Dean of the Johns Hopkins School of
Medicine and Vice President of the Medical Faculty at Johns Hopkins University. Dr. Johns
is a Director of Genuine Parts Company.
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[Ann Dibble Jordan ANN DIBBLE JORDAN, Former Director, Social Services Department, Chicago Lying-In Hospital,
Photo] University of Chicago Medical Center.
Mrs. Jordan, 70, was elected to the Board of Directors in 1981 and is a member of the
Compensation & Benefits Committee and the Chairman of the Public Policy Advisory
Committee. She assumed her previous responsibilities at Chicago Lying-In Hospital in 1970
after having served as a Caseworker and then a Senior Caseworker at the University of
Chicago Hospital. She is also a former Assistant Professor at the University of Chicago
School of Social Service Administration. She is a Director of Automatic Data Processing,
Catalyst and Citigroup Inc. Mrs. Jordan is also a Director of The Phillips Collection, The
National Symphony Orchestra (Chairman of the Board), Sloan Kettering Medical Center, The
University of Chicago and WETA (public broadcasting station).
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5
[Arnold G. Langbo ARNOLD G. LANGBO, Retired Chairman of the Board and Chief
Photo] Executive Officer, Kellogg Company.
Mr. Langbo, 67, was elected to the Board of Directors in
1991 and is a member of the Nominating & Corporate
Governance Committee and Chairman of the Compensation &
Benefits Committee. Mr. Langbo retired as Chairman of the
Board of Kellogg Company in 2000. He had held that position
since 1992 after having been President and Chief Operating
Officer of Kellogg since 1990. He also served as Chief
Executive Officer from 1992 until 1999. Mr. Langbo joined
Kellogg Canada Inc. in 1956 and served in a number of
management positions in Canada and the United States before
being named President of Kellogg International in 1986. Mr.
Langbo is a Director of Weyerhaeuser Company, Whirlpool
Corporation and The International Youth Foundation.
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[Susan L. Lindquist SUSAN L. LINDQUIST, Ph.D., Member and Former Director,
Photo] Whitehead Institute for Biomedical Research; Professor of
Biology, Massachusetts Institute of Technology.
Dr. Lindquist, 55, was elected to the Board of Directors in
2004 and is a member of the Science & Technology Advisory
Committee and the Public Policy Advisory Committee. Since
2001, Dr. Lindquist has concurrently been affiliated with
Whitehead Institute, a non-profit, independent research and
educational institution, and served as a Professor of
Biology at Massachusetts Institute of Technology. Dr.
Lindquist served as Director of Whitehead Institute from
2001 to 2004 and currently serves as a Member. Previously
she had been affiliated with the University of Chicago for
over 20 years, most recently as the Albert D. Lasker
Professor of Medical Sciences in the Department of Molecular
Genetics and Cell Biology. Between 1988 and 2001, Dr.
Lindquist was also an Investigator in the Howard Hughes
Medical Institute. She was elected to the American Academy
of Arts and Sciences in 1996 and the National Academy of
Sciences in 1997 and became a Fellow in the American Academy
of Microbiology in 1997. Dr. Lindquist has received the
Dickson Prize in Medicine (2002) and the Novartis Drew Award
in Biomedical Research (2000) and in 2002 was named by
Discover Magazine as one of the 50 most important women in
science. She is a Director of Fold-Rx, a private start-up
company.
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6
[Leo F. Mullin Photo] LEO F. MULLIN, Retired Chairman and Chief Executive Officer, Delta Air Lines, Inc.
Mr. Mullin, 62, was elected to the Board of Directors in 1999 and is a member of the Audit
Committee and the Nominating & Corporate Governance Committee. Mr. Mullin retired as Chief
Executive Officer of Delta in December 2003 and Chairman in May 2004, after having served
as Chief Executive Officer of Delta since 1997 and Chairman since 1999. Mr. Mullin
currently serves as a Senior Advisor, on a part-time basis, to Goldman Sachs Capital
Partners, a private equity fund group. Mr. Mullin was Vice Chairman of Unicom Corporation
and its principal subsidiary, Commonwealth Edison Company, from 1995 to 1997. He was an
executive of First Chicago Corporation from 1981 to 1995, serving as that company's
President and Chief Operating Officer from 1993 to 1995, and as Chairman and Chief
Executive Officer of American National Bank, a subsidiary of First Chicago Corporation,
from 1991 to 1993. Mr. Mullin is also a Director of BellSouth Corporation and the Juvenile
Diabetes Research Foundation. He is a member of The Business Council.
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[Christine A. Poon CHRISTINE A. POON, Vice Chairman; Worldwide Chairman, Medicines & Nutritionals; and
Photo] Member, Executive Committee.
Ms. Poon, 52, joined the Company in 2000 as a Company Group Chairman in the
Pharmaceuticals Group. Ms. Poon became a Member of the Executive Committee and Worldwide
Chairman, Pharmaceuticals Group in 2001, was named Worldwide Chairman, Medicines &
Nutritionals in 2003 and was appointed Vice Chairman of the Company in January 2005. Prior
to joining the Company, she served in various management positions at Bristol-Myers Squibb
for 15 years, most recently as President of International Medicines (1998-2000) and
President of Medical Devices (1997-1998).
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[Steven S Reinemund STEVEN S REINEMUND, Chairman and Chief Executive Officer, PepsiCo.
Photo] Mr. Reinemund, 56, was elected to the Board of Directors in 2003 and is a member of the
Compensation & Benefits Committee and the Nominating & Corporate Governance Committee. Mr.
Reinemund has been Chairman and Chief Executive Officer of PepsiCo since May 2001. He was
elected a director of PepsiCo in 1996 and before assuming his current position, served as
President and Chief Operating Officer from September 1999 until May 2001. Mr. Reinemund
began his career with PepsiCo in 1984 at Pizza Hut, Inc. and held various management
positions until 1992 when he became President and Chief Executive Officer of Frito-Lay,
Inc., and Chairman and Chief Executive Officer of the Frito-Lay Company in 1996. Mr.
Reinemund also serves on the Board of The United Negro College Fund.
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7
[David Satcher, M.D., DAVID SATCHER, M.D., Ph.D., Interim President, Morehouse
Ph.D. Photo] School of Medicine.
Dr. Satcher, 64, was elected to the Board of Directors in
2002 and is a member of the Science & Technology Advisory
Committee and the Public Policy Advisory Committee. Dr.
Satcher assumed his current post at Morehouse School of
Medicine in December 2004, after having served as Director
of the School's National Center for Primary Care since
September 2002. In February 2002, Dr. Satcher completed his
four-year term as the Surgeon General of the United States.
He also served as the U.S. Assistant Secretary for Health
from February 1998 to January 2001. From 1993 to 1998, Dr.
Satcher served as Director of the Centers for Disease
Control and Prevention and Administrator of the Agency for
Toxic Substances and Disease Registry. Dr. Satcher served as
President of Meharry Medical College in Nashville, Tennessee
from 1982 to 1993. Dr. Satcher is a fellow of the American
Academy of Family Physicians, the American College of
Preventive Medicine and the American College of Physicians.
He has received numerous honorary degrees and awards,
including the Jimmy and Rosalynn Carter Award for
Humanitarian Contributions to the Health of Humankind, the
New York Academy of Medicine Lifetime Achievement Award and
the National Association of Mental Illness Distinguished
Service Award. Dr. Satcher serves on the Boards of Action
for Healthy Kids, American Foundation for Suicide
Prevention, Kaiser Family Foundation and Task Force on Child
Survival.
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[William C. Weldon WILLIAM C. WELDON, Chairman, Board of Directors and Chief
photo] Executive Officer; Chairman, Executive Committee.
Mr. Weldon, 56, was elected to the Board of Directors and
named Vice Chairman of the Board in 2001 and assumed his
current responsibilities in 2002. Mr. Weldon joined the
Company in 1971, and served in several sales, marketing and
international management positions before becoming President
of Ethicon Endo-Surgery in 1992 and Company Group Chairman
of Ethicon Endo-Surgery in 1995. He was appointed to the
Executive Committee and named Worldwide Chairman,
Pharmaceuticals Group in 1998. Mr. Weldon is the Vice
Chairman of The Business Council and a member of the
Sullivan Commission on Diversity in the Healthcare
Workforce. He is a Trustee of Quinnipiac University and
serves on the Liberty Science Center Chairman's Advisory
Council. Mr. Weldon also serves as a member of the Board of
Directors, Executive Committee member and Chairman of the
Pharmaceutical Research and Manufacturers of America. He has
been nominated as a Director of J.P. Morgan Chase & Co.
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DETERMINATION OF INDEPENDENCE
The Board of Directors has determined that the following directors (and
nominees), comprising all of the non-employee directors (and nominees), should
be deemed "independent" under the listing standards of the New York Stock
Exchange, as well as in the assessment of the Board: Dr. Coleman, Mr. Cullen,
Dr. Johns, Mrs. Jordan, Mr. Langbo, Dr. Lindquist, Mr. Mullin, Mr. Reinemund and
Dr. Satcher. In order to assist the Board in making this determination, the
Board has adopted "Standards of Independence" as part of the Company's
Principles of Corporate Governance, which are attached to this Proxy Statement
as Exhibit 2 and also available on the Company's Web site at
www.investor.jnj.com/governance. These Standards identify material
8
relationships that a director may have with the Company (or any affiliate) which
would interfere with the director's ability to exercise independent judgment.
Each of the directors identified above is deemed to meet the standards set forth
in those Standards of Independence.
STOCK OWNERSHIP/CONTROL
The following table sets forth information regarding beneficial ownership
of the Company's Common Stock owned by each director and each executive officer
named in the Summary Compensation Table and by all directors and executive
officers as a group. Each of the individuals/groups listed below is the owner of
less than one percent of the Company's outstanding shares. Because they serve as
co-trustees of two trusts which hold stock for the benefit of others, Messrs.
Weldon and Darretta "control" an additional 11,862,194 shares of the Company's
stock in which they have no economic interest. In addition to such shares, the
directors and executive officers as a group own/control a total of 1,032,461
shares, the aggregate of 12,894,655 shares representing less than 1% of the
shares outstanding. All stock ownership is as of February 18, 2005 (except
shares held in the Company's Savings Plans, which are listed as of January 31,
2005).
NUMBER OF COMMON STOCK SHARES UNDER
COMMON EQUIVALENT EXERCISABLE
NAME SHARES(1) UNITS(2) OPTIONS(3)
---- --------- ------------ ------------
Gerard N. Burrow............................. 9,156 7,257 33,250
Mary Sue Coleman............................. 637 1,802 7,600
James G. Cullen.............................. 65,643 18,933 33,250
Robert J. Darretta........................... 209,182 16,833 727,000
Russell C. Deyo.............................. 135,021 13,354 568,200
M. Judah Folkman............................. 2,300 11,452 27,250
Ann Dibble Jordan............................ 6,076 14,748 33,250
Arnold G. Langbo............................. 1,785 36,756 33,250
Susan L. Lindquist........................... 190 312 7,600
Leo F. Mullin................................ 6,408 8,390 26,250
Per A. Peterson.............................. 27,034 -- 353,900
Christine A. Poon............................ 44,821 4,192 310,000
Steven S Reinemund........................... 1,200 1,648 7,600
David Satcher................................ 660 2,193 13,900
Henry B. Schacht............................. 2,389 12,821 31,050
William C. Weldon............................ 207,482 15,587 1,228,175
All directors and executive officers as a
group(21).................................. 1,032,461 177,687 4,737,725
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(1) The shares described as "owned" are shares of the Company's Common Stock
owned by each listed person and by members of his or her household and are
held either individually, jointly or pursuant to a trust arrangement. The
directors and executive officers disclaim beneficial ownership of an
aggregate of 44,884 of these shares, including, 400 shares listed as owned
by Dr. Burrow, 30,000 shares listed as owned by Mr. Cullen, 7,583 shares
listed as owned by Mr. Deyo and 900 shares listed as owned by Mr. Langbo.
(2) Includes Common Stock equivalent units credited to non-employee directors
under the Deferred Fee Plan for Non-Employee Directors and Common Stock
equivalent units credited to the executive officers under the Executive
Income Deferral Plan.
(3) Includes shares under options exercisable on February 14, 2005 and options
which become exercisable within 60 days thereafter.
9
DIRECTORS' FEES, COMMITTEES AND MEETINGS
Directors who are employees of the Company receive no compensation for
their services as directors or as members of committees. On February 14, 2005,
the Board of Directors approved a new compensation plan for Non-Employee
Directors. The compensation plan in effect for fiscal year 2004, as well as the
new compensation plan, are described below:
PREVIOUS COMPENSATION PLAN (2004). Each Non-Employee Director received an
annual fee of $65,000 for his or her services as director. Of such annual fee,
$20,000 was required to be deferred in Common Stock equivalent units under the
Deferred Fee Plan for Non-Employee Directors until termination of his or her
directorship. In addition, directors received $5,000 for service on a committee
of the Board of Directors, or $8,000 if chairperson of the committee.
Non-Employee Directors were eligible to receive a meeting fee of $1,500 per day
if they attended a committee meeting held on a day other than a Board of
Directors meeting day. In fiscal year 2004, a total of $1,500 was paid to one
director for attending one such meeting. Meeting fees were not paid for
participating in telephonic committee meetings. Directors also received
non-retainer equity compensation each year in the form of a stock option grant.
The number of options granted was determined annually. In February 2004, the
Non-Employee Directors were each granted options to acquire 7,600 shares under
the Company's 2000 Stock Option Plan. Options granted to Non-Employee Directors
become exercisable on the first anniversary of the date of grant. In addition,
each director received an award valued at approximately $10,000 in the form of
the Company's Common Stock upon first becoming a member of the Board of
Directors.
NEW COMPENSATION PLAN (2005). Under the new compensation plan each
Non-Employee Director will receive an annual fee of $85,000 for his or her
services as director. In addition, Non-Employee Directors will receive $5,000
for service on a committee of the Board of Directors, or $15,000 if chairperson
of the committee. The Presiding Director is paid an additional annual fee of
$10,000. Non-Employee Directors are eligible to receive a meeting fee of $1,500
per day if they attend a committee meeting held on a day other than a Board of
Directors meeting day. Meeting fees are not paid for participating in telephonic
committee meetings. There will be no required deferral of fees into Common Stock
equivalent units; however, each Director may elect to defer all or any portion
of his or her fees into Common Stock equivalent units under the Deferred Fee
Plan for Non-Employee Directors until termination of his or her directorship.
Non-Employee Directors will no longer receive stock option grants. Instead,
under the 2005 Long-Term Incentive Plan being submitted to the shareholders for
approval at the Annual Meeting, each Non-Employee Director would receive
non-retainer equity compensation each year in the form of restricted stock
having a value of $100,000. In February 2005, the Non-Employee Directors were
each granted 1,511 shares of restricted stock under, and subject to shareholder
approval of, the 2005 Long-Term Incentive Plan. These shares of restricted stock
will not be issued unless such Plan is approved by the shareholders. In
addition, each future Non-Employee Director will receive a one-time grant of
1,000 shares of Company Common Stock upon first becoming a member of the Board
of Directors.
DEFERRED FEE PLAN FOR NON-EMPLOYEE DIRECTORS. Under the Deferred Fee Plan
for Non-Employee Directors, a director may elect to defer payment of all or a
part of the fees until or beyond termination of his or her directorship.
Deferred fees earn additional amounts based on a hypothetical investment in the
Company's Common Stock. (Directors who have served on the Board since prior to
January 1, 1996, instead may elect to "invest" deferred fees into units under
the Certificate of Extra Compensation Program, up to the time of termination of
his/her directorship. Currently, no Directors have elected this option.)
Deferred fees beyond termination of directorship can only earn additional
amounts based on a hypothetical investment in the Company's Common Stock. All
Common Stock equivalent units held in each Non-Employee Director's Deferred Fee
Account receive dividend equivalents.
ADDITIONAL ARRANGEMENTS. The Company pays for or provides (or reimburses
directors for out-of-pocket costs incurred for) transportation, hotel, food and
other incidental expenses related
10
to attending Board and committee meetings or participating in director education
programs and other director orientation or educational meetings. In addition,
directors are eligible to participate in the Company's matching gift program,
pursuant to which the Company will pay on a two-to-one basis up to $25,000 per
year in contributions to educational or certain other charitable institutions.
During the last fiscal year the Board of Directors held seven regularly
scheduled meetings and one special telephonic meeting. Each director attended at
least 75% of the total regularly scheduled and special meetings of the Board of
Directors and the committees on which he or she served, except for Dr. Folkman.
A discussion of the role of the Board of Directors in the Company's strategic
planning process can be found on the Company's Web site at
www.investor.jnj.com/governance in the Corporate Governance section.
The Board of Directors has a standing Audit Committee, Compensation &
Benefits Committee and Nominating & Corporate Governance Committee. Under their
Charters, each of these Committees is authorized and assured of appropriate
funding to retain and consult with external advisors, consultants and counsel.
The members of the Audit Committee are Dr. Coleman, Mr. Mullin, Mr. Schacht
and Mr. Cullen (Chairman). The Audit Committee is comprised entirely of
non-employee members of the Board of Directors, each of whom has been determined
to be "independent" under the listing standards of the New York Stock Exchange.
The Committee operates under a written charter adopted by the Board of
Directors, which is required to be provided to shareholders every three years,
unless amended earlier. A copy of the Charter of the Audit Committee is
available on the Company's Web site at www.investor.jnj.com/governance. The
Audit Committee assists the Board of Directors by providing oversight of
financial management and the independent auditors and ensuring that management
is maintaining an adequate system of internal control such that there is
reasonable assurance that assets are safeguarded and that financial reports are
properly prepared; that there is consistent application of generally accepted
accounting principles; and that there is compliance with management's policies
and procedures. In addition, the Audit Committee assists the Board in oversight
of legal compliance programs. In performing these functions, the Audit Committee
meets periodically with the independent auditors, management, and internal
auditors (including in private sessions) to review their work and confirm that
they are properly discharging their respective responsibilities. In addition,
the Audit Committee recommends the independent auditors for appointment by the
Board of Directors. The Audit Committee met five times during the last fiscal
year, plus four telephonic meetings were held prior to the release of the
quarterly earnings. Any employee or other person who wishes to contact the Audit
Committee to report fiscal improprieties or complaints about internal accounting
controls or other accounting or auditing matters can access and submit an e-mail
at www.jnj.com/AuditCommittee. The Board has determined that Mr. Cullen, the
Chairman of the Audit Committee and an independent director, is an "audit
committee financial expert" under the rules and regulations of the Securities
and Exchange Commission for purposes of Section 407 of the Sarbanes-Oxley Act.
The members of the Compensation & Benefits Committee are Mrs. Jordan, Mr.
Reinemund and Mr. Langbo (Chairman), each of whom has been determined to be
"independent" under the listing standards of the New York Stock Exchange. The
primary function of the Compensation & Benefits Committee is to discharge the
Board's duties and responsibilities relating to compensation of the Company's
directors and executive officers and oversee the management of the various
pension, savings, health and welfare plans that cover the Company's employees.
The Committee also reviews the compensation philosophy and policy of the
Management Compensation Committee, a non-Board committee composed of Mr. Weldon
(Chairman), Mr. Darretta (Vice Chairman), Ms. Poon (Vice Chairman) and Ms.
Foster-Cheek (Vice President, Human Resources), which determines management
compensation and establishes fringe benefit and other compensation policies
(except for executive officers of the Company). The Compensation & Benefits
Committee is also responsible for the administration of the Company's stock
option and equity plans and is the
11
approving authority for management recommendations with respect to stock option
and stock grants. During the last fiscal year there were five meetings of the
Compensation & Benefits Committee. A copy of the Charter of the Compensation &
Benefits Committee can be found on the Company's Web site at
www.investor.jnj.com/governance.
The members of the Nominating & Corporate Governance Committee are Dr.
Burrow, Mr. Cullen, Mr. Langbo, Mr. Mullin, Mr. Reinemund and Mr. Schacht
(Chairman). Each of the members of the Nominating & Corporate Governance
Committee has been determined to be "independent" under the listing standards of
the New York Stock Exchange. The Nominating & Corporate Governance Committee is
responsible for overseeing matters of corporate governance, including the
evaluation of the performance and practices of the Board of Directors. The
Committee also oversees the process for performance evaluations of each of the
Committees of the Board. It is also within the Charter of the Nominating &
Corporate Governance Committee to review the Company's management succession
plans and executive resources. In addition, the Nominating & Corporate
Governance Committee reviews possible candidates for the Board of Directors and
recommends the nominees for directors to the Board of Directors for approval.
The Nominating & Corporate Governance Committee met five times during the last
fiscal year. A copy of the Charter of the Nominating & Corporate Governance
Committee can be found on the Company's Web site at
www.investor.jnj.com/governance.
CORPORATE GOVERNANCE
DIRECTOR NOMINATION PROCESS. The Nominating & Corporate Governance
Committee reviews possible candidates for the Board of Directors and recommends
the nominees for directors to the Board of Directors for approval. The Board of
Directors has adopted General Criteria for Nomination to the Board of Directors,
which, as part of the Principles of Corporate Governance is posted on the
Company's Web site at www.investor.jnj.com/governance. These Criteria describe
specific traits, abilities and experience that the Nominating & Corporate
Governance Committee and the Board look for in determining candidates for
election to the Board. The Nominating & Corporate Governance Committee considers
suggestions from many sources, including shareholders, regarding possible
candidates for directors. Such suggestions, together with appropriate
biographical information, should be submitted to the Secretary of the Company at
One Johnson & Johnson Plaza, New Brunswick, New Jersey 08933. Possible
candidates who have been suggested by shareholders are evaluated by the
Nominating & Corporate Governance Committee in the same manner as are other
possible candidates. During the past year, the Nominating & Corporate Governance
Committee retained a third-party executive recruitment firm to assist the
Committee members in the process of identifying and evaluating potential
nominees for the Board.
Since the 2004 Annual Meeting of Shareholders, the Board of Directors has
elected no directors to the Board and has nominated Dr. Michael Johns and Ms.
Christine Poon for election at the Annual Meeting. Each of these individuals
were recommended for election and nominated by the independent directors on the
Nominating & Corporate Governance Committee.
SHAREHOLDER COMMUNICATION WITH THE BOARD. Shareholders, employees and
others may contact any of the Company's directors (including the Presiding
Director) by writing to them c/o Johnson & Johnson, One Johnson & Johnson Plaza,
Room WH 2133, New Brunswick, NJ 08933 USA. Shareholders, employees and others
may also contact any of the Non-Employee Directors by accessing and submitting
an e-mail at www.jnj.com/PresidingDirector. General comments to the Company
(including complaints or questions about a product) should be sent by accessing
www.jnj.com/contact _ us/general _ inquiries. The Company's process for handling
shareholder communications to the Board has been approved by the independent
directors and can be found at www.investor.jnj.com/governance/board.cfm.
CORPORATE GOVERNANCE MATERIALS. On the Company's corporate governance Web
site at www.investor.jnj.com/governance, shareholders can see the Company's
Principles of Corporate Governance, Charters of the Audit Committee,
Compensation & Benefits Committee and
12
Nominating & Corporate Governance Committee, the Policy on Business Conduct for
employees and the Code of Business Conduct & Ethics for Directors and Executive
Officers. Copies of these documents are available to shareholders without charge
upon written request to the Secretary at the Company's principal address.
ANNUAL MEETING OF SHAREHOLDERS. It has been the longstanding practice of
the Company for all directors to attend the Annual Meeting of Shareholders. All
directors who were elected to the Board at the last Annual Meeting were in
attendance, except for Dr. Coleman who was required to attend a meeting of the
Michigan Board of Regents.
EXECUTIVE SESSIONS. Each of the Audit, Compensation & Benefits and
Nominating & Corporate Governance Committees met at least twice during 2004 in
Executive Sessions without members of management present. The Non-Employee
Directors met six times during 2004 in Executive Sessions (following all but one
regularly scheduled Board Meeting) without the Chairman/CEO or any other member
of management present.
PRESIDING DIRECTOR. The Non-Employee Directors have selected Mr. Cullen to
serve as the Presiding Director. Among the basic duties and responsibilities of
the Presiding Director, as described in the Company's Principles of Corporate
Governance and as embedded in the Company's processes, are the following:
- Agenda for Board Meetings. The Presiding Director reviews in advance the
schedule of Board and Committee meetings and the agenda for each Board
meeting (and requests changes as he or she deems appropriate in order to
ensure that the interests and requirements of the independent directors
are appropriately addressed).
- Executive Sessions. The Presiding Director chairs and has the authority
to call and schedule Executive Sessions.
- Communication with Management. After each Executive Session of the
independent directors, the Presiding Director communicates with the
Chairman to provide feedback and also to effectuate the decisions and
recommendations of the independent directors. In addition, the Presiding
Director is expected to act as an intermediary between the non-employee
directors and management when special circumstances exist or
communication out of the ordinary course is necessary.
- Communication with Shareholders and Employees. Under the Board's
guidelines for handling shareholder and employee communications to the
Board, the Presiding Director is advised promptly of any communications
directed to the Board or any member of the Board that allege misconduct
on the part of Company management or raise legal, ethical or compliance
concerns about Company policies or practices.
- Evaluation of Chairman/Chief Executive Officer. The Presiding Director,
in conjunction with the Compensation & Benefits Committee, participates
in the annual performance evaluation of the Chief Executive Officer.
CONSULTING AGREEMENT. The Company has entered into a consulting agreement
with Dr. Folkman, a member of the Board, pursuant to which, at the Company's
request, he may attend and participate in occasional scientific meetings of the
Company and its affiliates. In 2004, Dr. Folkman attended no such meetings.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that during 2004 all reports for the Company's
executive officers and directors that were required to be filed under Section 16
of the Securities Exchange Act of 1934 were filed on a timely basis, except that
Mr. Langbo, a member of the Board, failed to file two reports to reflect two
sales of an aggregate of 194 shares of Common Stock executed by brokers for Mr.
Langbo's Individual Retirement Accounts in April 2003 and January 2004. These
transactions have subsequently been reported.
13
REPORT OF THE AUDIT COMMITTEE
The Audit Committee reports to and acts on behalf of the Board of Directors
by providing oversight of the financial management, legal compliance programs,
independent auditors and financial reporting controls and accounting policies
and procedures of the Company. The Company's management is responsible for
preparing the Company's financial statements and the independent auditors are
responsible for auditing those financial statements. The Audit Committee is
responsible for overseeing the conduct of these activities by the Company's
management and the independent auditors.
In this context, the Committee has met and held discussions with management
and the internal and independent auditors (including private sessions with the
internal auditors, the independent auditors, the Chief Financial Officer and the
General Counsel at each Audit Committee meeting). Management represented to the
Committee that the Company's consolidated financial statements were prepared in
accordance with generally accepted accounting principles, and the Committee has
reviewed and discussed the consolidated financial statements with management and
the independent auditors.
The Committee has discussed with the independent auditors matters required
to be discussed by the applicable Auditing Standards as periodically amended
(including significant accounting policies, alternative accounting treatments
and estimates, judgments and uncertainties). In addition, the independent
auditors provided to the Audit Committee the written disclosures required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), and the Committee and the independent auditors have discussed the
auditors' independence from the Company and its management, including the
matters in those written disclosures. Additionally, the Committee considered the
non-audit services provided by the independent auditors and the fees and costs
billed and expected to be billed by the independent auditors for those services
(as shown on page 34 of this proxy statement). All of the non-audit services
provided by the independent auditors since February 10, 2003, and the fees and
costs incurred in connection with those services, have been pre-approved by the
Committee in accordance with the Audit and Non-Audit Services Pre-Approval
Policy, as adopted by the Committee. (This policy is discussed in further detail
on page 35 of this proxy statement.) When approving the retention of the
independent auditors for these non-audit services, the Committee has considered
whether the retention of the independent auditors to provide those services is
compatible with maintaining auditor independence.
In reliance on the reviews and discussions with management and the
independent auditors referred to above, the Committee believes that the
non-audit services provided by the independent auditors are compatible with, and
did not impair, auditor independence.
The Committee also has discussed with the Company's internal and
independent auditors, with and without management present, their evaluations of
the Company's internal accounting controls and the overall quality of the
Company's financial reporting.
In further reliance on the reviews and discussions with management and the
independent auditors referred to above, the Audit Committee recommended to the
Board of Directors on February 14, 2005, and the Board has approved, the
inclusion of the audited financial statements in the Company's Annual Report on
Form 10-K for the fiscal year ended January 2, 2005, for filing with the
Securities and Exchange Commission. The Audit Committee also recommended to the
Board of Directors, and the Board has approved, subject to shareholder
ratification, the selection of the Company's independent auditors.
Mr. James G. Cullen, Chairman
Dr. Mary Sue Coleman
Mr. Leo F. Mullin
Mr. Henry B. Schacht
14
COMPENSATION & BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation & Benefits Committee is comprised of three independent
non-employee directors whose names are listed at the end of this report. These
directors meet the independence requirements of the New York Stock Exchange. The
Committee sets the principles and strategies that serve to guide the design of
the Company's employee compensation and benefit programs. The Committee annually
evaluates the performance of the Chairman/CEO, Vice Chairmen and other executive
officers. Taking the performance evaluations into consideration, the Committee
establishes and approves the compensation levels, including stock-based awards,
for the Chairman/CEO, Vice Chairmen and other executive officers with
consultation from an external compensation expert.
EXECUTIVE COMPENSATION PRINCIPLES
The Company's objective is to attract, retain, motivate and reward high
caliber executives who deliver superior short and long-term performance that
builds shareholder value. To achieve the Company's objective, the Committee has
set the following guiding principles in the design and administration of the
Company's compensation programs:
- Compensation should encourage behavior that is consistent with the
ethical values embodied in the Johnson & Johnson Credo.
- Executives' total compensation levels must be competitive with peer
companies and tied to relative shareholder returns.
- Incentive plans are designed to balance short-term and long-term
financial and strategic objectives that build shareholder value and
reward overall Company performance.
- Incentive compensation (both annual and long-term) is greater for more
senior positions as scope and level of business responsibilities
increase.
- Total compensation is managed following our "Pay for Performance"
philosophy such that individual compensation awards are tied to business
and individual performance with a portion of executive compensation
designed to create incentives for superior performance and consequences
for below target performance.
The Committee, working with an external compensation consultant, annually
evaluates the compensation of key executives against a group of 45 peer
companies. These companies have been chosen as a benchmark for establishing
executive compensation pay levels because of their relevance to Johnson &
Johnson for the attraction and retention of talent. This comparison group is
subject to occasional change as the Company or its competitors change their
focus, merge or are acquired, or as new competitors emerge.
COMPONENTS OF COMPENSATION PROGRAM
There are three major elements of Johnson & Johnson's compensation program:
base salary, annual incentive and long-term incentives.
BASE SALARY
The base salary for all employees exempt from the Fair Labor Standards Act,
which includes executives, is managed through the Johnson & Johnson Salary
Administration Program. Under this program, increases in base salary are
governed by guidelines covering three factors: merit (an individual's
performance); market parity (to adjust salaries of high performing individuals
based on the competitive market); and promotions (to reflect increases in
responsibility). In assessing market parity, the Company targets to pay base
salaries that are, overall, equal on average to the peer group of companies
referred to above.
15
These guidelines are set each year to reflect the competitive environment
and to control the overall cost of salary growth. Merit increases are based on
individual performance and can range from 0% to over 200% of the merit
guideline. Guidelines for market parity and promotion adjustments are as
approved in each operating company's budget. Those guidelines are determined
based on each operating company's overall competitive position with respect to
salaries paid versus the marketplace.
ANNUAL CASH AND STOCK INCENTIVE COMPENSATION PROGRAMS
To reward performance, Johnson & Johnson provides its executive officers
with additional compensation in the form of annual incentives which are
competitive with annual incentives provided by other companies in the peer
group. No fixed weighting or formula is applied by the Compensation & Benefits
Committee to corporate performance versus individual performance in determining
the annual incentive awards for the Chief Executive Officer and other executive
officers. The amounts of awards to executive officers are determined by the
Committee acting in its discretion subject to the maximum amounts specified in
the Company's Executive Incentive Plan. The Committee, acting in its discretion,
may determine to pay a lesser award than the maximum specified. In making these
determinations, the Committee considers such other matters as it deems relevant,
including recommendations by the Chief Executive Officer for awards for the
other executive officers. For the Chief Executive Officer and other executive
officers the amount of the total annual incentive is divided between cash and
stock awards at the discretion of the Committee.
LONG-TERM INCENTIVE
The Stock Option Plan is a long-term plan designed to link executive
rewards with shareholder value over time. Johnson & Johnson's award practice
uses a percentage of each year's base salary, expressed as a range of
opportunity, to arrive at the range of option shares available to be granted.
Individual grants are made annually and vary within that range based on
performance. This "annual multiple" approach results in grants which vary from
year to year based on assessed performance, stock price and base salary.
Additionally, stock options are administered based on guidelines that are
benchmarked annually and adjusted as appropriate based on that benchmark data.
This annual adjustment to guidelines may also result in variations in stock
option grants from year to year.
No stock option awards are made in the absence of satisfactory performance.
Performance is evaluated by the Compensation & Benefits Committee based on the
executive's individual contribution to the long-term health and growth of the
Company and the Company's performance based on the factors discussed above. No
fixed weighting or formula is applied to corporate performance versus individual
performance in determining stock option awards. Specifically, for the Chief
Executive Officer and other named executive officers, the Committee does not
apply a mathematical formula that relates financial and/or non-financial
performance to the number of options awarded.
In the event that the stock price declines to a level below the option
grant price, options are not revalued or reissued. Vesting in awards granted in
or after December 1997 generally occurs three years from date of grant.
The Board of Directors, acting on the recommendation of the Compensation &
Benefits Committee, unanimously approved a new long-term incentive plan, subject
to shareholder approval, and directed that it be submitted for consideration and
action at the next meeting of shareholders. The new long-term incentive plan,
attached to this Proxy Statement as Exhibit 1 and described in Item 2 of this
Proxy Statement, will provide a basis for future stock options and other awards
that are designed to attract, retain and reward employees responsible for
significant contributions to the Company's business. Under the terms of the
Company's existing plans, no further stock options will be granted under the
2000 Stock Option Plan and no further stock awards will be made under the 2000
Stock Compensation Plan after April 18, 2005.
16
CERTIFICATES OF EXTRA COMPENSATION (CECs) are performance units that
provide deferred compensation which is paid at the end of an executive's career
with the Company. CEC value is based on a formula composed of one-half of the
Company's net asset value and one-half of its earning power value, relative to
the number of shares of Johnson & Johnson Common Stock outstanding. Earning
power value is calculated by taking the capitalized value of earnings averaged
over the previous five years.
The CEC program is truly unique among our peer group and in industry in
general. Established in 1947, it reflects Johnson & Johnson's long-term
commitment and sends a strong message to executives that short-term decisions
must be made considering the impact on long-term performance and growth. No
awards are paid out to executives during employment. Although the units vest
over a five-year period from grant, the final value of those units is not
determined until retirement or termination of employment. The value of the
program is purely performance driven. The Company pays dividend equivalents on
CEC units on a quarterly basis at the same rate paid to shareholders on Johnson
& Johnson Common Stock.
Awards of CECs to the Chief Executive Officer and executive officers are
targeted to provide an above average long-term compensation opportunity as
compared to the peer companies. Award amounts are based on the Compensation &
Benefits Committee's evaluation of individual performance, based on the
executive's individual contribution to the long-term health and growth of the
Company and the Company's performance based on the factors discussed above. No
fixed weighting or formula is applied to corporate performance versus individual
performance in determining CEC awards.
PERFORMANCE MEASURES
The compensation of Johnson & Johnson's Chief Executive Officer is
determined by the Compensation & Benefits Committee based on its assessment of
the Company's financial and non-financial performance against the background of
the factors and principles outlined in the Credo. With respect to financial
performance, the Committee has identified several factors that are critical to
the success of the business, including Sales Growth, Earnings Per Share (EPS)
Growth, increase in Cash Flow, New Product Flow and growth in Shareholder Value.
In evaluating performance against these factors, Johnson & Johnson's results are
compared to results of a group of peer companies in the consumer,
pharmaceutical, medical device and diagnostics health care fields.
Sales Growth is measured as the percentage increase in sales volume from
one year to the next. EPS Growth is assessed in the same manner. Cash Flow is
measured as the Net Cash Flows from Operating Activities as reported in the
Consolidated Statement of Cash Flows. New Product Flow is assessed by reviewing
the percentage of sales resulting from the sale of new products introduced in
the past five years. Shareholder Value is measured as the increase in stock
price plus dividend return over a five-year period.
The Committee also reviews non-financial factors as part of the overall
evaluation of performance. Such non-financial factors typically include managing
Credo responsibilities, talent management (including developing a diverse,
superior talent pool), Process Excellence and progress in research and
development.
The Compensation & Benefits Committee believes it is crucial that these
financial and non-financial factors are managed well, in order to ensure
superior return to Johnson & Johnson's shareholders over the long-term.
Therefore, while performance in these areas is reviewed on an annual basis, the
primary consideration in assessing performance is corporate results over a
longer period, usually five years. No specific fixed weighting or formula is
applied to these factors in determining performance. Rather, the Compensation &
Benefits Committee exercises its judgment in evaluating these factors and in
determining appropriate compensation.
17
CHAIRMAN/CHIEF EXECUTIVE OFFICER COMPENSATION
In reviewing and approving compensation actions for the Chief Executive
Officer and the other executive officers, the Compensation & Benefits Committee
of the Board evaluated Johnson & Johnson's performance in 2004 versus financial
and non-financial goals.
Johnson & Johnson's performance for the most recent five year period ranked
in the upper half of the peer group companies in all financial factors
considered: Sales Growth, Shareholder Value, EPS Growth Rate and increase in
Cash Flow. The Company met its goal for New Product Flow. The Committee reviewed
details of five-year and most recent year sales growth, net earnings growth and
increase in cash flow for the Company overall and by each business segment. The
Committee considered Total Shareholder Return, which ranked in the upper half of
peer companies on a five-year basis. Overall, the Committee found that the
Company had outperformed, overall and in each business segment, peer industry
companies for each of these measures.
With respect to non-financial performance, management continued to excel in
the areas of managing Credo responsibilities, talent management, Process
Excellence and progress in research and development. Various initiatives
undertaken by Johnson & Johnson embody the principles of the Credo by addressing
its responsibilities to its customers, employees and the community. Progress
continued to be made in developing a high performing, superior talent pool, that
is also diverse in many ways, including race, gender, cultural background and
experiences. The Company realized significant results from various Process
Excellence initiatives, and progress was documented in new product development.
Details of the pharmaceutical and other new product pipelines were reviewed, and
the Committee determined that the Company was well positioned for continued
future growth.
The members of the Compensation & Benefits Committee met in Executive
Session with an external compensation consultant as part of their review. The
Committee also met in Executive Session to discuss compensation decisions for
all executive officers. The Committee assessed Mr. Weldon's overall current cash
compensation (base salary and annual incentive) in comparison to his long-term
compensation (stock option and CEC grants).
Mr. Weldon's base salary was set at $1,500,000 effective March 2004, which
reflects a 21.5% increase as a result of superior performance and to bring his
base salary to the competitive rate of CEOs in peer group companies.
In February 2005, the Committee awarded Mr. Weldon an annual incentive
payment (comprised of cash bonus and stock award) for performance in 2004 of
$2,500,000. This amount, which was above-target, reflects the Committee's
assessment of the Company's above-target performance. Awards in February 2005
under the 2000 Stock Option Plan and Certificate of Extra Compensation Program
were based on competitive practices and reflect the Compensation & Benefits
Committee's assessment of performance. The stock option awards shown in the
Summary Compensation Table and the CEC units shown as granted under Long-Term
Incentive Plans (on page 25 of this Proxy Statement) reflect awards made in
February 2005 for 2004 performance. These awards were made based upon the
Compensation & Benefits Committee's assessment of the Company's financial
performance in the five areas outlined above and its non-financial performance
against the background of the Credo as outlined above.
The above performance results were evaluated based on the overall judgment
of the Compensation & Benefits Committee with no fixed or specific mathematical
weighting applied to each element of performance. Based on the Compensation &
Benefits Committee's judgment, awards for 2004, in total, were consistent with
established targets.
TAX DEDUCTIBILITY CONSIDERATIONS
The Compensation & Benefits Committee has reviewed the Company's
compensation plans with regard to the deduction limitation under the Omnibus
Budget Reconciliation Act of 1993 (the
18
"Act") and the final regulations interpreting the Act that have been adopted by
the Internal Revenue Service and the Department of the Treasury. Based on this
review, the Committee has determined that the Johnson & Johnson Stock Option
Plans, as previously approved by shareholders, meet the requirements for
deductibility under the Act. In order to permit the future deductibility of
annual bonuses for certain executive officers of the Company, the Committee and
the Board of Directors have adopted an Executive Incentive Plan that was
approved by shareholders. As a result, all annual bonuses qualify as
performance-based and are not subject to the tax deductibility limitation of
Section 162(m). In addition, the Committee has approved the Executive Income
Deferral Plan that allows an individual to elect to defer a portion of base
salary, CEC dividend equivalents and cash and stock bonus awards. Participation
in the Plan is limited to Executive Committee members and is voluntary.
Accordingly, any amounts that would otherwise result in non-tax deductible
compensation may be deferred under the Plan. As a result of the implementation
of the Johnson & Johnson Executive Incentive Plan and elections made under the
Executive Income Deferral Plan, the Company maximizes the tax deduction
available under Section 162(m). However, in some cases, the Compensation &
Benefits Committee may elect to exceed the tax-deductible limits. This may be
necessary for the Company to meet competitive market pressures and to ensure
that it is able to attract and retain top talent to successfully lead the
organization.
Arnold G. Langbo, Chairman
Ann D. Jordan
Steven S Reinemund
19
SHAREHOLDER RETURN PERFORMANCE GRAPHS
Set forth below are line graphs comparing the cumulative total shareholder
return on the Company's Common Stock for periods of five years and ten years
ending December 31, 2004 against the cumulative total return of the Standard &
Poor's 500 Stock Index, the Standard & Poor's Pharmaceutical Index and the
Standard & Poor's Health Care Equipment Index. The graphs and tables assume that
$100 was invested on December 31, 1999 and December 31, 1994 in the Company's
Common Stock, the Standard & Poor's 500 Stock Index, the Standard & Poor's
Pharmaceutical Index and the Standard & Poor's Health Care Equipment Index and
that all dividends were reinvested.
FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN (1999-2004)
[LINE GRAPH]
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1999 2000 2001 2002 2003 2004
--------------------------------------------------------------------------------
Johnson & Johnson $100.00 $114.27 $130.06 $119.82 $117.34 $146.84
S&P 500 Index $100.00 $ 90.90 $ 80.10 $ 62.41 $ 80.30 $ 89.02
S&P Pharm Index $100.00 $136.30 $116.49 $ 93.15 $101.33 $ 93.82
S&P H/C Equip Index $100.00 $146.77 $139.30 $121.69 $160.65 $180.92
20
TEN-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN (1994-2004)
[LINE GRAPH]
----------------------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
----------------------------------------------------------------------------------------------------------------------------------
Johnson & Johnson $100.00 $159.10 $187.92 $252.42 $325.67 $366.21 $418.47 $476.31 $438.81 $429.73 $537.75
S&P 500 Index $100.00 $137.54 $169.09 $225.49 $289.92 $350.92 $318.98 $281.10 $219.00 $281.78 $312.41
S&P Pharm Index $100.00 $159.95 $200.73 $308.30 $459.36 $404.32 $551.08 $470.98 $376.61 $409.72 $379.34
S&P H/C Equip Index $100.00 $168.83 $196.37 $241.44 $341.81 $315.08 $462.43 $438.91 $383.42 $506.19 $570.06
21
EXECUTIVE COMPENSATION
The following table shows, for each of the last three fiscal years, the
annual compensation paid to or earned by the Company's Chief Executive Officer
and the other four most highly compensated executive officers in 2004 (the
"Named Officers") in all capacities in which they served:
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
------------------------------------ ------------
NAME OTHER
AND ANNUAL ALL OTHER
PRINCIPAL COMPEN- OPTIONS COMPEN-
POSITION YEAR SALARY($) BONUS($) SATION($) (#) SATION($)
--------- ---- ---------- ---------- ---------- ------------ ---------
(2) (3) (4)(5) (6)
William C. Weldon 2004 $1,459,231 $2,500,000 $1,626,386 410,000 $65,665
Chairman/CEO 2003 1,266,154 1,950,000 1,201,269 325,000 56,977
2002 1,097,115 1,207,500 787,924 450,000 49,370
Robert J. Darretta 2004 $ 950,000 $ 874,500 $1,012,660 160,000 $42,750
Vice Chairman/CFO 2003 873,077 759,750 701,534 150,000 39,288
2002 790,385 640,000 517,319 135,000 35,567
Christine A. Poon 2004 $ 792,308 $ 856,000 $ 420,164 185,000 $35,654
Vice Chairman/ 2003 685,385 660,000 316,789 175,000 30,157
Worldwide Chairman, 2002 590,385 508,250 256,028 135,000 26,567
Medicines & Nutritionals
Per A. Peterson 2004 $ 761,808 $ 798,750 $ 493,044 150,000 $34,281
Chairman, R&D 2003 744,231 660,000 391,339 150,000 33,490
Pharmaceuticals Group 2002 672,385 558,250 327,848 135,000 30,257
Russell C. Deyo 2004 $ 668,007 $ 689,000 $ 699,088 125,000 $30,063
Vice President, 2003 648,462 557,150 578,076 110,000 29,181
General Counsel; 2002 593,239 450,000 451,054 110,000 26,697
Chief Compliance Officer
------------------
(1) Includes amounts paid and deferred.
(2) Bonus amounts are comprised of cash and the fair market value of stock
awards on the date the awards are issued. Bonus amounts listed for 2004 were
awarded in February 2005 as compensation for performance in fiscal year
2004. Under Company policy, annual cash bonus and stock awards in
recognition of performance in any fiscal year are awarded in February of the
following year. The bonus amounts awarded to the Named Officers in February
2004 and 2003, as compensation for performance in the prior fiscal year, are
listed as compensation for 2003 and 2002, respectively.
(3) The amounts shown in this column cover: dividend equivalents paid under the
Certificate of Extra Compensation Program (long-term incentive plan, as
described further on page 25); amounts reimbursed for the payment of taxes;
life insurance premiums; and, the incremental cost to the Company of
providing perquisites and other personal benefits. SEC Rules require the
Company to report the value of perquisites and personal benefits made
available to a Named Officer if the aggregate amount in any year exceeds
$50,000. Any specific perquisite that exceeds 25% of the total value of all
reported perquisites for any individual must be reported as well. The
aggregate value of perquisites made available to Mr. Weldon in 2004 was
$112,480; and the only component of this amount which exceeded 25% of the
total was personal use of company aircraft, which was valued at $90,005. The
Company notes that
22
many other peer corporations require their chairman and certain other
executive officers to use company aircraft for personal as well as business
travel. As a result, at those corporations, personal use of company aircraft
by the chairman and those other executive officers is not treated as a
perquisite or personal benefit and the costs associated with such personal
use of company aircraft are not reported in the proxy statement. The Company
has not required the chairman and other executive officers to use corporate
aircraft for personal travel. Mr. Weldon is taxed on the imputed income
attributable to personal use of company aircraft and does not receive tax
assistance from the Company with respect to these amounts.
Any perquisites or other personal benefits received from the Company by any
of the other Named Officers or by Mr. Weldon in 2002 and 2003 were less than
the $50,000 reporting thresholds established by the SEC, but have been
included in the Summary Compensation Table.
The specific amounts included as "Other Annual Compensation" for 2004 are as
indicated in the table below:
TOTAL OTHER
DIVIDEND LIFE TAX ANNUAL
EQUIVALENTS INSURANCE REIMBURSEMENTS PERQUISITES COMPENSATION
----------- --------- -------------- ----------- ------------
William C. Weldon $1,500,150 $ 5,059 $ 8,697 $112,480 $1,626,386
Robert J. Darretta 967,980 6,561 9,688 28,431 1,012,660
Christine A. Poon 383,250 8,819 6,708 21,387 420,164
Per A. Peterson 443,475 23,385 20,934 5,250 493,044
Russell C. Deyo 659,190 5,648 4,179 30,071 699,088
(4) Stock option awards listed for 2004 were granted on February 14, 2005 in
recognition of performance in fiscal year 2004. The options were granted at
an exercise price equal to the fair market value of the Company's Common
Stock on the date of grant. All of the options become exercisable on the
third anniversary of date of grant, which is the same vesting schedule for
all executives granted options on such date.
(5) Stock option awards in recognition of performance in any fiscal year are
granted in February of the following year. As a result, the stock option
awards granted to the Named Officers in February 2003, in recognition of
performance in 2002, are listed for 2002 and the stock option awards granted
in February 2004, in recognition of performance in 2003, are listed for
2003.
(6) Amount shown is the Company's matching contribution to the 401(k) Savings
Plan and related supplemental plan.
STOCK OPTIONS
Stock option awards are granted to all eligible employees, including
executive officers of the Company, in February, in recognition of performance in
the prior fiscal year. The following table contains information with respect to
the grant of stock options under the Company's 2000 Stock Option Plan to the
Named Officers in February 2005, in recognition of performance in 2004.
23
OPTION GRANTS WITH RESPECT TO LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) FOR 2004 ($/SH) DATE VALUE($)(2)
---- ------------- ---------- -------- ---------- -----------
William C. Weldon....... 410,000 0.9% $66.18 2/13/15 $6,355,000
Robert J. Darretta...... 160,000 0.3% 66.18 2/13/15 2,480,000
Christine A. Poon....... 185,000 0.4% 66.18 2/13/15 2,867,500
Per A. Peterson......... 150,000 0.3% 66.18 2/13/15 2,325,000
Russell C. Deyo......... 125,000 0.3% 66.18 2/13/15 1,937,500
------- ------ ----------
------------------
(1) The options were granted at an exercise price equal to the fair market value
of the Company's Common Stock on February 14, 2005, the date of grant. All
of the options become exercisable on the third anniversary of the date of
grant, which is the same vesting schedule for all options granted to
executives on such date.
(2) The grant date present values per option share were derived using the
Black-Scholes option pricing model in accordance with the rules and
regulations of the Securities and Exchange Commission and are not intended
to forecast future appreciation of the Company's stock price. The options
expiring on February 13, 2015 had a grant date present value of $15.50 per
option share. The Black-Scholes model was used with the following
assumptions: volatility of 25.22% based on a historical weekly average over
five years; dividend yield of 1.93%; risk free interest of 3.72% based on a
U.S. Treasury rate of five years; and a five year option life.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to the Named
Officers concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT YEAR END IN THE MONEY OPTIONS AT
SHARES 2004(#) YEAR END 2004($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------- ------------- ----------- -------------
William C. Weldon............ 15,225 $ 516,697 628,175 1,375,000 $12,050,644 $11,805,250
Robert J. Darretta........... -- -- 577,000 435,000 12,178,560 3,856,200
Christine A. Poon............ -- -- 160,000 460,000 2,526,400 4,093,450
Per A. Peterson.............. 56,000 2,044,240 203,900 435,000 4,150,476 3,856,200
Russell C. Deyo.............. 8,000 366,480 458,000 345,000 9,792,260 3,043,100
------------------
(1) Based on the New York Stock Exchange Composite closing price as published in
the Wall Street Journal for the last business day of the fiscal year
($63.42).
24
CERTIFICATE OF EXTRA COMPENSATION PROGRAM
The following table provides information concerning awards made in February
2005 in recognition of performance during the last fiscal year to the Named
Officers under the Company's Certificate of Extra Compensation (CEC) Program.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR(1)
VALUE OF
GRANT # OF PERIOD TO VALUE OF ANNUAL VESTING ANNUAL
NAME UNITS(1) PAYOUT(2) GRANT(3) (LAST 12 MONTHS)(4) VESTING(3)(4)
---- ------------- --------- ---------- ------------------- -------------
William C. Weldon......... 100,000 $1,971,000 200,000 $3,942,000
Robert J. Darretta........ 50,000 985,500 80,000 1,576,800
Christine A. Poon......... 100,000 1,971,000 70,000 1,379,700
Per A. Peterson........... 120,000 2,365,200 65,000 1,281,150
Russell C. Deyo........... 95,000 1,872,450 60,000 1,182,600
------------------
(1) Annual long-term incentive compensation is awarded to all eligible
employees, including executive officers of the Company, in February, in
recognition of performance in the prior fiscal year. Accordingly, this table
shows the CEC units awarded to the Named Officers in February 2005, in
recognition of performance in 2004.
(2) Awards are paid out upon retirement or other termination of employment.
(3) The value used is the value as of the end of the last fiscal year and was
$19.71 per CEC unit. The value of the CEC units is subject to increase or
decrease based on the performance of the Company.
(4) This column shows CEC units vested under the plan during the period from
March 1, 2004 through February 28, 2005.
Since 1947, the Company has maintained a deferred compensation program
under which awards of CEC units may be made to senior management and other key
personnel of the Company and its subsidiaries worldwide. Typically, an award of
CEC units provides for a specified number of units that vest in 20% installments
over a five-year period. However, no awards are paid out to a participant until
retirement or other termination of employment. During employment, dividend
equivalents are paid to participants on CEC units in the same amount and at the
same time as dividends on the Company's Common Stock. (These dividend
equivalents are included as "Other Annual Compensation" in the Summary
Compensation Table on page 22.) The CEC units are valued in accordance with a
formula based on the Company's net assets and earning power over the five
preceding fiscal years. Until paid at retirement or termination of employment,
the final value of a CEC unit is subject to increase or decrease based on the
performance of the Company.
The program is administered based on the number of units that vest in a
given year and the value of those units. The number of units targeted to vest in
a given year is based on benchmarking studies of peer companies and the total
value of long term compensation (including stock options) at Johnson & Johnson
as compared to those peer companies.
The value as of the end of the last fiscal year was $19.71 per CEC unit.
The cumulative number of CEC units earned as of February 28, 2005 by each of the
Named Officers during their careers with the Company, valued for illustrative
purposes at the $19.71 per unit value, are: Mr. W. C. Weldon 911,200 CEC units
($17,959,752); Mr. R. J. Darretta 670,000 CEC units ($13,205,700); Ms. C. A.
Poon 225,000 CEC units ($4,434,750); Dr. P. A. Peterson 296,000 CEC units
($5,834,160); and Mr. R. C. Deyo 501,600 CEC units ($9,886,536). These amounts
represent the amounts that would be paid to each of the Named Officers under the
CEC Program upon retirement or other termination of employment based upon the
current value of each CEC unit.
25
RETIREMENT PLAN
The following table shows the estimated annual retirement benefit payable
at normal retirement age on a straight life annuity basis to participating
employees in the compensation and years of service classifications indicated,
under the Company's Retirement Plan. The Retirement Plan generally covers
salaried U.S. employees of the Company and designated subsidiaries on a non-
contributory basis. Annual benefits shown in the Pension Plan Table are based on
the pension plan provisions in effect as of December 31, 2004. Effective January
1, 2005, the benefit accrual rate was reduced from 1.667% to 1.55%. The reduced
accrual rate applies only to service rendered after January 1, 2005.
PENSION PLAN TABLE
5 YEAR
AVERAGE COVERED
COMPENSATION 10 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
--------------- -------- --------- --------- --------- --------- ---------
1,000,000 163,500 327,000 408,700 490,500 572,200 653,900
1,200,000 196,800 393,700 492,100 590,500 688,900 787,300
1,400,000 230,200 460,300 575,400 690,500 805,600 920,700
1,600,000 263,500 527,000 658,800 790,500 922,300 1,054,000
1,800,000 296,800 593,700 742,100 890,500 1,039,000 1,187,400
2,000,000 330,200 660,400 825,500 990,600 1,155,700 1,320,700
2,200,000 363,500 727,100 908,800 1,090,600 1,272,300 1,454,100
2,400,000 396,900 793,700 992,200 1,190,600 1,389,000 1,587,500
2,600,000 430,200 860,400 1,075,500 1,290,600 1,505,700 1,720,800
2,800,000 463,500 927,100 1,158,900 1,390,600 1,622,400 1,854,200
3,000,000 496,900 993,800 1,242,200 1,490,700 1,739,100 1,987,500
3,200,000 530,200 1,060,500 1,325,600 1,590,700 1,855,800 2,120,900
Covered compensation includes regular annual earnings, dividend equivalents
paid on non-vested CEC units, amounts paid under the Company's Standards of
Leadership Award Program, amounts paid under the Company's Executive Incentive
Plan and amounts deferred under the Company's Executive Income Deferral Plan.
The calculation of retirement benefits is based upon final average earnings (the
average of the highest covered compensation during the five consecutive years
out of the last ten years of employment with the Company). The benefits are
subject to an offset based on the Age 65 Primary Social Security Benefit.
Five-Year Average Covered Compensation for the Named Officers as of the end of
the last fiscal year is: Mr. W. C. Weldon $2,953,114; Mr. R. J. Darretta
$1,673,486; Ms. C. A. Poon $1,407,727; Dr. P. A. Peterson $1,342,169; and Mr.
R.C. Deyo $1,237,888. The approximate years of service for each Named Officer as
of the end of the last fiscal year are: Mr. W. C. Weldon 33 years; Mr. R. J.
Darretta 37 years; Ms. C. A. Poon 4 years; Dr. P. A. Peterson 11 years; and Mr.
R.C. Deyo 19 years.
As permitted by the Employee Retirement Income Security Act of 1974, the
Company has adopted a supplemental plan which is designed to provide the amount
of retirement benefits which cannot be paid from the Retirement Plan by reason
of certain Internal Revenue Code limitations on qualified plan benefits. The
amounts shown in the Pension Plan Table include the amounts payable under the
supplemental plan.
ITEM 2: APPROVAL OF 2005 LONG-TERM INCENTIVE PLAN
Consistent with the Company's longstanding practice of rewarding employees
responsible for significant contributions to the Company's business, the
Compensation & Benefits Committee (the "Committee") has advised the Board of
Directors that it is in the interest of the Company to adopt
26
the Johnson & Johnson 2005 Long-Term Incentive Plan (the "Plan"). The purposes
of the Plan are to provide long-term incentives to those persons with
responsibility for the success and growth of the Company, to associate more
closely the interests of such persons with those of the Company's shareholders,
to assist the Company in recruiting, retaining and motivating a diverse and
talented group of employees on a competitive basis, and to ensure a pay for
performance linkage for such persons. Accordingly, on February 14, 2005, the
Board of Directors, acting on the recommendation of the Committee, unanimously
approved the Plan, subject to shareholder approval, and directed that it be
submitted for consideration and action at the next meeting of shareholders.
Adoption of the Plan requires that the Plan be approved by the affirmative vote
of a majority of the shares of Common Stock voted at the meeting. Under the
terms of the Company's current equity compensation plans, after April 18, 2005,
no further stock options may be granted under the 2000 Stock Option Plan and no
further stock awards may be made under the 2000 Stock Compensation Plan. More
than 87,500,000 shares available for issuance under the 2000 Stock Option Plan
and 2000 Stock Compensation Plan will not be utilized and will be terminated
following expiration of these Plans on April 18, 2005, as described under
"Equity Compensation Plan Information" on page 33 in footnote (5).
Among the key features of the Plan, which the Board of Directors believes
reflect the Company's strong commitment to sound compensation and governance
practices, are the following:
- TYPES OF AWARDS. The Plan allows the Company to continue to use equity
to attract, retain and motivate employees and will give the Company
greater flexibility to respond to changes in executive compensation
practices given the anticipated impact of changes in accounting for stock
options and other stock compensation. The Plan allows the Company to
grant stock options (both incentive stock options and non-qualified stock
options), stock appreciation rights ("SARs"), restricted shares,
restricted share units, stock awards and performance shares. In the past,
stock options have been the principal form of long-term equity incentive
used by the Company.
- LIMITATION ON SHARES ISSUED. The Plan authorizes the issuance of up to
260 million shares of Common Stock, representing approximately 8.75% of
the shares currently outstanding, of which no more than 160 million
shares may be issued pursuant to incentive stock options, with any
increase in authorized shares subject to shareholder approval.
- FULL VALUE AWARDS. To the extent that "full value awards" (all awards
other than stock options or SARs) are granted with respect to more than
60 million shares of Common Stock (after giving effect to prior
expiration, cancellation, forfeiture or other termination of any full
value awards), then for so long as this 60 million net share threshold is
exceeded, subsequent full value awards will reduce the total number of
shares of Common Stock available for issuance by four shares of Common
Stock for every one share of Common Stock underlying a full value award.
This provision could reduce the total number of shares the Company could
issue under the Plan to 110 million shares if all of the awards granted
were full value awards.
- SHARE COUNTING. The shares underlying all awards granted under the Plan
reduce the shares available for issuance regardless of whether they are
settled in cash or stock. The only shares that become available for
issuance again under the Plan are for awards that expire or are
cancelled, forfeited or terminated without being exercised or paid out.
- NO DISCOUNTED STOCK OPTIONS OR SARS. All stock options and SARs must
have an exercise price equal to or greater than the fair market value of
the Company's Common Stock on the date the stock option or SAR is
granted.
27
- NO STOCK OPTION OR SAR REPRICINGS. The Plan prohibits the repricing of
stock options and SARs, and also does not allow canceling and replacing
an outstanding stock option or SAR with a stock option or SAR with a
lower exercise price.
- NO "RELOAD" OPTIONS. The Plan does not permit granting options with
"reload" features that provide for automatic grants of new options when
shares are tendered to pay for the exercise of previously granted
options.
- INDEPENDENT COMMITTEE. The Plan is administered by the Committee, which
is comprised solely of non-employee directors who qualify as independent
under the listing standards of the New York Stock Exchange.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE 2005 LONG-TERM INCENTIVE
PLAN.
The following is a brief but not comprehensive summary of the proposed
Plan. The complete text of the Plan is attached as Exhibit 1 and reference is
made to that Exhibit for a complete statement of the provisions of the Plan.
ADMINISTRATION OF THE PLAN. The Plan will be administered by the
Committee, which is comprised of at least three directors, each of whom is not
an employee of the Company. Each member of the Committee must be a "Non-Employee
Director" within the meaning of Rule 16b-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934 and an "outside director" within the
meaning of the regulations under Section 162(m) of the Internal Revenue Code of
1986 (the "Internal Revenue Code"). No member of the Committee is eligible to
receive awards under the Plan, except as provided under the caption "Awards to
Non-Employee Directors" below. The Committee has the authority to, among other
things: determine the persons to be granted awards under the Plan; determine the
type, size and terms of awards; establish objectives and conditions for awards;
determine whether an award may be deferred; and determine the guidelines and
procedures for payment or exercise of awards. To the extent permitted by law,
the Committee may delegate its authority to one of more of its members or other
persons.
AWARDS. The Plan provides for the grant of incentive stock options that
satisfy the requirements of Section 422 of the Internal Revenue Code,
nonqualified stock options, stock appreciation rights, restricted shares,
restricted share units, stock awards and performance shares, each as defined in
the Plan.
ELIGIBILITY. Participants in the Plan will be selected on the basis of
demonstrated ability to contribute substantially to the effective management or
financial performance of the Company. The Committee will select participants in
the Plan from among those directors who are employees of the Company or its
domestic subsidiaries; employees of the Company and its domestic subsidiaries
(including executive officers and officers of the Company); employees of
international subsidiaries and joint venture operations of the Company or its
subsidiaries; and employees of joint venture partners who are assigned to any
such joint ventures. Participants will also include non-employee directors who
are eligible to receive stock awards and restricted shares under the Plan.
SHARES OF COMMON STOCK SUBJECT TO THE PLAN. Unless otherwise authorized by
the Company's shareholders, or subject to adjustment for certain dilutive or
related events, the maximum aggregate number of shares of Common Stock available
for issuance under the Plan will be 260 million shares. Any of the authorized
shares of Common Stock may be used for any of the types of awards described in
the Plan, except that no more than 160 million shares may be issued pursuant to
incentive stock options.
In connection with the grant of an option or other award, the number of
shares of Common Stock available for issuance under the Plan shall be reduced by
the number of shares of Common Stock in respect of which such option or other
award is granted or denominated. However, if full value awards (excluding any
previously granted full value award (or portion thereof) that has expired, been
canceled or forfeited, or otherwise terminated without payment having been made
in
28
respect of such award or portion thereof) with respect to more than 60 million
shares of Common Stock have been granted under the Plan (the "net threshold"),
then for so long as the net threshold continues to be exceeded, each subsequent
full value award shall reduce the total number of shares of Common Stock
available for issuance under the Plan by four shares of Common Stock for each
share of Common Stock in respect of which such subsequent full value award is
granted.
If any outstanding option or other award (or portion thereof) expires, is
canceled, is forfeited or is otherwise terminated for any reason without having
been exercised or payment having been made in respect of the entire option or
other award, the underlying shares of Common Stock may again be the subject of
options or other awards granted under the Plan. However, to the extent any such
expired, canceled, forfeited or otherwise terminated award (or portion thereof)
was a full value award and, at the time of such expiration, cancellation,
forfeiture, or other termination, the net threshold is exceeded, the number of
shares of Common Stock that may again be the subject of options or other awards
granted under the Plan shall increase by four shares of Common Stock for each
share of Common Stock allocable to the previously granted expired, canceled,
forfeited, or otherwise terminated full value award.
In practice, these provisions operate as follows:
- The Company could issue stock options and SARs under the Plan in any
combination covering up to 260 million shares of Common Stock (subject to
the limitation of incentive stock options to 160 million shares) and no
full value awards.
- The Company could issue full value awards under the Plan in any
combination covering up to 110 million shares of Common Stock and no
stock options or SARs (since any full value award covering in excess of
60 million shares of Common Stock would be deemed to utilize four shares
of Common Stock for every share of Common Stock underlying that award).
- Shares of common stock underlying expired, forfeited, cancelled or
otherwise terminated awards shall be restored to the Plan and shall be
available for future awards.
AWARD LIMITATIONS. During a fiscal year, stock options and stock
appreciation rights may be granted, in the aggregate, to an individual
participant with respect to a maximum of 2 million shares of Common Stock. In
addition, during a fiscal year, awards other than stock options and stock
appreciation rights may be granted, in the aggregate, to an individual
participant with respect to a maximum of $15 million, based on the fair market
value of any underlying shares of Common Stock on the day the award is granted.
STOCK OPTIONS. Stock options may be granted alone or together with stock
appreciation rights. A stock option may be granted in the form of a nonqualified
stock option or an incentive stock option. The option exercise price may not be
less than the fair market value of a share of Common Stock on the date the
option is granted, unless the option was granted through the assumption of, or
in substitution for, an outstanding award previously granted by a corporation
acquired by or merged with the Company. The Committee may establish the term of
each stock option, but no stock option will be exercisable after 10 years from
the grant date.
Except for adjustments made to adjust for dilutive or similar events, or
except as otherwise approved by shareholders, the exercise price of a stock
option may not be decreased after the date of grant and no outstanding stock
option may be surrendered to the Company as consideration for the grant of a new
stock option with a lower exercise price.
INCENTIVE STOCK OPTIONS. An incentive stock option is a stock option that
may qualify for certain U.S. federal tax advantages. The aggregate fair market
value of the shares of Common Stock with respect to which incentive stock
options become exercisable by an individual participant for the first time in
any calendar year may not exceed $100,000 or such other amount as may
subsequently be specified by the Internal Revenue Code and/or applicable
regulations, based on
29
the fair market value of the underlying Common Stock on the date of grant. If
this limit is exceeded, any options on shares in excess of the limit will be
treated as nonqualified stock options.
STOCK APPRECIATION RIGHTS. A SAR is an award that entitles the recipient
to receive the appreciation in value of a set number of shares of the Company's
Common Stock over a set period of time. SARs may be granted either alone or in
tandem with stock options. The exercise price of a SAR must be equal to or
greater than the fair market value of the underlying Common Stock on the date of
grant, unless the SAR was granted through the assumption of, or in substitution
for, an outstanding award previously granted by a corporation acquired by or
merged with the Company. The Committee may establish the term of each SAR, but
no SAR will be exercisable after 10 years from the grant date.
RESTRICTED SHARES AND RESTRICTED SHARE UNITS ("RSUS"). A restricted share
is an award of a share of Common Stock that may not be traded or sold until a
predetermined date set by the Committee. A RSU is an award of an amount, payable
in cash, shares of Common Stock, or a combination thereof, as determined by the
Committee, based on the value of a specified number of shares of Common Stock.
The restrictions on such awards shall be determined by the Committee, and may
include stipulated purchase prices, forfeiture conditions, transfer
restrictions, restrictions based on performance goals and time-based
restrictions on vesting. Unless otherwise determined by the Committee, any
time-based restriction must be for a minimum of three years. Holders of RSUs
will have no ownership interest in the shares of Common Stock to which such RSUs
relate until and unless payment with respect to such restricted RSUs is actually
made in shares of Common Stock. Except as otherwise determined by the Committee,
during the restriction period, participants who hold restricted shares will have
voting rights and any dividends payable to participants on restricted shares
during the restriction period will be distributed to participants only if and
when the restrictions imposed on the restricted shares lapse. Unless otherwise
determined by the Committee, during the restriction period, participants who
hold RSUs will be credited with dividend equivalents in respect of such RSUs,
which will be immediately converted to RSUs with an initial value equal to the
amount of such dividend equivalents.
STOCK AWARDS. Stock awards may be granted to eligible participants, either
alone or in combination with other awards under the Plan. The Committee will
determine the terms and conditions governing each stock award.
PERFORMANCE SHARES. A performance share is an award of shares of Common
Stock based on the achievement of certain performance goals set during a
performance period. Performance shares may be issued to eligible participants,
either alone or in combination with other awards made under the Plan. The
Committee will determine the performance goals, and unless it determines
otherwise, the performance period will be three years. The performance measures
to be used for performance shares may be based on one or more performance
criteria, including: income measures (such as gross profit, operating income,
earnings before or after taxes, net income and earnings per share); return
measures (such as return on assets, investment, equity or sales); cash flow;
costs; revenue measures; and stock price (such as growth measures and total
shareholder return). Notwithstanding the attainment of any performance goal, the
Committee has the discretion to reduce any award payment.
AWARDS TO NON-EMPLOYEE DIRECTORS. Each non-employee director will receive
an award of restricted shares for each fiscal year. In general, the annual award
to each non-employee director will consist of the greatest number of shares of
Common Stock with an aggregate fair market value on the date of grant that does
not exceed $100,000. In addition, each newly-elected, non-employee director will
receive a one-time grant of 1,000 unrestricted shares of Common Stock upon first
becoming elected to the Board.
Restricted shares granted to a non-employee director may not be sold,
assigned, transferred or otherwise disposed of or encumbered for three years
from the grant date (unless the director dies or becomes disabled before the
three-year period ends), and will be vested and nonforfeitable at all
30
times. During the restriction period, non-employee directors who hold restricted
shares will have the right to receive dividends, and will have voting rights on
such restricted shares.
PAYMENT. When a stock option is exercised, the option exercise price will
be payable to the Company in full (a) in cash or its equivalent; (b) by
tendering previously acquired shares of Common Stock having an aggregate fair
market value on the date of exercise equal to the total option exercise price
(provided that the shares that are tendered must have been beneficially owned by
the participant for at least six months prior to their tender); or (c) by a
combination of (a) and (b).
With respect to SARs, the Committee may authorize payment in the form of
cash, Common Stock that (when valued at its fair market value on the date of
exercise) has a value equal to such cash amount, a combination thereof, or any
other method as the Committee may determine.
NO REPRICING. Except for adjustments made pursuant to a merger,
reorganization, consolidation, recapitalization, stock dividend, stock split,
combination, or exchange of shares or other change in corporate structure
affecting any class of Common Stock, the exercise price of any outstanding stock
option or SAR granted under the Plan may not be decreased after the date of
grant, nor may any outstanding stock option or SAR granted under the Plan be
surrendered to the Company as consideration for the grant of a new stock option
or SAR with a lower exercise price, without shareholder approval.
DEFERRED PAYMENTS AND NO DEFERRALS OF OPTION OR SAR GAINS. The Committee
may defer the payment of all or a portion of any award (except gains from stock
options or SARs) or approve deferral elections made by participants upon such
terms and conditions as the Committee may determine in its sole discretion. No
deferral of gains from stock options or SARs is permitted under the Plan.
DILUTION AND OTHER ADJUSTMENTS. In the event of a merger, reorganization,
consolidation, recapitalization, stock dividend, stock split, combination, or
exchange of shares or other change in corporate structure affecting any class of
Common Stock, the Committee will make appropriate adjustments in the class and
aggregate number of shares that may be delivered under the Plan, the individual
award maximums, the class, number and exercise price of outstanding options and
SARs, and the class and number of shares subject to any other awards granted
under the Plan.
NO LOANS. No loans from the Company to participants will be permitted in
connection with the Plan.
EFFECTIVE DATE, AMENDMENTS AND TERMINATION. If approved by the
shareholders, the Plan will become effective as of the date of such approval and
no awards will be made under the Plan after the tenth anniversary of the date on
which the shareholders approved the Plan. The Committee may terminate or amend
the Plan at any time, but no such amendment or termination may adversely affect
awards granted prior to such termination or amendment, except to the extent
necessary or appropriate to comply with applicable law or stock exchange rules
and regulations. Unless the Company's shareholders have first approved the
amendment, no amendment may (a) increase the number of authorized shares or the
maximum individual award limitation, (b) extend the maximum period during which
awards may be granted, (c) add to the types of awards that may be made, (d)
change the performance measures pursuant to which performance shares are earned,
(e) modify the requirements governing eligibility for participation in the Plan
or (f) amend the Plan in a manner that would require shareholder approval
pursuant to the Plan, applicable law or the rules of the New York Stock
Exchange.
UNITED STATES INCOME TAX CONSEQUENCES. Under the Internal Revenue Code as
presently in effect, the following are, in general, the material federal income
tax consequences of awards under the Plan.
31
The grant of a stock option will have no tax consequences to a participant
or the Company. In general, when a participant exercises an incentive stock
option, the participant will not recognize income, and the Company will not be
entitled to a tax deduction. However, the excess of the acquired incentive stock
option shares' fair market value on the exercise date over the exercise price
will be included in the participant's income for purposes of the alternative
minimum tax. In general, if a participant exercises an incentive stock option
more than three months after terminating his or her employment with the Company
or a subsidiary, the option will be treated for tax purposes as a nonqualified
stock option, as described below.
In general, upon exercising a nonqualified stock option, a participant will
recognize ordinary income equal to the excess of the acquired shares' fair
market value on the exercise date over the exercise price. The Company will be
entitled to a tax deduction for the same amount.
When a participant disposes of shares acquired under an incentive stock
option, the participant will have a capital gain or loss equal to the difference
between the exercise price and the amount realized by the participant on the
disposition of the shares. However, if the participant fails to hold incentive
stock option shares for more than one year after exercising the option and for
more than two years after the grant of the option, the portion of any gain
realized by the participant upon the disposition of the shares that does not
exceed the excess of the fair market value of the shares on the exercise date
over the exercise price generally will be treated as ordinary income, and the
Company generally will be entitled to a tax deduction for the same amount. The
balance of any gain or any loss will be treated as a capital gain or loss.
With respect to other awards that are settled either in cash or in shares
that are transferable or are not subject to a substantial risk of forfeiture,
the participant will recognize ordinary income equal to the excess of (a) the
cash or the fair market value of any shares received (determined as of the date
of settlement) over (b) the amount, if any, paid for the shares by the
participant. The Company generally will be entitled to a tax deduction in the
same amount. If the shares are nontransferable and subject to a substantial risk
of forfeiture, the participant generally will not recognize income (and the
Company will not become entitled to a tax deduction) until the shares become
transferable or not subject to a substantial risk of forfeiture (whichever
occurs first), and the amount of income (or deduction) will be equal to the
excess of (i) the fair market value of the shares on the date income is
recognized over (ii) the amount, if any, paid for the shares by the participant.
When a participant sells any shares acquired under a nonqualified stock
option or any other award other than an incentive stock option, the participant
will recognize capital gain or loss equal to the difference between the amount
realized on the disposition of the shares and the employee's basis in the
shares. In general, the participant's basis in any such shares will be equal to
the amount of ordinary income recognized in connection with the receipt of the
shares plus any amount paid for the shares.
In general, a publicly-held corporation is denied a tax deduction for any
compensation paid to its chief executive officer or to any of its four most
highly compensated officers (other than the chief executive officer) to the
extent that the compensation paid to the officer exceeds $1,000,000 in any year.
"Performance-based compensation" is not subject to this deduction limit. The
Plan permits the grant of both awards that qualify as performance-based
compensation and awards that do not so qualify.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information as of December 31, 2004
concerning the shares of the Company's Common Stock that may be issued under
existing equity compensation
32
plans. If the 2005 Long-Term Incentive Plan is approved by the shareholders, no
further options, rights or awards will be granted or issued from any of these
equity compensation plans.
NUMBER OF SHARES
NUMBER OF SHARES REMAINING AVAILABLE
TO BE ISSUED WEIGHTED AVERAGE FOR FUTURE ISSUANCE
UPON EXERCISE OF EXERCISE PRICE OF UNDER EQUITY
OUTSTANDING OPTIONS OUTSTANDING OPTIONS COMPENSATION PLANS
AND RIGHTS AS OF AND RIGHTS AS OF AS OF
DEC. 31, 2004 DEC. 31, 2004 DEC. 31, 2004(4)
------------------- ------------------- -------------------
Equity Compensation Plans Approved By
Shareholders(1)......................... 220,382,049 $49.25 85,661,869(5)
Equity Compensation Plans Not Approved By
Shareholders(2)(3)...................... 8,724,848 $32.19 0
Total..................................... 229,106,897 $48.60 85,661,869(5)
------------------
(1) Included in this category are the following equity compensation plans which
have been approved by the Company's shareholders: 1991 Stock Option Plan,
1995 Stock Option Plan, 2000 Stock Option Plan and 2000 Stock Compensation
Plan.
(2) Included in this category are 8,533,798 shares of Common Stock issuable
under various equity compensation plans which were assumed by the Company
upon acquisition of the following companies: ALZA, Scios, Gynecare,
Biosense, Innovasive Designs, Inverness Medical, Centocor and Cordis.
3,831,256 of the shares listed as issuable in this category were issued
under plans that were approved by the shareholders of these companies prior
to their acquisition and the assumption of these plans by the Company. At
the time of each of these acquisitions, options to acquire equity of the
acquired company was replaced by options to acquire the Common Stock of the
Company. No stock options or other equity awards of any type have been made
under any of these plans since the assumption of these plans by the Company,
and no further stock options or other equity awards of any type will be made
under any of these plans in the future. The shares that are included in this
column that were issued under plans not approved by shareholders of the
applicable acquired company are: 14,956 shares issuable under two Biosense
stock option plans; 3,230,736 shares issuable under a 1996 Scios Non-Officer
Stock Option Plan; 1,413,012 shares issuable under an ALZA non-statutory
plan; and 43,838 shares issuable under warrants under an Inverness Medical
plan.
(3) Also included in this category are 191,050 shares of Common Stock issuable
upon the exercise of outstanding stock options under the Company's 1997
Non-Employee Director Stock Option Plan.
(4) The only equity compensation plans under which shares are available for
future issuances are the 2000 Stock Option Plan and the 2000 Stock
Compensation Plan. Under the terms of these plans, no options will be
granted under the 2000 Stock Option Plan after April 18, 2005 and no shares
will be issued under the 2000 Stock Compensation Plan after April 18, 2005.
This column excludes shares reflected under the column "Number of Shares to
be Issued Upon Exercise of Outstanding Options and Rights."
(5) As of March 8, 2005, the number of shares remaining available for future
issuance under equity compensation plans was 87,798,036, due to
cancellations, terminations and forfeitures of outstanding stock options
during the period between January 1, 2005 and March 8, 2005. From this
number of shares, the Company will issue stock awards and stock options
covering an aggregate of fewer than 200,000 shares during the period between
March 8, 2005 and April 18, 2005. Accordingly, more than 87,598,036 shares
available for issuance under the 2000 Stock Option Plan and 2000 Stock
Compensation Plan will be terminated following expiration of these Plans on
April 18, 2005.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE 2005 LONG-TERM INCENTIVE
PLAN.
33
ITEM 3. APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed PricewaterhouseCoopers LLP as the
independent auditors for the Company and its subsidiaries for the fiscal year
2005. Shareholder ratification of the appointment is not required under the laws
of the State of New Jersey, but the Board has decided to ascertain the position
of the shareholders on the appointment. The Board of Directors will reconsider
the appointment if it is not ratified. The affirmative vote of a majority of the
shares voted at the meeting is required for ratification.
During fiscal years 2003 and 2004, PricewaterhouseCoopers not only acted as
the independent auditors for the Company and its subsidiaries (work related to
auditing the annual financial statements for those fiscal years and reviewing
the financial statements included in the Company's Forms 10-Q), but also
rendered on behalf of the Company and its subsidiaries other services.
Rules enacted under the Sarbanes-Oxley Act prohibit an independent auditor
from providing certain non-audit services for an audit client. These rules
became effective on May 6, 2003 for new engagements. All engagements with
independent auditors to perform a prohibited non-audit service entered into
prior to May 6, 2003 were required to be completed before May 6, 2004. The
services listed below as "Benefit Plan Assistance" and a portion of the services
included below in "Dispute Analysis" represent non-audit services which were
provided to the Company prior to May 6, 2004. Since May 6, 2004, the independent
auditors have provided no services which would be deemed "Benefit Plan
Assistance" or are otherwise prohibited under applicable rules and regulations.
It is expected that the independent auditors will continue to provide certain
accounting, additional auditing, tax and other services to Johnson & Johnson and
its affiliates, which are permitted under applicable rules and regulations.
The following table sets forth the aggregate fees billed or expected to be
billed by PricewaterhouseCoopers for 2004 and 2003 for audit and non-audit
services (as well as all "out-of-pocket" costs incurred in connection with these
services) and are categorized as Audit Fees, Audit-Related Fees, Tax Fees and
All Other Fees. The nature of the services provided in each such category is
described following the table.
ACTUAL FEES
-------------------------
2004 2003
----------- -----------
Audit Fees.................................................. $20,105,000 $12,550,000
Audit-Related Fees.......................................... 3,540,000 5,030,000
----------- -----------
Total Audit and Audit-Related Fees..................... $23,645,000 $17,580,000
----------- -----------
Tax Fees.................................................... $15,340,000 $18,150,000
----------- -----------
All Other Fees:
Dispute Analysis.......................................... 625,000 2,650,000
Benefit Plan Assistance................................... 60,000 300,000
Other Services............................................ 2,150,000 2,150,000
----------- -----------
Total All Other Fees................................... 2,835,000 5,100,000
----------- -----------
Total Fees.................................................. $41,820,000 $40,830,000
=========== ===========
Audit Fees -- Consists of professional services rendered for the audits of
the consolidated financial statements of the Company, quarterly reviews,
statutory audits, issuance of comfort letters, consents, income tax provision
procedures, and assistance with and review of documents filed with the SEC.
Approximately $5,855,000 of the Audit Fees incurred in 2004 represent recurring
and non-recurring services associated with the Sarbanes-Oxley Section 404
internal control audit.
Audit-Related Fees -- Consists of assurance and related services related to
employee benefit plan audits, due diligence related to mergers and acquisitions,
accounting consultation and audits in
34
connection with acquisitions and dispositions, internal control reviews, attest
services that are not required by statute or regulation, advice as to the
preparation of statutory financial statements, consultations concerning
financial accounting and reporting standards and, in 2003, Sarbanes-Oxley
Section 404 start-up time and readiness assistance.
Tax Fees -- In 2004, approximately 75% of Tax Fees were related to tax
compliance (review and preparation of corporate and expatriate tax returns,
assistance with tax audits, review of the tax treatments for certain expenses,
extra-territorial income analysis, transfer pricing documentation for compliance
purposes and tax due diligence relating to acquisitions). Other tax services
included, state and local tax planning and consultations with respect to various
domestic and international tax matters. In 2003, approximately 60% of Tax Fees
were related to tax compliance.
Dispute Analysis -- Consists of services related to economic analysis and
data accumulation in connection with certain business and contractual matters.
These services ceased to be performed in the second quarter of 2004.
Benefit Plan Assistance -- Consists of actuarial valuation services and
consultation on defined benefit plans rendered under the then existing and
transitional independence rules. These services ceased to be performed in the
second quarter of 2004.
Other Services -- Consists of reviews for compliance with various
government regulations relating to the health care industry and privacy
standards, risk management reviews and assessments, audits of various
contractual arrangements to assess compliance, validation reviews of systems to
assess compliance with FDA rules, and projects relating to reviewing systems
security controls.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
Under the Audit and Non-Audit Services Pre-Approval Policy, as adopted by
the Audit Committee in 2003, the Audit Committee must pre-approve all audit and
non-audit services provided by the independent auditors. The policy, as
described below, sets forth the procedures and conditions for such pre-approval
of services to be performed by the independent auditor. The policy utilizes both
a framework of general pre-approval for certain specified services and specific
pre-approval for all other services.
In the fourth quarter of each year, the Audit Committee is asked to
pre-approve the engagement of the independent auditors, and the projected fees,
for audit services, audit-related services (assurance and related services that
are reasonably related to the performance of the auditor's review of the
financial statements or that are traditionally performed by the independent
auditor) and tax services (such as tax compliance, tax planning and tax advice)
for the following year. In addition, the following specific routine and
recurring other services may also be pre-approved generally for the following
year: audits or reviews of third parties to assess compliance with contracts;
risk management reviews and assessments; dispute analysis; healthcare compliance
reviews related to privacy and other regulatory matters and certain projects to
evaluate systems security.
The fee amounts approved at such fourth quarter meeting are updated to the
extent necessary at the regularly scheduled meetings of the Audit Committee in
the following year. Additional pre-approval is required before actual fees for
any service can exceed 5% of the originally pre-approved amount, excluding the
impact of currency.
If the Company wants to engage the independent auditor for other services
that are not considered subject to general pre-approval as described above, then
the Audit Committee must approve such specific engagement as well as the
projected fees. Additional pre-approval is required before any fees can exceed
those fees approved for any such specifically-approved services.
35
If the Company wishes to engage the independent auditor for additional
services that have not been generally pre-approved as described above, then such
engagement will be presented to the Audit Committee for pre-approval at its next
regularly scheduled meeting. If the timing of the project requires an expedited
decision, then the Company may ask the Chairman of the Audit Committee to
pre-approve such engagement. Any such pre-approval by the Chairman is then
reported to the other Committee members at the next Committee meeting. In any
event, pre-approval of any engagement by the Audit Committee or the Chairman of
the Audit Committee is required before the independent auditors may commence any
engagement.
In 2004, there were no fees paid to PricewaterhouseCoopers under a de
minimis exception to the rules that waives pre-approval for certain non-audit
services.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting of Shareholders and will be allowed to make a statement if
they wish. Additionally, they will be available to respond to appropriate
questions from shareholders during the meeting.
OTHER MATTERS
The Board of Directors does not intend to bring other matters before the
meeting except items incident to the conduct of the meeting, and the Company has
not received timely notice from any shareholder of an intent to present a
proposal at the meeting. On any matter properly brought before the meeting by
the Board or by others, the persons named as proxies in the accompanying proxy,
or their substitutes, will vote in accordance with their best judgment.
36
EXHIBIT 1
2005 LONG-TERM INCENTIVE PLAN
1. PURPOSES.
The purposes of the Plan are to provide long-term incentives to those
persons with responsibility for the success and growth of Johnson & Johnson, a
New Jersey corporation (the "Corporation") and its subsidiaries and affiliated
entities, to associate more closely the interests of such persons with those of
the Corporation's shareholders, to assist the Corporation and its subsidiaries
and affiliated entities in recruiting, retaining, and motivating a diverse and
talented group of employees on a competitive basis, and to ensure a pay for
performance linkage for such persons. If approved by the Corporation's
shareholders, the Plan shall succeed the Johnson & Johnson 2000 Stock Option
Plan (the "2000 Option Plan") and the Johnson & Johnson 2000 Stock Compensation
Plan (the "2000 Stock Plan").
2. DEFINITIONS.
For purposes of the Plan:
"Award" means a grant of Options, Stock Appreciation Rights, Restricted
Shares, Restricted Share Units, Stock Awards, Performance Shares, or any or all
of them.
"Board" means the Board of Directors of the Corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation & Benefits Committee of the Board (or
any successor committee). The Committee shall be appointed by the Board and
shall consist of at least three independent, outside members of the Board. The
members of the Committee, in the judgment of the Board, shall constitute (a)
non-employee directors as defined in Rule 16b-3 of the Securities and Exchange
Act of 1934 and any rules and regulations of the principal stock exchange on
which Common Stock is listed or quoted and (b) outside directors as defined in
the regulations under Section 162(m) of the Code.
"Common Stock" means the common stock, par value $1.00 per share, of the
Corporation.
"Dividend Equivalent" means, on any dividend record date, an amount equal
in value to the dividend on one share of Common Stock as declared by the Board
with respect to such record date.
"Eligible Participants" means (i) directors who are employees of the
Corporation or its domestic subsidiaries, employees of the Corporation and its
domestic subsidiaries (including executive officers and officers of the
Corporation), employees of international subsidiaries and joint venture
operations of the Corporation and its subsidiaries, and employees of joint
venture partners who are assigned to any such joint ventures and (ii) any
Non-Employee Director who is eligible to receive a Stock Award and/or Restricted
Shares in accordance with Section 8 hereof.
"Employee Director" means, on any date, a member of the Board who is also
an employee of the Corporation or any of its subsidiaries or affiliates on such
date.
"Fair Market Value" on any date means the average of the high and low sales
prices, on such date, of shares of Common Stock on the principal securities
exchange on which such shares are traded or, if there are no such sales on such
date, then the average of the high and low sales prices of such shares on the
date or dates that the Committee determines, in its sole discretion, to be
appropriate for purposes of valuation.
"Fiscal Year" means the fiscal year of the Corporation.
"Full Value Award" means any Award that is not an Option or a Stock
Appreciation Right.
37
"ISO" or "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
ISO.
"Named Executive Officer" means, for any Fiscal Year, the Corporation's
Chief Executive Officer and the Corporation's next four highest paid executive
officers, as reported in the Corporation's proxy statement pursuant to
Regulation S-K, Item 402(a)(3) for such Fiscal Year.
"Non-Employee Director" means, on any date, a member of the Board who is
not an employee of the Corporation or any of its subsidiaries or affiliates on
such date.
"NQSO" or "Non-Qualified Stock Option" means an Option that does not
satisfy the requirements of Section 422 of the Code or that is not designated as
an ISO by the Committee.
"Option" means the right, granted pursuant to the Plan, to purchase shares
of Common Stock at a specified price per share for a specified period of time.
"Option Exercise Price" means the purchase price per share of Common Stock
covered by an Option.
"Participant" means an individual who has received an Award under the Plan.
"Performance-Based Exception" means the performance-based exception (set
forth in Section 162(m)(4)(C) of the Code) from the deductibility limitation
imposed by Section 162(m) of the Code.
"Performance Goals" means the goals established by the Committee in
accordance with Section 7(e) hereof.
"Performance Measures" means the criteria set forth in Section 7(e) hereof
that may be used by the Committee as the basis for a Performance Goal.
"Performance Period" means the period established by the Committee for
which the achievement of Performance Goals is assessed in order to determine
whether and to what extent a Performance Share has been earned.
"Performance Shares" means an Award, described in Section 7(e) hereof, of
shares of Common Stock based on the achievement of Performance Goals during a
Performance Period.
"Plan" means the Johnson & Johnson 2005 Long-Term Incentive Plan, as set
forth herein and as amended from time to time.
"Restricted Shares" means an Award of shares of Common Stock, described in
Section 7(c) or 8(c) hereof, which may not be traded or sold until the date that
the restrictions on transferability imposed by the Committee with respect to
such shares have lapsed or as otherwise determined by the Committee.
"Restricted Share Units" means an Award, described in Section 7(c) hereof,
of an amount, payable in cash, shares of Common Stock, or a combination thereof,
as determined by the Committee, based on the value of a specified number of
shares of Common Stock.
"Restriction Period" means, with respect to Restricted Shares or Restricted
Share Units, the period during which any restrictions on transferability
established by the Committee remain in effect. Such restrictions shall remain in
effect until such time as they have lapsed in accordance with the terms and
conditions of the Restricted Shares or Restricted Share Units or as otherwise
determined by the Committee.
"Stock Appreciation Rights" or "SARs" means an Award, described in Section
7(b) hereof, of the right to receive a payment equal to the excess (if any) of
(a) the Fair Market Value of a share of Common Stock on the date the Stock
Appreciation Rights are exercised over (b) the exercise price per share of
Common Stock established for those Stock Appreciation Rights at the time of
grant
38
(the "exercise price"), multiplied by the number of shares of Common Stock with
respect to which the Stock Appreciation Rights are exercised.
"Stock Award" means an Award, described in Section 7(d) or 8(b) hereof, of
shares of Common Stock, which shall be subject to such terms, conditions, and
restrictions (if any) as the Committee shall determine.
3. ADMINISTRATION OF THE PLAN.
(a) Authority of Committee. The Plan shall be administered by the
Committee, which shall have all of the powers vested in it by the terms of the
Plan, such powers to include the authority (within the limitations described in
the Plan, including Section 8 hereof):
- to select the persons to be granted Awards under the Plan;
- to determine the type, size, and terms of Awards to be made to each
Participant, including Participants who are Non-Employee Directors in
accordance with Section 8 hereof;
- to determine the time when Awards are to be granted and any conditions
that must be satisfied before an Award is granted;
- to establish objectives and conditions for Awards;
- to determine whether an Award shall be evidenced by an agreement and, if
so, to determine the terms and conditions of such agreement (which shall
not be inconsistent with the Plan) and who must be the parties to such
agreement;
- to determine whether any conditions applicable to an Award have been met
and whether an Award will be paid at the end of a Performance Period;
- to determine if, when, and under what conditions payment of all or any
part of an Award shall be deferred; and
- to determine the guidelines and/or procedures for the payment or exercise
of Awards.
(b) Interpretation of Plan. The Committee shall have full power and
authority to administer and interpret the Plan and to adopt or establish such
rules, regulations, agreements, guidelines, procedures and instruments, which
are not inconsistent with the Plan and which, in the Committee's opinion, may be
necessary or advisable for the administration and operation of the Plan. The
Committee's interpretations of the Plan, and all actions taken and
determinations made by the Committee pursuant to the powers vested in it
hereunder, shall be conclusive and binding on all parties concerned, including
the Corporation, its shareholders, and all Eligible Participants.
(c) Delegation of Authority. To the extent not prohibited by law, the
Committee may delegate its authority hereunder to one or more of its members or
other persons, except that no such delegation shall be permitted with respect to
Awards to Eligible Participants who are subject to Section 16 of the Securities
Exchange Act of 1934. Any person to whom the Committee delegates its authority
pursuant to this Section 3(c) may receive Awards only if such Awards are granted
directly by the Committee without delegation.
(d) Execution of Documents and Provision of Assistance. The Committee may
designate employees of the Corporation to execute documents on behalf of the
Committee or otherwise to assist the Committee in the administration and
operation of the Plan.
(e) Uniformity Not Required. Except as provided in Section 8 hereof, the
terms and conditions that apply to Awards need not be uniform among all Awards,
among all Awards of the same type, among all Awards granted to the same
Participant, or among all Awards granted at the same time.
39
4. ELIGIBILITY.
(a) General. Subject to the terms and conditions of the Plan, including
Section 8 hereof, the Committee may, from time to time, select from all Eligible
Participants those to whom Awards shall be granted under Section 7 hereof and
shall determine the nature and amount of each Award.
(b) International Participants. Notwithstanding any provision of the Plan
to the contrary, in order to foster and promote achievement of the purposes of
the Plan or to comply with provisions of law in other countries in which the
Corporation or any of its subsidiaries or affiliates operates or has employees,
the Committee, in its sole discretion, shall have the power and authority to (i)
determine which Eligible Participants employed by the Corporation or any of its
subsidiaries or affiliates outside the United States should participate in the
Plan, (ii) modify the terms and conditions of any Awards made to such Eligible
Participants, and (iii) establish subplans, modified Option exercise procedures,
and other Award terms, conditions, and procedures to the extent such actions may
be necessary or advisable to comply with provisions of the laws and regulations
of countries outside the United States in order to assure the lawfulness,
validity and effectiveness of Awards granted under the Plan.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
(a) Authorized Number of Shares. Unless otherwise authorized by the
Corporation's shareholders and subject to the terms and conditions of this
Section 5 and Section 10 hereof, the maximum aggregate number of shares of
Common Stock available for issuance under the Plan shall be 260 million shares.
Any of the authorized shares of Common Stock may be used for any of the types of
Awards described in the Plan, except that no more than 160 million shares of
Common Stock may be issued pursuant to ISOs.
(b) Share Counting. The following rules shall apply in determining the
number of shares of Common Stock remaining available for issuance under the
Plan:
(i) In connection with the grant of an Option or other Award, the
number of shares of Common Stock available for issuance under the Plan
shall be reduced by the number of shares of Common Stock in respect of
which such Option or other Award is granted or denominated.
(ii) Notwithstanding the provisions of Section 5(b)(i) above, if at
the time of grant of any Full Value Award, there have previously been
granted under the Plan Full Value Awards with respect to more than 60
million shares of Common Stock (excluding any previously granted Full Value
Award (or portion thereof) that has expired, been canceled, been forfeited
or otherwise terminated without payment having been made in respect of such
Full Value Award or portion thereof) (the "net threshold"), then and for so
long as the net threshold continues to be exceeded, each subsequent Full
Value Award shall reduce the total number of shares of Common Stock
available for issuance under the Plan by four shares of Common Stock for
each share of Common Stock in respect of which such subsequent Full Value
Award is granted.
(iii) When an outstanding Option or other Award (or portion thereof)
expires, is canceled, is forfeited or is otherwise terminated for any
reason without having been exercised or payment having been made in respect
of the entire Option or other Award, the shares of Common Stock allocable
to the expired, canceled, or otherwise terminated Option (or portion
thereof) or other Award (or portion thereof) may again be available for
issuance in respect of Options or other Awards granted under the Plan.
However, to the extent any such expired, canceled, forfeited or otherwise
terminated Award (or portion thereof) was a Full Value Award and, at the
time of such expiration, cancellation, forfeiture, or other termination,
the net threshold is exceeded, the number of shares of Common Stock that
may again be available for issuance in respect of Options or other Awards
granted under the Plan pursuant to this Section 5 shall increase by four
shares of Common Stock for every share of Common Stock allocable to the
expired, canceled, forfeited or otherwise terminated Full Value Award, it
being understood that if any subsequent Award is made under the Plan while
the net threshold is still exceeded, if such grant
40
were an Option or SAR, the number of shares of Common Stock allocable to
such Option or SAR shall be one share per each such Option or SAR, and if
such Award is a Full Value Award, the number of shares of Common Stock
allocable to such Full Value Award shall be four shares of Common Stock for
each such Full Value Award. Any such restored shares of Common Stock shall
be available for issuance under the Plan pursuant to this Section 5,
provided that if a subsequent Award is made under the Plan when the net
threshold is exceeded, (A) if such subsequent Award is an Option or SAR,
the number of shares of Common Stock available for issuance under the Plan
shall be reduced by the number of shares of Common Stock in respect of
which such Option or SAR is granted, and (B) if such subsequent Award is a
Full Value Award, the number of shares of Common Stock available for
issuance under the Plan shall be reduced by four shares of Common Stock for
each share of Common Stock in respect of which such Full Value Award is
granted.
(iv) Any shares of Common Stock underlying Awards granted in
assumption of, or in substitution for, outstanding awards previously
granted by a company acquired by the Corporation or any subsidiary or
affiliate thereof or with which the Corporation or any subsidiary or
affiliate thereof combines, shall not, unless required by law or
regulation, count against the reserve of available shares of Common Stock
under the Plan.
(c) Shares to be Delivered. The source of shares of Common Stock to be
delivered by the Corporation under the Plan shall be determined by the Committee
and may consist in whole or in part of authorized but unissued shares, treasury
shares, or shares acquired on the open market.
6. AWARD LIMITATIONS.
Options and SARs may be granted, in the aggregate, to an Eligible
Participant with respect to a maximum of 2 million shares of Common Stock during
a single Fiscal Year. Full Value Awards may be granted, in the aggregate, to an
Eligible Participant, with respect to a maximum of $15 million during a single
Fiscal Year; provided that the foregoing dollar limitation shall be applied to
an Award that is denominated in shares of Common Stock on the basis of the Fair
Market Value of such shares on the date the Award is granted. The maximum Award
(excluding Options and SARs) that may be granted to any Eligible Participant for
a Performance Period longer than one Fiscal Year shall not exceed the foregoing
annual maximum multiplied by the number of full Fiscal Years in the Performance
Period.
7. AWARDS TO ELIGIBLE PARTICIPANTS.
(a) Options.
(i) Grants. Subject to the terms and conditions of the Plan, including
Section 8 hereof, Options may be granted to Eligible Participants. Options may
consist of ISOs or NQSOs, as the Committee shall determine. Options may be
granted alone or in tandem with SARs. With respect to Options granted in tandem
with SARs, the exercise of either such Options or such SARs shall result in the
simultaneous cancellation of the same number of tandem SARs or Options, as the
case may be.
(ii) Option Exercise Price. The Option Exercise Price shall be equal to or
greater than the Fair Market Value of a share of Common Stock on the date the
Option is granted, unless the Option was granted through the assumption of, or
in substitution for, outstanding awards previously granted by a company acquired
by the Corporation or any subsidiary or affiliate thereof or with which the
Corporation or any subsidiary or affiliate thereof combines.
(iii) Term. The term of each Option shall be determined by the Committee
in its sole discretion, but in no event shall the term exceed ten years from the
date of grant.
(iv) ISO Limits. ISOs may be granted only to Eligible Participants who are
employees of the Corporation (or of any subsidiary corporation (within the
meaning of Section 424 of the Code) of
41
the Corporation or any joint venture operation or joint venture partner of the
Corporation or its subsidiaries) on the date of grant. The aggregate Fair Market
Value (determined as of the date the ISO is granted) of the shares of Common
Stock with respect to which ISOs are exercisable for the first time by any
Participant during any calendar year (under all plans of the Corporation (or of
any parent or subsidiary corporation (within the meaning of Section 424 of the
Code) of the Corporation)) shall not exceed $100,000 or such other amount as may
subsequently be specified by the Code and/or applicable regulations; provided
that if such limitation is exceeded, any Options on shares of Common Stock in
excess of such limitation shall be deemed to be NQSOs. ISOs shall contain such
other provisions as the Committee shall deem advisable but shall in all events
be consistent with and contain or be deemed to contain all provisions required
in order to qualify as incentive stock options under Section 422 of the Code.
All ISOs must be granted within ten years from the date the Plan was approved by
the Corporation's shareholders.
(v) No Repricing. Except for adjustments made pursuant to Section 10
hereof, the Option Exercise Price under any outstanding Option granted under the
Plan may not be decreased after the date of grant nor may any outstanding Option
granted under the Plan be surrendered to the Corporation as consideration for
the grant of a new Option with a lower Option Exercise Price without the
approval of the Corporation's shareholders.
(vi) Payment. When an Option is exercised, the Option Exercise Price shall
be payable to the Corporation in full:
(a) In cash or its equivalent;
(b) By tendering previously acquired shares of Common Stock having an
aggregate Fair Market Value at the time of exercise equal to the total
Option Exercise Price (provided that the shares that are tendered must have
been beneficially owned by the Eligible Participant for at least six months
prior to their tender); or
(c) By a combination of (a) and (b).
(b) Stock Appreciation Rights.
(i) Grants. Subject to the terms and conditions of the Plan, including
Section 8 hereof, SARs may be granted to Eligible Participants. SARs may be
granted alone or in tandem with Options. With respect to SARs granted in tandem
with Options, the exercise of either such Options or such SARs shall result in
the simultaneous cancellation of the same number of tandem SARs or Options, as
the case may be.
(ii) Exercise Price. The exercise price per share of Common Stock covered
by a SAR granted pursuant to the Plan shall be equal to or greater than Fair
Market Value on the date the SAR was granted, unless the SAR was granted through
the assumption of, or in substitution for, outstanding awards previously granted
by a company acquired by the Corporation or any subsidiary or affiliate thereof
or with which the Corporation or any subsidiary or affiliate thereof combines.
(iii) Term. The term of each SAR shall be determined by the Committee in
its sole discretion, but in no event shall the term exceed ten years from the
date of grant.
(iv) No Repricing. Except for adjustments made pursuant to Section 10
hereof, the exercise price under any outstanding SAR granted under the Plan may
not be decreased after the date of grant nor may any outstanding SAR granted
under the Plan be surrendered to the Corporation as consideration for the grant
of a new SAR with a lower exercise price without the approval of the
Corporation's shareholders.
(v) Form of Payment. The Committee may authorize payment of a SAR in the
form of cash, Common Stock that (when valued at its Fair Market Value on the
date of exercise) has a value equal to such cash amount, a combination thereof,
or any other method as the Committee may determine.
42
(c) Restricted Shares/Restricted Share Units.
(i) Grants. Subject to the terms and conditions of the Plan, including
Section 8 hereof, Restricted Shares or Restricted Share Units, or both, may be
granted to Eligible Participants.
(ii) Restricted Shares. A Restricted Share is an Award of a share of
Common Stock that is subject to such restrictions on transfer and such other
terms and conditions as the Committee may establish.
(iii) Restricted Share Units. A Restricted Share Unit is an Award of a
contractual right to receive an amount based on the Fair Market Value of a share
of Common Stock, subject to such terms and conditions as the Committee may
establish. Restricted Share Units that become payable in accordance with their
terms and conditions shall be settled in cash, shares of Common Stock, or a
combination of cash and shares, as determined by the Committee. Any person who
holds Restricted Share Units shall have no ownership interest in the shares of
Common Stock to which such Restricted Share Units relate until and unless
payment with respect to such Restricted Share Units is actually made in shares
of Common Stock.
(iv) Terms and Conditions. The Committee shall impose such terms,
conditions, and/or restrictions on any Restricted Shares or Restricted Share
Units granted pursuant to the Plan as it may deem advisable including: a
requirement that Participants pay a stipulated purchase price for each
Restricted Share or each Restricted Share Unit; forfeiture conditions; transfer
restrictions; restrictions based upon the achievement of specific performance
goals (as described in Section 7(e)(iii) hereof or otherwise); time-based
restrictions on vesting; and/or restrictions under applicable federal or state
securities laws. Unless otherwise determined by the Committee, any time-based
Restriction Period shall be at least three years. To the extent the Restricted
Shares or Restricted Share Units are intended to be deductible under Section
162(m) of the Code, the applicable restrictions shall be based on the
achievement of Performance Goals over a Performance Period, as described in
Section 7(e) hereof.
(v) Transfer Restrictions. During the Restriction Period, Restricted
Shares may not be sold, assigned, transferred, or otherwise disposed of, or
mortgaged, pledged, or otherwise encumbered. In order to enforce the limitations
imposed upon the Restricted Shares, the Committee may (a) cause "stop transfer"
instructions to be issued, and/or (b) cause a legend or legends to be placed on
certificates (if any) evidencing such Restricted Shares, as the Committee deems
necessary or appropriate. Restricted Share Units may not be sold, assigned,
transferred, or otherwise disposed of, or mortgaged, pledged, or otherwise
encumbered at any time.
(vi) Dividend and Voting Rights. Unless otherwise determined by the
Committee, during the Restriction Period, Participants who hold Restricted
Shares shall have the right to receive dividends in cash or other property or
distribution rights in respect of such shares, and Participants who hold
Restricted Shares shall have the right to vote such shares as the record owners
thereof; provided that, unless otherwise determined by the Committee, any
dividends or other property payable to a Participant during the Restriction
Period shall be distributed to the Participant only if and when the restrictions
imposed on the applicable Restricted Shares lapse. Unless otherwise determined
by the Committee, during the Restriction Period, Participants who hold
Restricted Share Units shall be credited with Dividend Equivalents in respect of
such Restricted Share Units; and unless otherwise determined by the Committee,
such Dividend Equivalents shall be immediately converted, in accordance with
such terms and conditions as the Committee shall determine, to Restricted Share
Units with an initial value equal to the amount of such Dividend Equivalents.
(vii) Evidence of Interest in Shares. Each Restricted Share issued
pursuant to the Plan shall be evidenced by an interest in such Restricted Share
registered in the name of the applicable Participant on the books and records of
the Corporation or its designee (or by one or more physical certificates if
physical certificates are issued with respect to such Restricted Share),
subject, in any such case, to the transfer restrictions imposed by Section
7(c)(v) hereof. If a Restricted Share is
43
forfeited in accordance with the restrictions that apply to such Restricted
Share, such interest or certificate, as the case may be, shall be canceled. At
the end of the Restriction Period that applies to Restricted Shares, the
Corporation shall cause the applicable transfer restrictions to be removed with
respect to any shares of Common Stock to which such Participant is then
entitled. No interest shall be recorded (and no physical certificate shall be
issued) with respect to a Restricted Share Unit unless and until such Restricted
Share Unit is paid in shares of Common Stock.
(d) Stock Awards.
(i) Grants. Subject to the terms and conditions of the Plan, including
Section 8 hereof, Stock Awards consisting of shares of Common Stock may be
granted to Eligible Participants. Stock Awards may be granted either alone or in
addition to other Awards made under the Plan.
(ii) Terms and Conditions. The Committee shall determine the terms and
conditions governing each Stock Award. Such terms and conditions may include
such restrictions on the transferability of the shares of Common Stock covered
by the Stock Award as the Committee, in its discretion, shall determine.
(e) Performance Shares.
(i) Grants. Subject to the terms and conditions of the Plan, including
Section 8 hereof, Performance Shares may be granted to Eligible Participants.
Performance Shares may be granted either alone or in addition to other Awards
made under the Plan.
(ii) Performance Goals. Unless otherwise determined by the Committee,
Performance Shares shall be conditioned on the achievement of Performance Goals
(which shall be based on one or more Performance Measures, as determined by the
Committee) over a Performance Period. The Performance Period shall be three
years, unless otherwise determined by the Committee.
(iii) Performance Measures. The Performance Measure(s) to be used for
purposes of Performance Shares may be described in terms of objectives that are
related to the individual Participant or objectives that are Corporation-wide or
related to a subsidiary, division, department, region, function or business unit
of the Corporation, and may consist of one or more or any combination of the
following criteria:
- Income measures (including gross profit, operating income, earnings
before or after taxes, net income, or earnings per share);
- Return measures (including return on assets, investment, equity, or
sales);
- Cash flow;
- Costs;
- Revenue measures; and
- Stock price (including growth measures and total shareholder return).
The Performance Goals based on these Performance Measures may be expressed
either in absolute terms or in relation to the performance of other entities.
(iv) Negative Discretion. Notwithstanding the achievement of any
Performance Goal established under the Plan, the Committee has the discretion to
reduce some or all of the Performance Shares that would otherwise be paid to a
Participant.
(v) Extraordinary Events. At any time (or from time to time) after an
Award is granted, and to the extent permitted under Section 162(m) of the Code
and the regulations thereunder without adversely affecting the treatment of the
Award under the Performance-Based Exception, the Committee, in its sole
discretion, may provide for the manner in which performance will be measured
against the Performance Goals (or may adjust the Performance Goals) to reflect
the
44
impact of specific corporate transactions, accounting or tax law changes, and
other extraordinary and nonrecurring events.
(vi) Interpretation. With respect to any Award that is intended to satisfy
the conditions for the Performance-Based Exception under Section 162(m) of the
Code: (A) the Committee shall interpret the Plan and this Section 7 in light of
Section 162(m) of the Code and the regulations thereunder; (B) the Committee
shall have no discretion to amend the Award in any way that would adversely
affect the treatment of the Award under Section 162(m) of the Code and the
regulations thereunder; and (C) such Award shall not be paid until the Committee
shall first have certified that the Performance Goals have been achieved.
8. AWARDS TO NON-EMPLOYEE DIRECTORS.
(a) Sole Awards. The only Awards that may be granted to Non-Employee
Directors under the Plan shall be the Awards authorized by this Section 8.
(b) Initial Stock Award. Each newly elected Non-Employee Director shall,
as soon as practicable after initially becoming a member of the Board, be
granted a Stock Award consisting of 1,000 shares of Common Stock. Any grant of a
Stock Award to a newly elected Non-Employee Director for a Fiscal Year pursuant
to this Section 8(b) shall be in addition to any Award of Restricted Shares to
such newly elected Non-Employee Director for such Fiscal Year that is made in
accordance with Section 8(c) hereof.
(c) Annual Award of Restricted Shares. An Award of Restricted Shares shall
be granted to each Non-Employee Director for each Fiscal Year that the Plan is
in effect. Each such Award shall be granted as of such date or dates in each
Fiscal Year as the Committee shall determine. If a Non-Employee Director is not
a member of the Board on the date or dates determined by the Committee in
accordance with this Section 8(c) for a Fiscal Year, such Non-Employee Director
shall not be entitled to an Award of Restricted Shares for such Fiscal Year
pursuant to this Section 8(c); provided that the Committee may (but shall not be
required to) determine that an Award of Restricted Shares shall be made to such
Non-Employee Director as of a date in such Fiscal Year designated by the
Committee. Each annual Award of Restricted Shares to a Non-Employee Director
pursuant to this Section 8(c) shall grant the greatest number of shares of
Common Stock with an aggregate Fair Market Value (determined as of the date on
which such Award is granted) that does not exceed $100,000; provided that if an
individual serving as a Non-Employee Director on the date an Award of Restricted
Shares is granted for a Fiscal Year pursuant to this Section 8(c) has not served
as a Non-Employee Director since the beginning of such Fiscal Year, the
Committee may (but shall not be required to) determine that the Award of
Restricted Shares to such individual for such Fiscal Year shall be reduced to
reflect such individual's partial year of service.
(d) No Assignment or Transfer. Restricted Shares granted to a Non-Employee
Director pursuant to Section 8(c) hereof, and any rights or interests therein,
may not be sold, assigned, transferred, or otherwise disposed of, or mortgaged,
pledged, or otherwise encumbered until the earlier of (i) the third anniversary
of the date as of which such Restricted Shares were granted or (ii) the
Non-Employee Director's death or disability (as determined by the Committee). In
order to enforce the limitations imposed upon such Restricted Shares, the
Committee may (a) cause "stop transfer" instructions to be issued, and/or (b)
cause a legend or legends to be placed on certificates (if any) evidencing such
Restricted Shares, as the Committee deems necessary or appropriate.
(e) No Forfeiture. Restricted Shares granted to a Non-Employee Director
pursuant to Section 8(c) hereof, and any rights or interests therein, shall be
vested and nonforfeitable at all times. The only restrictions imposed by the
Plan on such Restricted Shares shall be the transfer restrictions set forth in
Section 8(d) hereof.
45
(f) Dividend and Voting Rights. During the Restriction Period,
Participants who hold Restricted Shares granted pursuant to Section 8(c) hereof
shall have the right to receive dividends in cash or other property or
distribution rights in respect of such Restricted Shares, and shall have the
right to vote such Restricted Shares as the record owners thereof; provided that
any securities of the Corporation that are distributed to a Participant during
the Restriction Period by reason of such Participant's holding of Restricted
Shares shall be subject to the same transfer restrictions that apply to such
Restricted Shares, and the transfer restrictions on such securities shall lapse
only when the transfer restrictions that apply to such Restricted Shares lapse.
(g) Evidence of Interest in Shares. Each Restricted Share issued pursuant
to Section 8(c) hereof shall be evidenced by an interest in such Restricted
Share registered in the name of the applicable Participant on the books and
records of the Corporation or its designee (or by a physical certificate if such
a certificate is issued with respect to such Restricted Share), subject, in any
such case, to the transfer restrictions imposed by Section 8(d) hereof. At the
end of the Restriction Period that applies to Restricted Shares, the Corporation
shall cause the applicable transfer restrictions to be removed with respect to
the shares of Common Stock to which such Participant is then entitled.
9. DEFERRED PAYMENTS AND NO DEFERRAL OF OPTION OR SAR GAINS.
Subject to the terms and conditions of the Plan, the Committee may
determine that all or a portion of any Award to a Participant, whether it is to
be paid in cash, shares of Common Stock or a combination thereof, shall be
deferred or may, in its sole discretion, approve deferral elections made by
Participants. Deferrals shall be for such periods and upon such terms as the
Committee may determine in its sole discretion. Notwithstanding the foregoing,
deferral of Option or SAR gains shall not be permitted under the Plan.
10. DILUTION AND OTHER ADJUSTMENTS.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, combination, or exchange of
shares or other change in corporate structure affecting any class of Common
Stock, the Committee shall make such adjustments in the class and aggregate
number of shares that may be delivered under the Plan as described in Section 5
hereof, the individual Award maximums under Section 6 hereof, individual Awards
under Section 8(b) hereof, the class, number, and Option Exercise Price of
outstanding Options, the class, number, and exercise price of outstanding SARs,
and the class and number of shares subject to any other Awards granted under the
Plan (provided the number of shares of any class subject to any Award shall
always be a whole number), as may be determined to be appropriate by the
Committee, and any such adjustment may, in the sole discretion of the Committee,
take the form of Awards covering more than one class of Common Stock. Such
adjustment shall be conclusive and binding for all purposes of the Plan.
11. MISCELLANEOUS PROVISIONS.
(a) Rights as Shareholder. Except as otherwise provided herein, a
Participant shall have no rights as a holder of Common Stock with respect to
Awards hereunder, unless and until interests in, or certificates evidencing,
shares of Common Stock are issued to the Participant.
(b) No Loans. No loans from the Corporation or any of its subsidiaries or
affiliates to Participants shall be permitted in connection with the Plan.
(c) No Assignment or Transfer. No Award under the Plan or any rights or
interests therein shall be transferable other than by will or the laws of
descent and distribution, and all Awards under the Plan shall be exercisable,
during the Participant's lifetime, only by the Participant. Once awarded, the
shares of Common Stock (other than Restricted Shares) received by Participants
may be freely transferred, assigned, pledged, or otherwise subjected to lien,
subject to the restrictions imposed by the Securities Act of 1933, Section 16 of
the Securities Exchange Act of
46
1934, and the Corporation's Insider Trading policy, as such policy may be
amended from time to time.
(d) Withholding Taxes. The Corporation shall have the right to deduct from
all Awards paid in cash (and any other payment hereunder) any federal, state,
local, or foreign taxes required by law to be withheld with respect to such
Awards and, with respect to Awards paid in shares of Common Stock or upon the
exercise of Options, to require the payment (through withholding from the
Participant's salary or otherwise) of any such taxes. Subject to the approval of
the Committee, with respect to any withholding required upon the exercise of
Options or SARs, upon the lapse of restrictions on Restricted Shares, or upon
any other taxable event arising as a result of Awards granted hereunder, a
Participant may elect to satisfy the withholding requirement, in whole or in
part, by having the Corporation withhold shares of Common Stock having a Fair
Market Value on the date as of which the tax is to be determined equal to the
minimum statutory withholding tax that could be imposed on the transaction. All
such elections shall be irrevocable and shall be subject to any restrictions or
limitations that the Committee, in its discretion, deems appropriate.
(e) Currency and Other Restrictions. The obligations of the Corporation to
make delivery of Awards in cash or Common Stock shall be subject to currency and
other restrictions imposed by any government.
(f) No Rights to Awards. Neither the Plan nor any action taken hereunder
shall be construed as giving any person any right to be retained in the employ
or service of the Corporation or any of its subsidiaries or affiliates, and the
Plan shall not interfere with or limit in any way the right of the Corporation
or any of its subsidiaries or affiliates to terminate any person's employment or
service at any time. Except as set forth herein, no employee or other person
shall have any claim or right to be granted an Award under the Plan. By
accepting an Award, the Participant acknowledges and agrees that (i) the Award
shall be exclusively governed by the terms and conditions of the Plan, including
the right reserved by the Corporation to amend or cancel the Plan at any time
without the Corporation incurring liability to the Participant (except, to the
extent that the terms of the Award so provide, for Awards already granted under
the Plan), (ii) Awards are not a constituent part of salary and the Participant
is not entitled, under the terms and conditions of employment, or by accepting
or being granted Awards under the Plan to require Awards to be granted to him or
her in the future under the Plan or any other plan, (iii) the value of Awards
received under the Plan shall be excluded from the calculation of termination
indemnities or other severance payments, and (iv) the Participant shall seek all
necessary approval under, make all required notifications under, and comply with
all laws, rules, and regulations applicable to the ownership of Options and
shares of Common Stock and the exercise of Options, including currency and
exchange laws, rules, and regulations.
(g) Beneficiary Designation. To the extent allowed by the Committee, each
Participant under the Plan may, from time to time, name any beneficiary or
beneficiaries (who may be named on a contingent or successive basis) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Unless the Committee determines
otherwise, each such designation shall revoke all prior designations by the same
Participant, shall be in a form prescribed by the Committee, and shall be
effective only when filed by the Participant with the Corporation or its
designee during the Participant's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
(h) Costs and Expenses. The cost and expenses of administering the Plan
shall be borne by the Corporation and shall not be charged to any Award or to
any Participant.
(i) Fractional Shares. Fractional shares of Common Stock shall not be
issued or transferred under an Award, but the Committee may direct that cash be
paid in lieu of fractional shares or may round off fractional shares, in its
discretion.
47
(j) Funding of Plan. The Corporation shall not be required to establish or
fund any special or separate account or to make any other segregation of assets
to assure the payment of any Award under the Plan.
(k) Successors. All obligations of the Corporation under the Plan with
respect to Awards granted hereunder shall be binding on any successor to the
Corporation, whether the existence of such successor is the result of a direct
or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Corporation.
(l) Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, any feminine
term used herein shall include the masculine, and the plural shall include the
singular and the singular shall include the plural.
(m) Severability. If any provision of the Plan shall be held illegal or
invalid for any reason, such illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
(n) Requirements of Law. The granting of Awards and the issuance of shares
of Common Stock under the Plan shall be subject to all applicable laws, rules,
and regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
(o) Rules of Construction. Whenever any provision of the Plan refers to
any law, rule, or regulation, such provision shall be deemed to refer to the
law, rule, or regulation currently in effect and, when and if such law, rule, or
regulation is subsequently amended or replaced, to the amended or successor law,
rule, or regulation. The term "including" shall be deemed to include the words
"including without limitation."
12. EFFECTIVE DATE, GOVERNING LAW, AMENDMENTS, AND TERMINATION.
(a) Effective Date. The Plan was approved by the Board on February 14,
2005, subject to the approval of the Corporation's shareholders, and shall
become effective on the date it is approved by the Corporation's shareholders.
(b) Amendments. The Committee may at any time terminate or from time to
time amend the Plan in whole or in part, but no such action shall adversely
affect any rights or obligations with respect to any Awards granted prior to the
date of such termination or amendment except to the extent that the Committee
reasonably determines that such termination or amendment is necessary or
appropriate to comply with applicable law (including the provisions of the Code
(and the regulations thereunder) pertaining to the deferral of compensation) or
the rules and regulations of any stock exchange on which Common Stock is listed
or quoted. Notwithstanding the foregoing, unless the Corporation's shareholders
shall have first approved the amendment, no amendment of the Plan shall be
effective if the amendment would (i) increase the maximum number of shares of
Common Stock that may be delivered under the Plan or to any one individual
(except to the extent such amendment is made pursuant to Section 10 hereof),
(ii) extend the maximum period during which Awards may be granted under the
Plan, (iii) add to the types of awards that may be made under the Plan, (iv)
change the Performance Measures pursuant to which Performance Shares are earned,
(v) modify the requirements as to eligibility for participation in the Plan, or
(vi) require shareholder approval pursuant to the Plan, applicable law, or the
rules of the principal securities exchange on which shares of Common Stock are
traded in order to be effective.
(c) Governing Law. All questions pertaining to the construction,
interpretation, regulation, validity, and effect of the provisions of the Plan
shall be determined in accordance with the laws of the State of New Jersey
without giving effect to conflict of laws principles, except to the extent
superseded by federal law.
(d) Termination. No Awards shall be made under the Plan after the tenth
anniversary of the date on which the Corporation's shareholders approve the
Plan.
48
EXHIBIT 2
STANDARDS OF INDEPENDENCE FOR BOARD OF DIRECTORS OF JOHNSON & JOHNSON
As contemplated under the Rules of the New York Stock Exchange, the Board
of Directors of Johnson & Johnson (the "Company") has adopted these Standards of
Independence in order to assist it in making determinations of independence.
(A) No Material Relationships with the Company. No director qualifies as
"independent" unless the Board of Directors affirmatively determines that the
director has no material relationship with Johnson & Johnson (other than in his
or her capacity as a director). In making such determinations, the Board will
broadly consider all relevant facts and circumstances. In particular, when
assessing the materiality of a director's relationship with the Company, the
Board should consider the issue not merely from the standpoint of the director,
but also from that of persons or organizations with which the director has an
affiliation.
(B) Business Relationships. The New York Stock Exchange has identified
specific relationships that automatically preclude a director from being
considered independent. Pursuant to the requirements of the New York Stock
Exchange:
(i) A director who is an employee, or whose immediate family member is
an executive officer, of Johnson & Johnson is not independent until three
years after the end of such employment relationship;
(ii) A director who receives, or whose immediate family member
receives, more than $100,000 during any 12-month period in direct
compensation from Johnson & Johnson, other than director and committee fees
and pension or other forms of deferred compensation for prior service
(provided such compensation is not contingent in any way on continued
service), is not independent until three years after he or she ceases to
have received more than $100,000 during any such 12-month period in
compensation (provided that this paragraph (B) (ii) shall not include
compensation received by an immediate family member for service as an
employee of the Company, unless such immediate family member serves as an
executive officer);
(iii) A director who is currently employed by or a Partner of, or
whose immediate family member is currently a Partner of, the internal or
external auditor of Johnson & Johnson is not "independent." A director
whose immediate family member is currently employed by the internal or
external auditor of Johnson & Johnson and who participates in the auditor's
audit, assurance or tax compliance practice is not "independent." A
director who has been, or who has an immediate family member who has been,
a Partner of or employed by such internal or external auditor and
personally worked on the Company's audit is not "independent" until three
years after the end of such affiliation or employment;
(iv) A director who is employed, or whose immediate family member is
employed, as an executive officer of another company where any of Johnson &
Johnson's present executives serve on that company's compensation committee
is not "independent" until three years after the end of such service or the
employment relationship; and
(v) A director who is an executive officer or an employee, or whose
immediate family member is an executive officer, of a company that makes
payments to, or receives payments from, Johnson & Johnson for property or
services in an amount which, in any single fiscal year, exceeds the greater
of $1 million, or 2% of such other company's consolidated gross revenues,
is not "independent" until three years after falling below such threshold.
(C) Charitable Relationships.
(i) The Board recognizes that the relationship between the Company and
a charitable organization of which a director serves as an executive
officer, director or trustee could be
49
deemed to be a material relationship. For purposes of these Standards of
Independence, such a charitable relationship will not be considered a
"material relationship" if the Company's discretionary charitable
contributions to any such organization in each of the past three fiscal
years are less than two percent (2%) (or $1,000,000, if greater) of that
organization's consolidated gross revenues. (The amount of any "match" of
employee charitable contributions will not be included in calculating the
amount of the Company's contributions for this purpose.)
(ii) For charitable relationships that do not fall within the
guidelines in paragraph (C) (i) above, the determination as to whether a
director has a material relationship with the Company, and therefore may
not be independent, will be made in good faith by the other directors who
satisfy all of these Standards of Independence. For example, if a director
is an officer of a charitable foundation that receives greater than two
percent (2%) of its revenues from Johnson & Johnson, the other independent
directors could determine, after considering all of the relevant
circumstances, that such relationship was nonetheless not material, and
that the director could therefore be considered independent. If the
independent directors so determine that any such charitable relationship is
not material and would not otherwise impair the director's independence or
judgment, then the Company will disclose in its next proxy statement the
basis for such determination.
(D) Other Relationships. In addition to the business and charitable
relationships described in paragraphs (B) and (C) above, the Board should
consider any other relationships between each director and the Company,
including:
- If the director provides banking, consulting, legal, accounting or
similar services to the Company;
- If the director is a partner or shareholder with an ownership interest of
5% or more of any organization that provides such services to or
otherwise has a significant relationship with the Company; and
- If a similar relationship exists between the Company and an immediate
family member of the director.
Any such relationship will not be deemed a "material relationship" if such
relationship is at arm's length, does not conflict with the interests of the
Company and would not impair the director's independence or judgment.
(E) Definitions. As used in these Standards of Independence, the terms
"Company" and "Johnson & Johnson" will be deemed to include Johnson & Johnson
and any subsidiaries in a consolidated group with Johnson & Johnson; the term
"immediate family member" of a director will mean his or her spouse, parents,
children, siblings, mother and father-in-law, sons and daughters-in-law,
brothers and sisters-in-law and anyone (other than domestic employees) who share
such director's home; and the term "executive officer" shall be deemed to refer
only to an individual who is an executive officer of Johnson & Johnson, the
parent company.
50
(JOHNSON & JOHNSON LOGO)
NOTICE OF
2005 ANNUAL
MEETING AND
PROXY
STATEMENT
PROXY
[JOHNSON & JOHNSON LOGO]
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS ON APRIL 28, 2005
The undersigned hereby appoints R.J. Darretta and R.C. Deyo and each or
either of them as proxies, with full power of substitution and revocation, to
represent the undersigned and to vote all shares of the Common Stock of Johnson
& Johnson which the undersigned is entitled to vote at the Annual Meeting of
Shareholders of the Company to be held on April 28, 2005 at 10:00 a.m. at the
Hyatt Regency Hotel, Two Albany Street, New Brunswick, New Jersey, and any
adjournments or postponements thereof, upon the matters listed on the reverse
side hereof and, in their discretion, upon such other matters as may properly
come before the meeting. The proxies appointed hereby may act by a majority of
said proxies present at the meeting (or if only one is present, by that one).
Election of Directors. Nominees: (change of address/comments)
----------------------------
01. Mary S. Coleman, 02. James G. Cullen,
03. Robert J. Darretta, 04. Michael M. E. Johns, ----------------------------
05. Ann D. Jordan, 06. Arnold G. Langbo,
07. Susan L. Lindquist, 08. Leo F. Mullin, ----------------------------
09. Christine A. Poon, 10. Steven S Reinemund,
11. David Satcher, 12. William C. Weldon. ----------------------------
(If you have written in the
above space, please mark the
corresponding box on the
reverse side of this card)
IF YOU DO NOT PLAN TO VOTE BY TELEPHONE OR THE INTERNET, -------------------
PLEASE RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED SEE REVERSE
ENVELOPE. TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' SIDE
RECOMMENDATIONS JUST SIGN THE REVERSE SIDE; NO BOXES NEED TO -------------------
BE MARKED.
--------------------------------------------------------------------------------
- DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR THE INTERNET -
ELECTRONIC DELIVERY OF PROXY MATERIALS
SIGN UP TO RECEIVE NEXT YEAR'S ANNUAL REPORT AND PROXY MATERIALS VIA THE
INTERNET. NEXT YEAR WHEN THE MATERIALS ARE AVAILABLE, WE WILL SEND YOU AN E-MAIL
WITH INSTRUCTIONS WHICH WILL ENABLE YOU TO REVIEW THESE MATERIALS ON-LINE.
TO SIGN UP FOR THIS OPTIONAL SERVICE, VISIT HTTP://WWW.ECONSENT.COM/JNJ.
JOHNSON & JOHNSON EMPLOYEE SAVINGS PLANS
IF YOU ARE AN EMPLOYEE AND HOLD STOCK IN ONE OF THE JOHNSON & JOHNSON EMPLOYEE
SAVINGS PLANS, THIS PROXY CARD COVERS THOSE SHARES HELD FOR YOU IN YOUR SAVINGS
PLAN, AS WELL AS ANY OTHER SHARES REGISTERED IN YOUR OWN NAME. BY SIGNING AND
RETURNING THIS PROXY CARD (OR VOTING BY TELEPHONE OR THE INTERNET), YOU WILL
AUTHORIZE THE TRUSTEE OF YOUR SAVINGS PLAN TO VOTE THOSE SHARES HELD FOR YOU IN
YOUR SAVINGS PLAN AS YOU HAVE DIRECTED.
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF DIRECTORS, FOR
PROPOSAL 2 AND FOR PROPOSAL 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Election of [ ] [ ] 2. Approval of 2005 [ ] [ ] [ ] 3. Ratification of [ ] [ ] [ ]
Directors Long-Term Incentive appointment of
(see reverse) Plan. PricewaterhouseCoopers
as independent auditors
For, except vote withheld from the following nominee(s): YES NO
Request for Admission [ ] [ ]
Ticket to Annual Meeting.
---------------------------------------------------------------
Request For Guest YES NO
Ticket to Annual Meeting. [ ] [ ]
SPECIAL Discontinue [ ] Change of [ ]
ACTION Annual Address/
Report Comments
Mailing on
for this Reverse
Account Side;
Mark this
box
The signer hereby revokes all proxies heretofore
given by the signer to vote at said meeting or any
adjournments or postponements thereof. Please sign
exactly as name appears hereon. Joint owners should
each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such.
---------------------------------------------------
---------------------------------------------------
SIGNATURE(S) DATE
------------------------------------------------------------------------------------------------------------------------------------
- DETACH HERE AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE IF YOU ARE NOT VOTING BY TELEPHONE OR THE INTERNET. -
VOTE BY TELEPHONE OR THE INTERNET
QUICK -- EASY -- IMMEDIATE
Johnson & Johnson encourages you to take advantage of two cost-effective and
convenient ways to vote your shares.
You may vote your proxy 24 hours a day, 7 days a week, using either a touch-tone
telephone or through the Internet. YOUR TELEPHONE OR INTERNET VOTE MUST BE
RECEIVED BY 11:00 PM EASTERN TIME ON APRIL 27, 2005.
Your telephone or Internet vote authorizes the proxies named on the above proxy
card to vote your shares in the same manner as if you marked, signed and
returned your proxy card.
If you are a registered shareholder and vote by telephone or the Internet, there
will be applicable instructions to follow when voting to indicate if you would
like to receive an Admission Card for the Annual Meeting.
VOTE BY PHONE: ON A TOUCH-TONE TELEPHONE DIAL 1-877-PRX-VOTE (1-877-779-8683)
FROM THE U.S. AND CANADA OR DIAL 201-536-8073 FROM OTHER
COUNTRIES.
OR
VOTE BY INTERNET: POINT YOUR BROWSER TO THE WEB ADDRESS:
HTTP://WWW.EPROXYVOTE.COM/JNJ
OR
VOTE BY MAIL: Mark, sign and date your proxy card and return it in the
postage-paid envelope. IF YOU ARE VOTING BY TELEPHONE OR THE
INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD.